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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
Commission file number: 0-27778
PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Georgia 59-3074176
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3399 Peachtree Road, N.E., The Lenox Building, Suite 400, Atlanta, Georgia 30326
(address of principal executive office)
(Registrant's telephone number, including area code): (404) 262-8400
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based upon the closing sale price of common stock on March 17, 1997,
as reported by The Nasdaq Stock Market's National Market, was approximately
$335,008,438.
As of March 17, 1997, there were 24,089,769 shares of the registrant's common
stock outstanding.
List hereunder the documents incorporated by reference and the part of the Form
10-K (e.g., part I. Part II, etc.) into which the document is incorporated:
Portions of the registrant's Proxy Statement for its 1997 meeting of
shareholders are incorporated by reference in Part III.
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INDEX
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PART I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 13
Item 3. Legal Proceedings...................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 15
Item 6. Selected Financial Data................................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 18
Item 8. Financial Statements and Supplementary Data............................................ 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 59
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 59
Item 11. Executive Compensation................................................................ 59
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 59
Item 13. Certain Relationships and Related Transactions........................................ 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 60
Signatures...................................................................................... 67
Exhibits........................................................................................ 68
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PART I
ITEM 1. BUSINESS
GENERAL
Premiere Technologies, Inc. ("Premiere" or the "Company") is a network-
based computer telephony company specializing in the integration of information
and telecommunications services. The Company delivers its services through its
advanced computer telephony platform, which is accessible from, and provides
access to, a variety of devices, including the telephone, fax machine, pager and
computer. The platform is modular and scalable, with an open-systems design
which allows the Company to quickly customize its services to meet the needs of
its subscribers and business partners and to easily expand system capacity.
The Company's growth to date has been based primarily upon the sale of
Premiere WorldLink Communications Services in both the retail and wholesale
markets. WorldLink services include worldwide long distance calling, voice
mail, fax mail, text-to-voice e-mail, conference calling, financial news,
headline news, sports updates, weather reports, active message notification,
travel and concierge services, electronic banking and bill payment and "call
connect" services. These services have catered primarily to the mobile business
traveler and have been marketed and offered through communications cards. The
Company intends to expand its markets through the development and implementation
of its new Orchestrate(SM) product and network-based call center technology.
The Company's September 1996 acquisition of TeleT Communications LLC
("TeleT"), an Internet-based technology development company, made possible the
development of Orchestrate(SM), which the Company believes will be the first
network-based product to fully integrate the functionality of telephones and
computers. Orchestrate(SM) will allow subscribers to control their
communications through either a computer or telephone, according to their own
preferences independent of how a communication was originally sent. As currently
designed, Orchestrate(SM) functions will include messaging, conference calling,
information services and a personal home page on the World Wide Web (the "Web"),
which subscribers will be able to utilize without the purchase of any special
software or hardware. Premiere intends to launch and implement its
Orchestrate(SM) product during 1997.
Premiere intends to implement its network-based call center technology in
1997, beginning with NationsBanc Services, Inc. ("NationsBanc Services"), an
affiliate of NationsBank Corporation, the nation's fourth largest banking
company. This technology will allow Premiere to streamline and enhance call
processing and distributing for financial institutions and other large
corporations.
Individuals may subscribe to Premiere's WorldLink services through direct
distribution channels or through one of Premiere's co-branded or licensing
relationships. In addition, Premiere has formed strategic relationships with
companies such as DeltaTel, Inc. ("DeltaTel"), a subsidiary of Delta Airlines,
Inc., WorldCom, Inc. ("WorldCom") and CompuServe Incorporated ("CompuServe") in
order to market and expand its services.
Premiere has developed an advanced electronic billing and information
system ("EBIS"), which enables Premiere to monitor and bill transactions based
on a variety of parameters. Individual usage thresholds can be established for
each subscriber and fees can be electronically charged to the subscriber's
credit card or bank account. The EBIS allows Premiere to speed receipt of
funds, monitor spending and fraud controls on a real-time basis and minimize the
number of personnel involved in billing and collection functions.
THE PREMIERE STRATEGY
Premiere's goal is to be the leading network-based computer telephony
company specializing in the integration of telecommunications and information
services. Premiere's strategy for achieving that goal includes the following
key elements:
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Build Subscriber Base. Premiere seeks to increase the number of
subscribers to its services and to retain its subscribers by capitalizing
on existing and creating new strategic marketing relationships, exploiting
its other distribution channels, expanding the range of services available
on its platform, maintaining an attractive pricing strategy for its
services and providing superior customer service. Premiere emphasizes
retaining existing subscribers in order to provide Premiere with a
recurring revenue base.
Develop Additional Services. Premiere intends to launch and implement
its Orchestrate(SM) product and call center technology in 1997 and to
continue developing additional functions and features on its platform.
Premiere believes that relationships with its existing and future strategic
partners will assist it in developing new services. Premiere intends to
make available to its general subscriber base the services it develops in
connection with certain of these strategic partners.
Develop Local Access Capability. Premiere believes that the launch
and implementation of Orchestrate(SM) will place Premiere in a position to
begin developing local access to its services, which should result in
Premiere's services being used more on a daily basis by subscribers,
whether they are at home, in the office or traveling. Orchestrate(SM) is
designed to be a time-saving tool for controlling all of a user's daily
communications. Premiere believes that offering local access at a low flat
rate to its subscribers will be important in developing the market for the
Orchestrate(SM) package and the individual Orchestrate(SM) service
components.
Enter into Strategic Relationships. Premiere believes that its
relationships with strategic partners will continue to be important in
building Premiere's subscriber base. Each strategic partner brings to
Premiere an existing base of prospective users of Premiere's services.
Premiere has sought and established strategic relationships with parties
whose customers are likely to be extensive users of Premiere's services.
Expand Internationally. Premiere believes that there is a large
international market for its services. Premiere currently has subscribers
in more than 100 countries, and its platform currently communicates with
subscribers in 10 languages. In 1996, Premiere opened a data and switching
center in London, England. This data center has allowed Premiere to reduce
the transmission costs associated with system access from many European
locations and to more effectively pursue long term strategic relationships
with European partners. Premiere intends to continue its international
expansion activities in 1997.
Continue Investment in Computer Telephony Platform. Premiere has
developed its platform to be modular and scalable, with an open systems
design and readily available hardware components, thereby allowing its
subscriber base and network traffic to grow without significant upgrades or
changes to existing platform hardware.
Continue Investment in EBIS. Premiere has designed the EBIS to
automate real-time monitoring and billing of subscriber transactions.
Premiere believes that the EBIS reduces overhead requirements by automating
the billing process and enhances cash flow by expediting payment. Premiere
also believes that the EBIS reduces exposure to credit risks, since it
establishes predetermined spending limits for each subscriber, requires a
valid credit card or bank account from each subscriber before commencing
service and bills usage charges directly to the credit card or bank account
of each subscriber. The Company plans to continue its investment in
development and support of the EBIS.
INFORMATION AND TELECOMMUNICATIONS SERVICES
WorldLink Communications Services. Premiere's computer telephony platform
provides subscribers with a single point of access for information and
telecommunications services. The platform can communicate with a wide variety
of communications devices. Subscribers can access the platform from virtually
any telephone worldwide, and access is toll-free from telephones in the United
States and approximately 60 other countries and
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territories. In addition, following the introduction of the Company's
Orchestrate(SM) product, subscribers will be able to access the platform from
any PC connected to the Internet or other available data connections. After
accessing the platform from a telephone, the subscriber is presented with a
variety of options that can be configured in different ways depending upon how
Premiere or its partners position the following services:
Worldwide Long Distance. Subscribers can place worldwide long
distance calls at rates that are generally significantly lower than the
standard card plan rates currently charged by AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI"), Sprint Corporation ("Sprint") or in the
case of United Kingdom ("U.K.") subscribers, British Telecom.
Messaging. Premiere offers a universal inbox for voice, fax and e-
mail messages. Subscribers are notified of new messages every time they
access Premiere's platform, and subscribers can receive message
notification through any pager. The messaging services are offered as part
of the Premiere WorldLink Communications Services package, and also through
Premiere's Message Center and E-Mail Message Center services. The
messaging functionality for each of these services is very similar, but the
orientation, prompts and positioning differ considerably. The individual
messaging functions are described below:
Voice Mail. Premiere's voice mail service provides traditional
voice mail features, allowing subscribers to customize their mailbox
greetings and to receive, retrieve, save and delete voice mail
messages.
Fax Mail. The fax mail service allows subscribers to receive and
store facsimile transmissions no matter where they travel. Senders of
facsimile messages may attach a voice mail message identifying the
facsimile. The recipient is able to later instruct the system to
forward the stored facsimiles to a specified location.
E-Mail. E-mail messages can be read to the subscriber over the
telephone using Premiere's advanced text-to-speech functionality. E-
mail messages can also be sent to any fax machine. In addition,
subscribers can respond to e-mail by choosing from a variety of
standard responses.
Information Services. Subscribers can access financial news, headline
news, sports updates, weather reports and other information updates,
provided on the system through a digital feed from a subsidiary of the
Chicago Tribune. These services are frequently updated and the information
is accessible by a series of menus presented to the user via voice prompts.
Information is first presented in a general format, with the subscriber
then being given the option to retrieve more detailed information on the
topic selected.
Conference Calling. Subscribers can initiate conference calls
involving up to four parties. The conference calling feature is automated
and the subscriber is guided through each step.
Enhanced Travel and Concierge Services. Premiere offers travel and
concierge services through its platform which allow subscribers to make
lodging, airline, rental car, dining and golf reservations and to obtain
concert, theater and sporting event tickets. In addition, Premiere's
concierge services provide subscribers with access to travel assistance
services, including emergency medical referrals, legal referrals, tracing
and redirecting lost luggage and pre-trip destination information. A record
of each use by a subscriber of the travel and concierge feature is
maintained so that the subscriber is provided with increasingly efficient
and personalized service.
Electronic Banking and Bill Payment. In connection with its
relationship with Checkfree Corporation ("Checkfree"), Premiere offers
subscribers the option to pay bills electronically through its platform.
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"Call Connect" Service. Premiere offers a service that allows inbound
callers to the platform to send a message to a subscriber's pager informing
the subscriber that the subscriber has an incoming call. The system prompts
inbound callers to identify themselves and records this information. While
the inbound caller waits on the line, the subscriber can then call the
platform and be informed of the identity of the inbound caller. The
subscriber then has the choice of having the platform automatically connect
the two calls or route the original call to voice mail.
Other. Premiere provides its subscribers with other services,
including speed dialing, certain travel services, sequential calling,
operator assistance, detailed transaction statements on demand and detailed
voice prompts, available in 10 languages. In addition, the Company offers
telecommunications services to the hospitality industry. This service,
which was the first offered by the Company, consists primarily of reselling
"0+" long distance services to guests of hotels and motels.
Orchestrate(SM). Premiere intends to launch and implement its
Orchestrate(SM) product during 1997. When accessing the platform from a PC using
the new Orchestrate(SM) functionality, the subscriber will be presented with a
visually rich on-screen interface for control of all communications and
information functions, including:
Messaging. All voice, fax and e-mail messages will be displayed
individually on the subscriber's PC. As currently designed, messages in
the inbox can be viewed and/or listened to (depending upon the type of
message), forwarded to individuals or groups or broadcast, all with the
click of the mouse. This service will include a personal contact database
that will allow subscribers to send or broadcast messages just by clicking
on the names of the appropriate individuals or defined groups in the
database. Messages will be delivered over the Internet as appropriate to
reduce transmission costs. Premiere is also developing a feature that will
allow subscribers to transfer information to the Premiere platform from
other contact databases such as ACT or Microsoft Outlook.
Conference Calling. Subscribers will be able to establish conference
calls simply by clicking on the names of individuals or groups. The
subscriber will be able to control all aspects of the conference call,
including adding, dropping and muting parties on the conference call, all
with a click of the mouse.
Information Services. Subscribers will be able to tap into a spectrum
of customized information services offered in conjunction with content
providers such as Cable News Network, Inc.. The types of information
available would include news, sports updates, stock quotes, weather
reports, airline and hotel information and reservations, banking,
entertainment and other specialized information.
Personal Home Page. Each subscriber will be provided with a personal
home page on the Web. The page will act as a "virtual receptionist,"
presenting contact information and a voice greeting to any Web user. The
Web user will be able to page, fax or send e-mail to the subscriber
directly from this page. The page will be fully customizable and a
subscriber will be able to update his personal home page from any telephone
or any PC connected to the Internet.
As part of the development of Orchestrate(SM), Premiere intends to greatly
enhance the telephone interface to its platform, allowing a user to access the
same set of functions available via the computer. Using voice and/or telephone
keypad commands, a subscriber will be able to send, forward and broadcast
messages to individuals or groups included in his or her personal
Orchestrate(SM) contact database. The subscriber will also be able to set up
conference calls in a similar manner. Upon the introduction of voice recognition
and other enhancements, the platform will offer true "personal assistant" or
"personal agent" functionality.
Call Center Technology. Upon the implementation of its network-based call
center technology during 1997, Premiere's platform will also be used to provide
an outsource solution for call center management. This technology will allow
Premiere to streamline and enhance call processing and call routing for
financial institutions and other large corporations. In a typical financial
services application, such as the one currently being developed for NationsBanc
Services, Premiere's platform will be used to enhance call processing service
for checking, savings and other account information available through toll-free
telephone access.
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Other Services Under Development. The following additional services are
also under development:
Customized On-line Information Access/Content Management. In
connection with the Orchestrate(SM) product, Premiere intends to implement
a feature enabling subscribers to retrieve on demand or at predetermined
intervals selected information from the Internet or on-line service
providers. This feature would allow each subscriber to establish "filter
and forward" criteria specifying the type of information desired. A search
engine would retrieve the information requested and transmit this
information to the platform, notifying the subscriber by page, telephone
call or other means as appropriate. The subscriber can then access the
information through any PC connected to the Internet or from any telephone
by utilizing the text-to-speech capabilities of the system.
Enhanced "Follow Me" Services. Premiere is developing an
application that would allow subscribers to provide callers access to all
of their current home, business, voice mail, facsimile and mobile numbers
via a single number. When a subscriber's Premiere number is called, the
platform would attempt to contact each of the subscriber's other specified
numbers, without the caller having to remember each number or place each
call separately. For example, when a subscriber receives a call, the
platform would attempt to locate the subscriber at a series of
predetermined numbers and page the subscriber if the paging option is
enabled. The platform would allow the caller to leave a voice mail message
if the subscriber is not located.
MARKETING AND DISTRIBUTION
Premiere markets its services through multiple distribution channels that
encompass (i) direct marketing efforts where Premiere is responsible for lead
generation and sales, (ii) co-branded relationships in which Premiere offers its
services to the customers of other companies, such as financial institutions,
that are seeking to increase their revenue from and their goodwill with their
customer base by offering value-added services, (iii) strategic relationships
where Premiere may develop custom applications for its platform and market its
services jointly with its strategic partners, and (iv) licensing arrangements
where other companies market and sell Premiere's services under their names
without significant assistance from Premiere. In all distribution channels,
except licensing arrangements, Premiere enters into agreements pursuant to which
it agrees to pay commissions to or share revenues with the parties who assist
Premiere in marketing its services.
Premiere intends to employ several different distribution strategies for
Orchestrate(SM). In addition to utilizing the four distribution channels
described above, Premiere plans to market Orchestrate(SM) through Internet
service providers, on-line service providers, on-line content providers and
direct Internet marketing companies. Premiere will generally compensate such
companies through commissions or revenue sharing arrangements.
Direct. Premiere markets its services directly to potential subscribers.
Premiere has supported this marketing effort by implementing a feature on the
system allowing automated account activation, thereby making it easier for
consumers to establish service with Premiere.
Premiere WorldLink. Premiere markets its services under the name
"Premiere WorldLink" through a variety of traditional direct channels,
including advertisements in publications primarily directed at travelers.
In its marketing efforts, Premiere emphasizes the attractive pricing, the
variety of features, the integrated nature and the ease of use of its
service.
AFCOM. Premiere markets its services under the name "AFCOM"
primarily to United States military personnel. Premiere generally markets
the AFCOM service through financial institutions located on military bases.
These financial institutions assist Premiere in marketing its services in
exchange for subscriber and usage based fees paid by the Company to the
financial institutions.
Co-branded Relationships. Premiere has entered into relationships with a
number of other companies, including First of America Bank Corporation, First
National Bank of Chicago, First USA Bank, First Union
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National Bank, KeyBank USA and the Royal Bank of Scotland PLC, under which
Premiere provides its services to customers of those companies. The other
company generally offers its customers access to the Premiere platform via a co-
branded communications card, and Premiere pays subscriber and usage based fees
to the other company with respect to each subscriber who is issued a co-branded
communications card. Premiere believes that companies which enter into co-
branded relationships with Premiere are motivated by the ability to offer
additional value to their customers, reinforce brand equity through custom voice
prompts that their customers hear each time they access the service, communicate
with their customers by broadcasting voice, fax or e-mail messages, and derive
additional revenue. Communications cards are generally issued under the Premiere
WorldLink name, with the other company also placing its logo on the face of the
card.
Strategic Partners. The Company also markets its services by establishing
strategic relationships with parties whose existing customers have an
anticipated need for the telecommunications and information services provided by
Premiere. Strategic relationships are intended to provide the Company's
strategic partners with (i) an efficient means of communicating with their
customers through Premiere's voice mail, e-mail and fax mail features, (ii)
increased visibility to their customers through customized greetings and a
private branded communications card, (iii) the ability to provide customized
services to their customers over Premiere's platform, and (iv) an additional
source of revenue. These relationships provide the Company with the opportunity
to develop specialized services for the strategic partner's customers which, in
certain circumstances, the Company can later offer to its subscribers. In
connection with these strategic relationships, communications cards are
generally issued in the name of Premiere's strategic partner and bear a logo and
design of the strategic partner's choosing. The reverse side of the card
generally states that services are provided by Premiere.
Licensing Relationships. Companies such as WorldCom, Unidial Incorporated
and Touch 1 Communications, Inc. have chosen to outsource part or all of their
communications card services to Premiere. Premiere licenses use of its platform
to these companies, which enables them to provide enhanced services to their
customers and to generate additional revenue without developing or investing in
their own infrastructure. The platform's open architecture allows customization
of services for the licensees. For example, licensees generally customize voice
prompts and may choose to offer their users only selected services available on
the platform. Premiere provides licensees with on-line access to the database
containing their customer information and transaction records, thus enabling
licensees to add and delete subscribers and services remotely and control fraud
and credit exposure. Licensees generally provide their own transmission services
and therefore remain responsible for transmitting calls to and from Premiere's
platform. Licensees currently sell the enhanced services via communications
cards issued in their names. Premiere formats the billing records for licensees
and sends the records to licensees electronically. Licensees bill their
customers for the services, and Premiere bills the licensees monthly for access
to the platform based on licensee customer usage. Services to licensees are
generally provided under agreements with 30 to 60 month terms which require the
payment of a minimum monthly fee if specified usage minimums are not met.
STRATEGIC PARTNERS AND ALLIANCES
DeltaTel. Premiere and DeltaTel have entered into an agreement pursuant to
which Premiere provides information and telecommunications services to DeltaTel
subscribers. DeltaTel subscribers receive a communications card, known as the
"DeltaTel Card," that allows them to access services on Premiere's platform.
Premiere has developed certain travel related features in connection with the
Company's relationship with DeltaTel. DeltaTel is marketing the DeltaTel program
by distributing marketing materials to passengers on Delta's flights, sending
information to Delta frequent fliers, placing advertisements in Delta's Crown
Rooms and other means.
CompuServe. Premiere and CompuServe have entered into an agreement for
Premiere to provide information and telecommunications services to parties who
subscribe to Premiere's services through CompuServe, and for CompuServe to make
certain of its services available to Premiere's existing subscribers, strategic
partners and licensees. In connection with the CompuServe agreement, Premiere
developed a feature which allows subscribers to listen to e-mail messages over
the telephone and to send e-mail messages to any fax machine. This feature is
being marketed to CompuServe's subscribers on-line and through direct mailing.
In addition,
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CompuServe Interactive (United Kingdom) is marketing the combined services to
its members in the U.K., which now number in excess of 400,000.
Others. Premiere's other strategic partners include Checkfree, Arch
Nationwide Paging, a division of Arch Communications Group, Inc. ("Arch"),
MobileComm, a wholly owned subsidiary of MobileMedia Corporation ("MobileComm"),
and Paging Network, Inc. ("PageNet").
WorldCom. In November 1996, Premiere entered into a 25-year strategic
alliance agreement with WorldCom which enables WorldCom to couple its voice and
data network with Premiere's advanced, feature-rich platform, which should lead
to new incremental business opportunities for both companies. WorldCom is the
fourth largest long distance carrier in the United States. This agreement
positions Premiere as a preferred provider to WorldCom of network-based computer
telephony technology. In addition, Premiere and WorldCom intend to jointly
market a comprehensive package of services that neither could previously offer
independently.
CALL CENTER RELATIONSHIPS
Premiere intends to market its call center technology to financial
institutions and other large corporations. Premiere has been selected by
NationsBanc Services as its outsource solution for its customer service centers,
which currently receive in excess of 100 million calls per year.
PREMIERE'S COMPUTER TELEPHONY PLATFORM
Premiere designed its computer telephony platform to provide its
subscribers with efficient and reliable service and to be easily expandable as
network usage increases. The modular and scalable design of the platform and
related software allows expansion of network capacity without requiring
replacement of existing hardware or software or interrupting service. Premiere's
open systems design approach enables Premiere to utilize readily available third
party hardware and software in constructing its platform and facilitates the
integration of services and information provided by third parties into the
system.
Software. The system is controlled by proprietary application and database
access software that was developed by the Company. Premiere's software is
designed to be versatile and adaptable and to allow the system to be configured
to meet the demands of strategic partners, licensees or individual subscribers.
The Company's software is written in the "C" programming language in
accordance with the Company's open systems development strategy and supports the
Company's modular and scalable network architecture. Applications written for
custom or specific functions can be quickly developed and implemented across the
network and offered to all of the Company's subscribers. Premiere maintains an
internal development program in order to continually enhance its software.
Communications and Information Systems Architecture. The platform consists
of a digital telecommunications switch which interfaces with a high speed
client/server network of personal computers. Clients on the network (called
"Telnodes") are controlled by PCs utilizing the Company's proprietary software
(called a "Network Manager"). Servers on the network are responsible for
performing functions requested by the Telnodes and Network Managers and for
storing and providing access to data. Web servers connected to the network
firewall interface with the Internet and allow Premiere to offer access to its
services from any PC connected to the Internet. The network architecture is
designed to be modular and scalable. To increase the capacity of the network,
the Company adds additional Network Managers, Telnodes and servers and, at
certain points, must add additional modules to the digital switch, but is not
required to replace existing Network Managers, Telnodes and servers. This
modular systems approach also allows Premiere, at the request of licensees and
strategic partners, to provide custom applications for subscribers. The
client/server network utilizes a fault tolerant network operating system and the
network configuration provides for data on each server to be mirrored on a
separate server, thereby providing redundancy for improved system reliability.
Premiere maintains the ability to generate power in the event of a prolonged
power outage, or if its uninterruptible power supply fails.
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Incoming calls to Premiere's platform are answered by a Telnode, which
hosts an automated voice response unit operator. Resident on each Telnode is the
specialized software and hardware necessary to allow the Telnode to interact
with, and accept input from, users. For communications card applications, the
system initially prompts subscribers for their access number and personal
identification number. The Network Manager instantly verifies this information
for accuracy by querying the database of subscribers and also verifies that only
one subscriber is connected to the platform using this access number. Once the
subscriber has been identified, the Network Manager instructs the Telnode to
present the subscriber with various options, which the subscriber can access by
responding to voice prompts. If the subscriber chooses one of the enhanced
services, the system software processes the request by directing it to the
appropriate server on the network for fulfillment. If the subscriber chooses to
place an outbound telephone call, the Telnode transmits the call through the
digital central office switch, which is designed to select the least expensive
available routing for the call.
Transmission. Incoming and outgoing communications are transmitted via
fiber optic trunk lines, which are provided by interexchange long distance
service providers pursuant to contractual relationships with the Company.
Premiere obtains transmission service from multiple carriers, thus enhancing
Premiere's ability to avoid service interruptions caused by technical problems
at a single carrier. Because each carrier's trunk lines physically terminate at
Premiere's facility, Premiere can readily alter the routing of its transmission
traffic in the event of technical difficulties.
The Company opened an additional domestic switching facility in Dallas,
Texas in September 1996. This facility is designed to provide geographical
redundancy and increased capacity. The Dallas center will be capable of
handling 300 million transaction minutes per month, which is the same capacity
as Premiere's core hub in Atlanta, Georgia. In addition, the Company
established a new point-of-presence ("POP") site in London, England. The London
POP allows Premiere to offer even more competitive rates to customers in the
U.K. and western Europe.
ELECTRONIC BILLING AND INFORMATION SYSTEM
Premiere's EBIS is designed to allow instant activation of subscribers'
accounts, monitor subscribers' activity in real time and, while operating in the
background without interrupting subscribers' service, interface with multiple
financial institutions and electronically bill subscribers' credit cards or bank
accounts. The EBIS is configurable for the billing requirements of various
financial institutions and currently interfaces electronically with
approximately 3,000 banks and other financial institutions.
Premiere believes the advantages of its billing system are that it (i)
avoids the delay in payment inherent in paper invoices sent through the mail,
(ii) reduces billing and collection costs, and (iii) helps reduce fraud and bad
debt expense by establishing preset spending maximums for subscribers. The
system architecture of Premiere's EBIS is based on the same modular and scalable
design philosophy used by Premiere in implementing its platform.
During a subscriber's initial session on the Premiere network, the
subscriber is routed to Premiere's service activation center. The subscriber is
then asked by the customer service representative or the system (if the
subscriber's service is being activated by the Company's automated service
activation system) to choose an authorization number (usually subscribers choose
their existing business or home telephone number) and a personal identification
number. The subscriber is also asked to provide a credit card number. The
subscriber is then assigned a preset spending limit. When a subscriber's usage
reaches the preset limit, the EBIS, operating in the background and without
interrupting the subscriber's transaction, attempts to charge this amount to the
subscriber's credit card. If the charge is successful, the EBIS updates the
threshold to a zero balance, and the subscriber may continue the transaction
uninterrupted. If the attempted charge fails, the system suspends service
temporarily, and upon the subscriber's next attempt to access the system, the
system directs the subscriber to customer service. Billing for AFCOM subscribers
operates in a similar manner, except that Premiere establishes an initial
balance, which the EBIS bills against as usage charges are incurred. Once the
initial draft is substantially depleted, the EBIS electronically schedules an
additional draft from the subscriber's bank account on scheduled intervals
(generally coinciding with pay periods).
-8-
<PAGE>
RESEARCH AND DEVELOPMENT
Premiere's research and development and engineering personnel are
responsible for developing and supporting Premiere's proprietary software and
enhanced system features. Premiere's research and development strategy is to
focus its efforts on enhancing its proprietary software and to integrate its
software with readily available software and hardware when feasible. Premiere
maintains an internal software development program pursuant to which the Company
introduces major and minor enhancements of its software.
As of December 31, 1996, Premiere employed 29 people in research and
development and engineering positions. Premiere's research and development team
continuously monitors the operation of the computer telephony platform and the
EBIS to determine if software or hardware modifications are necessary.
Premiere's research and development and engineering personnel also engage in
joint development efforts with Premiere's strategic partners.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Premiere believes that effective customer service is essential to
attracting and retaining subscribers. Premiere's customer service department is
responsible for educating and assisting subscribers in using Premiere's
services, for resolving billing related issues and, in consultation with
Premiere's technical support personnel, for resolving technical problems
subscribers may have in using Premiere's services. As of December 31, 1996,
Premiere employed a staff of approximately 69 people in its customer service
department, which is staffed 24 hours per day, seven days per week and is
accessible by a toll-free call. Each member of Premiere's customer service
department is trained in all aspects of customer service in order to enable them
to respond to any service related question raised by a subscriber.
Premiere's platform provides customer service representatives with detailed
information regarding each subscriber and the subscriber's transaction history.
This information is instantly accessible by customer service representatives
from their computer terminals. The real-time monitoring capabilities of the
system assure that subscribers' transaction records retrieved by customer
service representatives are current, even if a subscriber completed a
transaction only moments before contacting the customer service department.
Premiere employs separate personnel who are responsible for technical
support functions. These employees are generally responsible for consulting with
Premiere's strategic partners and licensees regarding technical issues and for
resolving technical issues brought to their attention by the customer service
department.
COMPETITION
The information and telecommunications service industries are intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to increase in the future. Many of the Company's
current and potential competitors have longer operating histories, greater name
recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Such competition could materially adversely affect the Company's
business, operating results or financial condition.
The Company's competitive strategy is to seek to gain a competitive
advantage by being among the first companies to offer an integrated information
and telecommunications services solution, by being an innovator in the
integrated information and telecommunications services market and by offering
unique and innovative services to its subscribers. The Company intends to
capitalize on strategic relationships with WorldCom, DeltaTel, CompuServe and
others in order to build its subscriber base and to maintain and increase
subscriber loyalty. The Company believes that the principal competitive factors
affecting the market for telecommunications and information services are price,
quality of service, reliability of service, degree of service integration, ease
of use, service features and name recognition. The Company believes that it
competes effectively in these areas.
-9-
<PAGE>
As noted, the Company attempts to differentiate itself from its competitors
in part by offering an integrated suite of information and communications
services accessible from multiple devices. Other providers currently offer each
of the individual services and certain combinations of such services offered by
the Company. The Company's worldwide long distance services and features such as
conference calling compete with services provided by companies such as AT&T, MCI
and Sprint, as well as smaller interexchange long distance providers. The
Company's voice mail services compete with voice mail services provided by
certain regional Bell operating companies ("RBOCs") as well as by independent
voice mail vendors such as Octel Communications Corporation ("Octel"). The
Company's electronic mail services compete with services provided by America
Online, Inc. ("America Online"), Prodigy Services Co. ("Prodigy") and numerous
Internet service providers. The Company's paging services compete with paging
services offered by companies such as AT&T and MCI.
Although the Company is aware of several companies that are marketing
enhanced calling cards, it is not aware of any major competitor that is
marketing an integrated information and communications service identical to the
service marketed by the Company. Many of the Company's competitors have
substantial resources and technical expertise and could likely develop such a
service if they chose to expend sufficient resources. The Company believes that
existing competitors are likely to expand their service offerings and that new
competitors are likely to enter the information and telecommunications market
and to attempt to integrate information and telecommunications services,
resulting in greater competition for the Company. In particular, legislation was
signed into law on February 8, 1996 that will allow local exchange carriers,
including the RBOCs, to provide inter-LATA long distance telephone service,
which will likely significantly increase competition for long distance services.
The new legislation also grants the Federal Communications Commission ("FCC")
the authority to deregulate other aspects of the telecommunications industry,
which in the future may, if authorized by the FCC, facilitate the offering of an
integrated suite of information and telecommunications services by regulated
entities, including the RBOCs, in competition with the Company. Such increased
competition could have a material adverse effect on the Company's business,
operating results or financial condition.
Telecommunications companies compete for consumers based on price, with
major long distance carriers conducting extensive advertising campaigns to
capture market share. There can be no assurance that a decrease in the rates
charged for communications services by the major long distance carriers or other
competitors, whether caused by general competitive pressures or the entry of the
RBOCs and other local exchange carriers into the long distance market, would not
have a material adverse effect on the Company's business, operating results or
financial condition.
With respect to Orchestrate(SM), Premiere is aware of a number of companies
offering "unified messaging." For example, Octel and Microsoft Corp.
("Microsoft") recently announced "Unified Messenger," which places all voice
mail, e-mail and fax messages in a single mailbox accessible by phone and
computer. Unlike Premiere's network-based solution, many of these companies
offer a premise-based solution whereby vendors integrate equipment with local
area networks and PBX equipment. In addition, over the past few years, the
number of companies offering call center technology has grown dramatically,
primarily in response to major outsource initiatives as well as significantly
lower technology costs. Such increased competition could have a material
adverse effect on the Company's business, operating results or financial
condition.
The Company expects that the information and telecommunications services
markets will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than the Company's technology. The Company does not have the
contractual right to prevent its subscribers from changing to a competing
network and the Company's subscribers may generally terminate their service with
the Company at will.
GOVERNMENT REGULATION
The Company provides both telecommunications and information services. The
terms and conditions under which the Company provides its services are
potentially subject to regulation by the state and federal governments of the
United States. Various international authorities may also seek to regulate the
services provided or to be provided by the Company. With regard to the
Company's telecommunications services, federal laws and
-10-
<PAGE>
FCC regulations generally apply to interstate telecommunications, while state
regulatory authorities generally have jurisdiction over telecommunications that
originate and terminate within the same state.
Federal. On February 8, 1996, the President signed into law the
Telecommunications Act of 1996, as amended (the "1996 Act"), which will allow
local exchange carriers, including the RBOCs, to provide inter-LATA long
distance telephone service and which also grants the FCC the authority to
deregulate other aspects of the telecommunications industry. The new
legislation may result in increased competition to the Company from others,
including the RBOCs, and increased transmission costs in the future. The
Company is classified by the FCC as a non-dominant carrier for its common
carrier telecommunications services. The FCC has jurisdiction to act upon
complaints against any common carrier for failure to comply with its statutory
obligations. The FCC also has the authority to impose more stringent regulatory
requirements on the Company and change its regulatory classification. The
Company has applied for and received all necessary authority from the FCC to
provide domestic interstate and international telecommunications service. The
Company has been granted authority by the FCC to provide international
telecommunication services through the resale of switched services of United
States facilities-based carriers. The FCC reserves the right to condition,
modify or revoke such international authority for violations of the Federal
Communications Act or its rules.
Both domestic and international non-dominant carriers must maintain tariffs
on file with the FCC. Although the tariffs of non-dominant carriers and the
rates and charges they specify are subject to FCC review, they are presumed to
be lawful and are seldom contested. In reliance on the FCC's past practice of
allowing relaxed tariff filing requirements for non-dominant domestic carriers,
the Company at one time did not maintain detailed rate schedules for domestic
offerings in its tariffs. The two-year statute of limitations on claims
relating to these tariffs has expired. The FCC recently decided to "forbear"
from requiring that non-dominant interchange carriers file tariffs for their
domestic services. The United States Court of Appeals for the District of
Columbia Circuit, however, has stayed the FCC's decision pending court review.
As an international non-dominant carrier, the Company has always been required
to include, and has included, detailed rate schedules in its international
tariffs. Resale carriers are also subject to a variety of miscellaneous
regulations that, for instance, govern the documentation and verifications
necessary to change a consumer's long distance carrier, limit the use of "800"
numbers for pay-per-call services, require disclosure of operator services and
restrict interlocking directors and management.
As a result of changes made by the 1996 Act, the Company may be subject to
additional regulatory requirements pertaining to its telecommunications and
information services. Although the Company does not believe that these changes
will have a material effect on its business, no assurance can be given at this
time regarding the extent or impact of such changes.
Most importantly, as a non-dominant carrier, the Company will be deemed to
be a "telecommunications carrier" for FCC purposes. As a telecommunications
carrier, the Company will likely be required to contribute to universal service
funds established by the FCC, the states or both. The FCC and the states are in
the process of determining what universal service contribution requirements to
adopt. Further, telecommunications carriers are subject to some minimal
interconnection and network access requirements under the 1996 Act. These
requirements generally require telecommunications carriers to interconnect their
facilities directly or indirectly with the facilities and equipment of other
telecommunications carriers upon request and prohibit them from installing
network features, functions or capabilities that are not accessible to and
usable by persons with disabilities, unless access for persons with disabilities
is not readily achievable.
Moreover, information service providers traditionally have been treated by
the FCC as providing an "enhanced" computer processing service, rather than a
"basic" telecommunications transmission service and, as a result, were thought
to be beyond the FCC's regulatory authority. Most of the Company's business
involves such unregulated enhanced services. Although the 1996 Act continues to
distinguish between unregulated information or enhanced and regulated
telecommunication or basic services, the changes made by the 1996 Act may have
important implications for the providers of unregulated enhanced services.
-11-
<PAGE>
The 1996 Act did not directly address the FCC's "access charge" system,
which governs the fees paid by long distance carriers to local telephone
companies to terminate calls over the local telephone network. However, it is
widely agreed that this system must be revised as part of the overall effort to
create competition in the local telephone market, as envisioned by the 1996 Act.
The FCC, therefore, has underway a comprehensive review of its access charge
system. Although the FCC tentatively has concluded not to require enhanced
service providers to pay access charges, this conclusion is somewhat
controversial and the FCC has indicated that it will reconsider it in the
future.
Current proposals to change the universal service support system do not
entail the imposition of universal service fees on enhanced service providers.
However, there can be no guarantee that such fees will not be assessed in the
future. Similarly, individual states may determine that enhanced services
providers should be required to contribute to state universal service funding
mechanisms.
State. The intrastate long distance telecommunications operations of
Premiere are subject to various state laws and regulations, including prior
certification, notification and registration requirements. In certain states,
prior regulatory approval may be required for changes in control of
telecommunications operations. The Company is currently subject to varying
levels of regulation in the states in which it provides "0+" service and "1+"
and card services (which are both generally considered "1+" services by the
states). The vast majority of states require Premiere to apply for
certification to provide telecommunications services, or at least to register or
to be found exempt from regulation, before commencing intrastate service. The
vast majority of the states require Premiere to file and maintain detailed
tariffs listing rates for intrastate service. Many states also impose various
reporting requirements and/or require prior approval for transfers of control of
certified carriers, assignments of carrier assets, including customer bases,
carrier stock offerings and incurrence by carriers of significant debt
obligations. Certificates of authority can generally be conditioned, modified,
canceled, terminated or revoked by state regulatory authorities for failure to
comply with state law and/or the rules, regulations and policies of the state
regulatory authorities. Fines and other penalties, including the return of all
monies received for intrastate traffic from residents of a state, may be imposed
for such violations.
Premiere has made the filings and taken the actions it believes are
necessary to become certified or tariffed to provide intrastate card services to
customers throughout the United States, except in two states. The Company has
received authorization to provide intrastate card services in 44 states and has
applications to provide intrastate card service pending in 4 states. With the
exception of one state in which the Company's application to provide "0+"
service is pending, the Company has received authorization to provide "0+"
service in each state where the Company provides such service. There can be no
assurance that the Company's provision of services in states where it is not
licensed or tariffed to provide such services will not have a material adverse
effect on the Company's business, operating results or financial condition.
Miscellaneous. In conducting its business, the Company is subject to
various laws and regulations relating to commercial transactions, such as the
Uniform Commercial Code and is also subject to the electronic funds transfer
rules embodied in Regulation E promulgated by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Because of growth in the
electronic commerce market, it is possible that Congress or individual states
could enact laws regulating the electronic commerce market, or that the Federal
Reserve might revise Regulation E or adopt new rules regarding electronic funds
transfer. It is impossible to predict what effect such new or revised laws,
rules and regulations would have on the Company's business, operating results or
financial condition. The Company's proposed international activities also will
be subject to regulation by various international authorities and the inherent
risk of unexpected changes in such regulation.
PROPRIETARY RIGHTS
The Company's ability to compete is dependent in part upon its proprietary
technology. The Company relies on confidentiality agreements with its employees
and copyright and trade secret laws to protect its technology. Despite these
actions, there can be no assurance that others will not be able to copy or
otherwise obtain and use the Company's proprietary technology without
authorization, or independently develop technologies that are similar or
superior to the Company's technology. However, the Company believes that, due
to the rapid
-12-
<PAGE>
pace of technological change in the information and telecommunications service
industry, factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements and the
timeliness and quality of support services are more important to establishing
and maintaining a competitive advantage in the industry. The Company has one
patent application pending and 13 trademark or copyright registrations pending.
However, the Company currently has no registered trademarks or copyrights.
The Company is aware of other companies that use the terms "WorldLink" or
"Premiere" in describing their products and services, including
telecommunications products and services. Certain of those companies hold
registered trademarks which incorporate the names "WorldLink" or "Premiere."
The Company has received correspondence from a provider of prepaid calling cards
which claims that the Company's use of the term "WorldLink" infringes upon its
trademark rights. In addition, the Company has received correspondence from a
major bank, which is among the holders of registered trademarks incorporating
the term "WorldLink," inquiring as to the nature of the Company's use of the
term "WorldLink" as part of its mark "Premiere WorldLink." Based on, among
other things, the types of businesses in which the other companies are engaged
and the low likelihood of confusion, the Company believes these claims to be
without merit.
No assurance can be given that actions or claims alleging trademark, patent
or copyright infringement will not be brought against the Company with respect
to current or future products or services, or that, if such actions are brought,
the Company will ultimately prevail. Any such claiming parties may have
significantly greater resources than the Company to pursue litigation of such
claims. Any such claims, whether with or without merit, could be time
consuming, result in costly litigation, cause delays in introducing new or
improved services, require the Company to enter into royalty or licensing
agreements, or cause the Company to discontinue use of the challenged tradename
or technology at potential significant expense to the Company associated with
the marketing of a new name or the development or purchase of replacement
technology, all of which could have a material adverse effect on the Company.
See the discussion of the AudioFAX litigation under ITEM 3 - LEGAL PROCEEDINGS.
EMPLOYEES
As of December 31, 1996, the Company employed 170 persons on a full-time
basis and two persons on a part-time basis. None of the Company's employees are
members of a labor union or are covered by a collective bargaining agreement.
ITEM 2. PROPERTIES
Premiere leases approximately 30,750 square feet of office space in
Atlanta, Georgia under a lease expiring August 30, 1997. The Company leases an
additional 7,300 square feet of space in Atlanta, Georgia, for the facility that
serves as the Company's primary data and communications center. This lease
expires on December 31, 1998. The Company also leases approximately 7,000
square feet of space in Dallas, Texas for an additional data and communications
center. This lease expires July 31, 2001. In addition, the Company maintains a
single person sales office in Tulsa, Oklahoma and space in London, England for
an additional data and communications center.
-13-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On January 30, 1996, Eric Bott, E.B. Elliott and Cost Recovery Systems,
Inc. ("CRS") filed a complaint against the Company's wholly-owned subsidiary,
Premiere Communications, Inc. ("PCI" or "Premiere Communications") and the
Company's President, Boland T. Jones, in the Superior Court of Fulton County,
Georgia. In the complaint, the plaintiffs allege that: (i) Mr. Bott, a former
Company employee, is entitled to options to purchase 10,000 shares of common
stock of PCI at $5.00 per share; (ii) Mr. Bott is entitled to a commission equal
to 10% of all revenues that have been and in the future are collected as a
result of the Company's licensing arrangement with one of its customers; (iii)
Mr. Bott is entitled to $7,000 for consulting work allegedly performed for the
Company; (iv) Mr. Bott is entitled to unspecified damages resulting from his
sale in June 1995 of 750 shares of common stock of PCI to an unrelated third
party for an unspecified amount; (v) Mr. Elliott or CRS, an affiliate of Mr.
Elliott, is entitled to options to purchase 5,000 or 10,000 shares of common
stock of PCI at an unspecified exercise price arising out of work allegedly
performed by CRS for the Company; and (vi) CRS is owed an unspecified amount of
commissions from the Company relating to sales of the Company's
telecommunications services by CRS. Subsequent to the filing of the complaint,
the plaintiffs dismissed without prejudice count (iv) above. The plaintiffs
also seek attorneys' fees and unspecified amounts of punitive damages. The
Company filed an answer and counterclaim denying all allegations of the
complaint and asserting various affirmative defenses. Assuming that the
allegations concerning stock options and stock sales relate to the common stock
of Premiere Technologies, Inc., rather than PCI, as alleged, the Company
believes that the share numbers and exercise prices have not been adjusted for
the 24-to-1 stock split effected in December 1995. In this regard, the
plaintiffs filed a motion to add the Company as a defendant and to amend their
complaint to assert their claims against the Company. Adjusting the share
numbers and exercise prices of these options to reflect the 24-to-1 stock split,
the plaintiffs' claims relate to options to purchase up to a total of 480,000
shares of common stock and the alleged exercise price of $5.00 per share with
regard to a portion of such options becomes approximately $0.21 per share. The
plaintiffs' motion was denied on December 17, 1996, and the plaintiffs dismissed
the case without prejudice on January 13, 1997. The plaintiffs filed a new
complaint against the Company on January 21, 1997 setting forth the same
allegations as described above. The Company has filed an answer and
counterclaim denying all allegations of the complaint and asserting various
affirmative defenses and a motion to dismiss with respect to all counts of the
complaint. The Company believes it has meritorious defenses to the plaintiffs'
allegations, but due to the inherent uncertainties of the judicial system, the
Company is unable to predict the outcome of this litigation. If the outcome of
this litigation is adverse to the Company, it could have a material adverse
effect on the Company's business, operating results or financial condition.
On June 28, 1996, AudioFAX IP LLC ("AudioFAX") filed a complaint against
the Company and PCI in the United States District Court for the Northern
District of Georgia. In the complaint, AudioFAX alleged that the Company
manufactures, uses, sells and/or distributes certain enhanced facsimile products
which infringe three United States patents and one Canadian patent allegedly
held by AudioFAX. In the third quarter of 1996, the Company took a one-time
charge for the estimated legal fees and other costs that the Company expected to
incur to resolve this matter. On February 11, 1997, the Company entered into a
long term, non-exclusive license agreement with AudioFAX settling the
litigation.
On August 6, 1996, Communication Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). On August 23, 1996, CNC
filed a motion to intervene in a separate lawsuit brought by a CNC creditor in
the United States District Court for the Southern District of New York against
certain guarantors of CNC's obligations and to file a third party action against
numerous entities, including such CNC creditor and PCI for alleged negligent
misrepresentations of fact in connection with an alleged fraudulent scheme
designed to damage CNC. The court has not ruled on CNC's request. Based upon
the bankruptcy examiner's findings, the bankruptcy trustee, who has been
substituted for CNC in this action, is investigating the merits of any potential
actions directed at PCI. No actions or suits have been filed by the trustee
against PCI, but the trustee has notified PCI that as one of the potential
claims he is investigating, he intends to assert an avoidable preference claim
under the Bankruptcy Code of an amount up to approximately $800,000. Due to the
inherent uncertainties of the judicial system, the Company is unable to predict
with certainty the outcome of the trustee's investigation and the potential
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<PAGE>
litigation. If the outcome of any such litigation is adverse to the Company, it
could have a material adverse effect on the Company's business, operating
results or financial condition.
On September 20, 1996, Peter Lucina ("Lucina") filed a complaint against
the Company, Donald B. Gasgarth ("Gasgarth") and Patrick G. Jones ("Jones") in
the United States District Court for the Eastern District of Illinois. In the
complaint, Lucina alleges, among other things, that: (i) in November 1995 he
sold 1,563 shares of the Company common stock to Gasgarth, a former director of
the Company, for $31,260; (ii) Jones offered to "facilitate" the sale; (iii) in
December 1995 the Company filed a registration statement relating to the initial
public offering of its common stock; (iv) prior to his sale of stock to
Gasgarth, neither Gasgarth nor Jones told Lucina that the Company planned an
initial public offering; and (v) the 1,563 shares sold to Gasgarth, adjusted for
the 24-to-1 stock split subsequently effected, was worth $675,216 based on the
Company's initial public offering at $18 per share in March, 1996. In his
complaint, Lucina asserts violations of the Securities Exchange Act of 1934 and
the rules promulgated thereunder, the Illinois Consumer Fraud and Deceptive
Business Practices Act and common law fraud. Lucina seeks the return of 37,512
shares of common stock of the Company, or in the alternative, compensatory
damages in the amount of $975,312 with interest thereon, punitive damages in the
amount of $1 million and costs of the suit, including reasonable attorneys' fees
and other associated costs. The Company has filed an answer to the complaint
denying allegations of the complaint and asserting various defenses. Discovery
is in its initial stages, and no trial date has been set. The Company believes
that it has meritorious defenses to the Lucina complaint; however, due to the
inherent uncertainties of the judicial system, the Company is unable to predict
the outcome of this litigation. If the outcome of this litigation is adverse to
the Company, it could have a material adverse effect on the Company's business,
operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has traded on the Nasdaq National Market under
the symbol "PTEK" since its initial public offering on March 5, 1996. The
following table sets forth the high and low sales prices of the common stock as
reported on the Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter (from March 5, 1996)......................... $27.750 $18.000
Second Quarter............................................. 50.000 23.625
Third Quarter.............................................. 35.750 16.000
Fourth Quarter............................................. 31.250 14.500
</TABLE>
As of March 17, 1997, there were approximately 148 record holders of the
Company's common stock.
The Company has never paid cash dividends on its common stock, and the
current policy of the Company's Board of Directors is to retain any available
earnings for use in the operation and expansion of the Company's business.
Therefore, the payment of cash dividends on the common stock is unlikely in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of the Board of Directors and will depend upon the Company's
earnings, capital requirements, financial condition and any other factors deemed
relevant by the Board of Directors.
-15-
<PAGE>
On September 18, 1996, the Company issued 498,187 shares of common stock in
connection with the acquisition by the Company of TeleT. 75,000 of such shares
were placed in escrow to secure certain indemnification obligations of the
members of TeleT. The issuance of such shares was exempt from registration
pursuant to Section 4(2) and Regulation D of the Securities Act of 1933, as
amended (the "Securities Act").
On November 13, 1996, the Company issued 2,050,000 shares of common stock
to WorldCom in connection with the Company's entering into of a strategic
alliance agreement with WorldCom. This agreement provides for, among other
things, a long term relationship between the parties under which the Company
became a preferred platform services provider for WorldCom and its subsidiaries
with respect to enhanced calling programs. The issuance of such shares was
exempt from registration pursuant to Section 4(2) and Regulation D of the
Securities Act.
During the year ended December 31, 1996, certain current and former
employees, directors and investors exercised options and warrants to purchase an
aggregate of 1,246,818 shares of common stock at prices ranging from $0.00042
to $1.61 per share in transactions exempt from registration pursuant to Section
4(2) and Rule 701 of the Securities Act.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
--------------------- ------------- ------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1994(1) 1994(2) 1995 1996
---------- ---------- ------------- ------------ ------------ ------------
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Subscriber services....................... $ 844 $ 3,812 $ 5,391 $ 6,592 $ 15,085 $ 36,557
License fees.............................. 0 314 1,748 1,935 5,935 13,777
Other revenues............................ 1,093 1,296 1,181 1,468 1,306 1,745
--------- ---------- --------- --------- ----------- ----------
Total revenues......................... 1,937 5,422 8,320 9,995 22,326 52,079
Cost of Services.............................. 676 2,261 2,796 3,516 7,603 16,711
--------- ---------- --------- --------- ----------- ----------
Gross Margin.................................. 1,261 3,161 5,524 6,479 14,723 35,368
--------- ---------- --------- --------- ----------- ----------
Operating Expenses:
Selling and marketing..................... 1,232 2,116 3,022 3,750 7,267 16,985
General and administrative................ 944 1,486 1,818 2,342 4,460 8,781
Depreciation and amortization............. 91 319 246 420 697 2,255
Charge for purchased research
and development......................... 0 0 0 0 0 11,030
Accrued litigation costs.................. 0 0 0 0 0 1,250
--------- ---------- --------- --------- ----------- ----------
Total operating expenses............... 2,267 3,921 5,086 6,512 12,424 40,301
Operating Income (Loss)....................... (1,006) (760) 438 (33) 2,299 (4,933)
--------- ---------- --------- --------- ----------- ----------
Other Income (Expense):
Interest income........................... 16 27 127 149 283 2,529
Interest expense.......................... (166) (250) (242) (291) (366) (188)
Other, net................................ 0 0 43 43 32 68
--------- ---------- --------- --------- ----------- ----------
Total other income (expense)........... (150) (223) (72) (99) (51) 2,409
--------- ---------- --------- --------- ----------- ----------
Net Income (Loss) Before Income Taxes
and Extraordinary Loss....................... (1,156) (983) 366 (132) 2,248
Provision For (Benefit From) Income Taxes..... 0 0 48 48 330 (1,627)
--------- ---------- --------- --------- ----------- ----------
Net Income (Loss) Before Extraordinary Loss...... (1,156) (983) 318 (180) 1,918 (897)
Extraordinary Loss on Early Extinguishment
of Debt, Net of Tax Effect of $37,880......... 0 0 0 0 0 59
--------- ---------- --------- --------- ----------- ----------
Net Income (Loss)............................. (1,156) (983) 318 (180) 1,918 (956)
Preferred Stock Dividends..................... 0 64 256 320 309 29
--------- ---------- --------- --------- ----------- ----------
Net Income (Loss) Attributable to Common
Shareholders.................................. $ (1,156) $ (1,047) $ 62 $ (500) $ 1,609 $ (985)
========= ========== ========= ========= =========== ==========
Pro Forma Income (Loss) Attributable
to Common Shareholders For Primary
Earnings Per Share(3)......................... $ (1,156) $ (1,047) $ 226 $ (500) $ 1,807 $ (985)
========= ========== ========= ========= =========== ==========
Pro Forma Income (Loss) Per Common
and Common Equivalent Shares(4)
Primary....................................... $ (0.16) $ (0.13) $ 0.01 $ (0.05) $ 0.10 $ (0.05)
========= ========== ========= ========= =========== ==========
Shares Used In Computing Earnings
Per Common and Common Equivalent
Shares(4) (in thousands): Primary............ 7,293 8,164 19,147 10,804 17,529 20,170
========= ========== ========= ========= =========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................... $ 482 $ 4,469 $ 4,275 $ 4,275 $ 5,535 $ 69,551
Total assets.................................. 1,574 6,573 7,623 7,623 16,988 140,051
Long term liabilities......................... 1,623 2,112 2,448 2,448 2,513 584
Shareholders' equity (deficit)................ (435) 3,502 3,603 3,603 8,193 124,158
</TABLE>
________________
(1) Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31.
(2) Year ended December 31, 1994 data was derived from the nine months ended
December 31, 1994 data and the unaudited interim data for the three months
ended March 31, 1994. The data is presented for comparative purposes and
additional analysis.
(3) Supplementary pro forma earnings per share assuming the conversion of
Series A Preferred Stock and the retirement of notes payable for the year
ended December 31, 1995 are not presented because the effect of the pro
forma adjustments is immaterial.
(4) Pro forma net income (loss) per share is computed using the weighted
average number of shares of common stock and dilutive common stock
equivalents from convertible preferred stock (using the if-converted
method) and from stock options (using the modified treasury stock method).
In addition, common stock and common stock equivalents issued at prices
below the initial public offering price of $18.00 per share within one year
prior to this offering have been included in the calculation (using the
treasury stock method) as if they were outstanding for all periods prior to
this offering, regardless of whether they are dilutive. See Note 2 of
Notes to Consolidated Financial Statements. Fully diluted data is not
presented as the effect is anti-dilutive or immaterial for all periods
presented.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in connection with the Company's
consolidated financial statements and the related notes thereto included
elsewhere herein. Effective December 31, 1994, the Company changed its fiscal
year end from March 31 to December 31.
OVERVIEW
Premiere is a network-based computer telephony company specializing in the
integration of information and telecommunications services. The Company
delivers its services through its advanced computer telephony platform, which is
accessible from, and provides access to, a variety of devices including the
telephone, fax machine, pager and computer. The platform is modular and
scalable, with an open-systems design which allows the Company to quickly
customize its services to meet the needs of its subscribers and business
partners and to easily expand system capacity.
Premiere's revenues consist of: (i) subscriber services from information
and telecommunications services; (ii) license fees from use of its computer
telephony platform by customers of companies that have licensing relationships
with Premiere; and, to a lesser extent, (iii) other revenues, primarily long
distance charges from hospitality services. Subscriber services revenues from
information and telecommunications services, including Premiere WorldLink, AFCOM
and co-branded services, are based primarily on a per minute charge. License
fees are contracted on a long term basis and are generally based on a per minute
charge and, in certain circumstances, a per usage charge. Other revenue charges
are based on long distance rates established by the Company depending upon the
originating location of the call, and other various methods.
Cost of services consists primarily of transmission costs. Licensees
generally arrange for, and directly bear the cost of, transmission.
Consequently, while the per minute fees for licensee platform usage are lower
than those for the subscriber services, the gross margin from license
arrangements is considerably higher than for subscriber services.
Selling and marketing expenses include commissions to co-branded partners,
strategic partners, financial institutions that promote the Company's AFCOM
services and businesses participating in the hospitality program, the cost of
print advertisements, direct sales force salaries and commissions, travel and
entertainment expenses, bad debt expense and other operating costs related to
the selling and marketing functions.
General and administrative expenses include salaries and benefits (except
for selling and marketing salaries), rent and facility expense, accounting and
audit fees, legal fees, property taxes and other administrative expenses.
Depreciation and amortization includes depreciation of computer and network
operations equipment and amortization of intangible assets. The Company
provides for depreciation using the straight-line method of depreciation over
the estimated useful lives of the assets, which range from five to ten years,
with the exception of leasehold improvements which are depreciated on a
straight-line basis over the shorter of the term of the lease or the estimated
useful life of the assets. Amortization of intangible assets includes deferred
software development costs and the WorldCom strategic alliance contract
intangible, which are amortized over five years and 25 years, respectively.
Premiere electronically bills most subscriber services revenue directly to
the subscriber's credit card or bank account using the EBIS. The Company bills
subscribers at least monthly and in certain instances more frequently if a
particular subscriber exceeds pre-set spending limits. Because substantially
all of the Company's subscriber services are billed electronically through the
EBIS, the Company believes it has shortened the collection
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<PAGE>
cycle compared to a traditional 30-day non-electronic billing arrangement.
License fees are generally billed and invoiced on a 30-day basis.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates. The Company
periodically reviews the values assigned to long-lived assets, such as property
and equipment and software costs, to determine if any impairments are other than
temporary. Management believes that the long-lived assets in the accompanying
balance sheets are appropriately valued.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship of certain statements of operations items to total revenues.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
--------------- -----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994(1) 1995 1996
--------------- --------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Subscriber services.................. 64.8% 66.0% 67.6% 70.2%
License fees......................... 21.0 19.4 26.6 26.5
Other revenues....................... 14.2 14.6 5.8 3.3
----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0
COST OF SERVICES......................... 33.6 35.2 34.1 32.1
----- ----- ----- -----
GROSS MARGIN............................. 66.4 64.8 65.9 67.9
----- ----- ----- -----
OPERATING EXPENSES:
Selling and marketing................ 36.3 37.5 32.5 32.6
General and administrative........... 21.9 23.4 20.0 16.9
Depreciation and amortization........ 3.0 4.2 3.1 4.3
Charge for purchased research
and development................... 0.0 0.0 0.0 21.2
Accrued litigation costs............. 0.0 0.0 0.0 2.4
----- ----- ----- -----
Total operating expenses.......... 61.2 65.1 55.6 77.4
OPERATING INCOME (LOSS).................. 5.2 (0.3) 10.3 (9.5)
----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest income...................... 1.5 1.5 1.3 4.9
Interest expense..................... (2.9) (2.9) (1.6) (0.4)
Other, net........................... 0.5 0.4 0.1 0.2
----- ----- ----- -----
Total other income (expense)...... (0.9) (1.0) (0.2) 4.7
----- ----- ----- -----
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS............... 4.3 (1.3) 10.1 (4.8)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES............................... 0.6 0.5 1.5 (3.1)
----- ----- ----- -----
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS......................... 3.7 (1.8) 8.6 (1.7)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX EFFECT OF $37,880...................... 0.0 0.0 0.0 0.1
----- ----- ----- -----
NET INCOME (LOSS)........................... 3.7% (1.8)% 8.6% (1.8)%
===== ===== ===== =====
</TABLE>
_____________
(1) Year ended December 31, 1994 data was derived from the nine months ended
December 31, 1994 data and the unaudited interim data for the three months
ended March 31, 1994. The data is presented for comparative purposes and
additional analysis.
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<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 133.6% from $22.3 million in the year
ended December 31, 1995 to $52.1 million in the year ended December 31, 1996.
Subscriber services revenues increased 142.4% from $15.1 million in the year
ended December 31, 1995 to $36.6 million in the year ended December 31, 1996,
due primarily to increased revenues from Premiere WorldLink subscriber services.
Revenues from Premiere WorldLink subscriber services increased principally as a
result of response to the Company's print advertising campaign, which was
substantially expanded starting in January 1996, as well as the Company's
entering into additional co-branded relationships. Revenues from AFCOM
subscriber services decreased 11.5% from $8.7 million in the year ended December
31, 1995 to $7.7 million in the year ended December 31, 1996, primarily due to
certain branches of the military modifying their payroll practices to require
direct deposit upon entering active duty. This requirement has resulted in a
reduction in the level of banking activity at certain military financial
institutions with which the Company has marketing arrangements. The Company has
revised its AFCOM marketing strategy to attempt to address this situation.
License fees increased 133.9% from $5.9 million in the year ended December 31,
1995 to $13.8 million in the year ended December 31, 1996, due to both the
establishment of additional licensing relationships and increased revenues from
existing licensees. Other revenues increased 30.8% from $1.3 million for the
year ended December 31, 1995 to $1.7 million for the year ended December 31,
1996. This increase was attributable primarily to non-recurring system design
and development revenues.
On August 6, 1996, CNC, a licensing customer of the Company, was placed
into bankruptcy under Chapter 11 of the Bankruptcy Code. CNC accounted for
19.6% and 5.2% the Company's licensing revenues and total revenues,
respectively, during the year ended December 31, 1996. CNC owed the Company
approximately $627,000 as of December 31, 1996. However, CNC's transmission
provider, WorldCom Network Services, Inc. d/b/a/ WilTel ("WilTel"), is also
obligated to pay this amount to the Company. The Company believes that through
a combination of new licensing agreements, the strategic alliance agreement with
WorldCom and increased revenues from existing licensees, the Company has
replaced all of the anticipated CNC revenue.
Cost of Services. Cost of services increased 119.7% from $7.6 million in
the year ended December 31, 1995 to $16.7 million in the year ended December 31,
1996, but decreased as a percentage of revenues from 34.1% in the year ended
December 31, 1995 to 32.1% for the same period of 1996. The decrease in cost of
services as a percentage of revenues reflects higher margins resulting from
relatively lower per minute transmission costs and the relative increase in
contribution from license fees, which have a lower cost of services because the
licensees bear the cost of call transmission.
Selling and Marketing Expenses. Selling and marketing expenses increased
132.9% from $7.3 million in the year ended December 31, 1995 to $17.0 million in
the year ended December 31, 1996, and decreased as a percentage of revenues from
32.7% to 32.6%. The increase in selling and marketing expenses was due primarily
to greater expenditures on print advertising and other selling and marketing
costs related to the increase in subscribers and revenues, and an increase in
bad debt expense during the fourth quarter of 1996. Despite the increase in bad
debt expense, the Company was still able to maintain selling and marketing costs
as a percentage of revenues consistent with the prior year.
General and Administrative Expenses. General and administrative expenses
increased 95.6% from $4.5 million in the year ended December 31, 1995 to $8.8
million in the year ended December 31, 1996, due primarily to an increased
number of employees and related expenses to support the Company's growth. These
expenses decreased as a percentage of revenues from 20.2% in the year ended
December 31, 1995 to 16.9% for the same period in 1996. This decrease was
attributable primarily to increased operating leverage resulting from higher
revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 230.0% from $697,000 in the year ended December 31, 1995 to
$2.3 million in the year ended December 31, 1996. This increase
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<PAGE>
was due to depreciation of additional equipment acquired during the period and
the amortization of the strategic alliance contract intangible.
Charge for Purchased Research and Development. This is a one-time charge
in an amount equal to the estimated value of in-process research and development
projects acquired in the acquisition of TeleT. See Note 3 of Notes to
Consolidated Financial Statements.
Accrued Litigation Costs. This is a one-time charge for the estimated
legal fees and other costs that the Company expected to incur to resolve the
patent infringement suit filed by AudioFAX. On February 11, 1997, the Company
entered into a long term, non-exclusive license agreement with AudioFAX settling
the litigation. The one-time charge was adequate to cover the actual costs of
litigation and the cost of the license agreement is not expected to have a
material effect on the Company's earnings. See Note 11 of Notes to Consolidated
Financial Statements.
Income Taxes. Income taxes decreased from a provision of $330,000 in the
year ended December 31, 1995 to a benefit of $1.6 million in the year ended
December 31, 1996. In the year ended December 31, 1995, the Company's effective
income tax rate was less than the statutory rate due to the use of net operating
loss carryforwards. At December 31, 1996, the Company had a total deferred tax
asset of $11.1 million, principally due to net operating losses for tax purposes
generated upon the exercise by employees of non-qualified stock options which
generated compensation expense for tax purposes in excess of compensation
expense as recorded by the Company in accordance with GAAP. In accordance with
GAAP, the related tax benefit of this deduction was credited to additional paid-
in-capital and accordingly, did not reduce operating tax expense recognized by
the Company.
Net Income (Loss). The Company recognized net income of $1.9 million in
the year ended December 31, 1995 and a net loss of $956,000 in the year ended
December 31, 1996. Excluding the one-time charges for in-process research and
development and accrued litigation costs and the related tax effect, net income
would have increased 242.1% from $1.9 million in the year ended December 31,
1995 to $6.5 million in the year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
General. Year ended December 31, 1994 data was derived from the nine
months ended December 31, 1994 data and the unaudited interim data for the three
months ended March 31, 1994.
Revenues. Total revenues increased 123.0% from $10.0 million in the year
ended December 31, 1994 to $22.3 million in the year ended December 31, 1995.
Subscriber services revenues increased 128.8% from $6.6 million in the year
ended December 31, 1994 to $15.1 million in the year ended December 31, 1995,
due primarily to increased revenues from both Premiere WorldLink and AFCOM
subscriber services. Revenues from Premiere WorldLink subscriber services
increased principally as a result of response to the Company's print advertising
campaign and additional co-branded relationships. Revenues from AFCOM subscriber
services increased principally due to additional AFCOM marketing relationships
and response to the Company's AFCOM direct mail advertising campaign. License
fees increased 210.5% from $1.9 million in the year ended December 31, 1994 to
$5.9 million in the year ended December 31, 1995, due to both the establishment
of additional licensing relationships and increased revenues from existing
licensees. A marked portion of this increase was due to the Company's
relationship with CNC which accounted for approximately $1.5 million of the
increase in license fees from the year ended December 31, 1995 compared to year
ended December 31, 1994. Other revenues decreased 13.3% from $1.5 million for
the year ended December 31, 1994 to $1.3 million for the year ended December 31,
1995.
Cost of Services. Cost of services increased 117.1% from $3.5 million in
the year ended December 31, 1994 to $7.6 million in the year ended December 31,
1995, but decreased as a percentage of revenues from 35.0% in the year ended
December 31, 1994 to 34.1% for the same period of 1995. The decrease in cost of
services as a percentage of revenues reflects higher margins resulting from
relatively lower per minute transmission costs and
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<PAGE>
the relative increase in contribution from license fees, which have a lower cost
of services because the licensees bear the cost of call transmission.
Selling and Marketing Expenses. Selling and marketing expenses increased
92.1% from $3.8 million in the year ended December 31, 1994 to $7.3 million in
the year ended December 31, 1995, and decreased as a percentage of revenues from
38.0% to 32.7%. The increase in selling and marketing expenses was due primarily
to greater expenditures on print advertising and other selling and marketing
costs related to the increase in subscribers and revenues.
General and Administrative Expenses. General and administrative expenses
increased 95.7% from $2.3 million in the year ended December 31, 1994 to $4.5
million in the year ended December 31, 1995 due primarily to an increased number
of employees and related expenses to support the Company's growth. These
expenses decreased as a percentage of revenues from 23.0% in the year ended
December 31, 1994 to 20.2% for the same period in 1995. This decrease was
attributable primarily to increased operating leverage resulting from higher
revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 66.0% from $420,000 in the year ended December 31, 1994 to
$697,000 in the year ended December 31, 1995. This increase was due to
depreciation of additional equipment acquired during the period.
Income Taxes. Income taxes increased from $48,000 in the year ended
December 31, 1994 to $330,000 in the year ended December 31, 1995, reflecting
income taxes payable on the Company's net income in the year ended December 31,
1995, as compared to the Company's net loss in the year ended December 31, 1994.
The Company's effective income tax rate was less than the statutory rate due to
the use of net operating loss carry forwards. At December 31, 1995, the Company
had a deferred tax asset of $2.5 million, principally due to net operating
losses for tax purposes generated upon the exercise by employees of non-
qualified stock options which generated compensation expense for tax purposes in
excess of compensation expense as recorded by the Company in accordance with
GAAP. In accordance with GAAP, the related tax benefit of this deduction was
credited to additional paid-in-capital and accordingly, did not reduce operating
tax expense recognized by the Company.
Net Income (Loss). The Company recognized a net loss of $180,000 in the
year ended December 31, 1994 and net income of $1.9 million in the year ended
December 31, 1995. This increase reflects higher revenues achieved in the year
ended December 31, 1995 for all of the Company's services and the increased
gross margin contribution of license fees compared to the year ended December
31, 1994.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1994
General. Each of these variations reflect only nine months of operations
in the period ended December 31, 1994, compared to the twelve months ended
December 31, 1995.
Revenues. Total revenues increased 168.7% from $8.3 million in the nine
months ended December 31, 1994, to $22.3 million in the twelve months ended
December 31, 1995. Subscriber services revenues increased 179.6% from $5.4
million in the nine months ended December 31, 1994 to $15.1 million in the
twelve months ended December 31, 1995, primarily as a result of increased
revenues from both Premiere WorldLink and AFCOM subscriber services. Revenues
from Premiere WorldLink subscriber services increased principally as a result of
response to the Company's print advertising campaign and additional co-branded
relationships. Revenues from AFCOM subscriber services increased principally
due to additional AFCOM marketing relationships and response to the Company's
AFCOM direct mail advertising campaign. License fees increased 247.1% from $1.7
million in the nine months ended December 31, 1994 to $5.9 million in the twelve
months ended December 31, 1995 due to both the establishment of additional
licensing relationships and increased revenues from existing licensees. Other
services revenues increased 8.3% from $1.2 million in the nine months ended
December 31, 1994 to $1.3 million in the twelve months ended December 31, 1995.
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<PAGE>
Cost of Services. Cost of services increased 171.4% from $2.8 million in
the nine months ended December 31, 1994 to $7.6 million in the twelve months
ended December 31, 1995. As a percentage of revenues, these costs were 33.7% in
the nine months ended December 31, 1994 and 34.1% in the twelve months ended
December 31, 1995. Cost of services remained stable as a percentage of
revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased
143.3% from $3.0 million in the nine months ended December 31, 1994 to $7.3
million in the twelve months ended December 31, 1995, due primarily to
additional expenditures on print advertising. As a percentage of revenues,
selling and marketing expenses were 36.1% in the nine months ended December 31,
1994 and 32.7% in the twelve months ended December 31, 1995.
General and Administrative Expenses. General and administrative expenses
increased 150.0% from $1.8 million in the nine months ended December 31, 1994 to
$4.5 million in the twelve months ended December 31, 1995. As a percentage of
revenues, these expenses were 21.7% in the nine months ended December 30, 1994,
and 20.2% in the twelve months ended December 31, 1995 as a result of increased
operating leverage due to higher revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 183.3% from $246,000 in the nine months ended December 31,
1994 to $697,000 in the twelve months ended December 31, 1995. The increase in
depreciation and amortization expense reflects the shorter period in the nine
months ended December 31, 1994, compared to the twelve months ended December 31,
1995. As a percentage of revenues, depreciation and amortization expense
increased from 3.0% in the nine months ended December 31, 1994 to 3.1% in the
twelve months ended December 31, 1995.
Income Taxes. Income taxes increased 587.5% from $48,000 in the nine
months ended December 31, 1994 to $330,000 in the twelve months ended December
31, 1995, reflecting state income taxes payable on the Company's income in the
nine months ended December 31, 1994. The company's net income for the nine
months ended December 31, 1994 was entirely offset by the Company's net
operating loss carry forward. The Company had an unused net operating loss carry
forward at December 31, 1994 of $1.4 million.
Net Income (Loss). Net income increased 497.5% from $318,000 for the nine
months ended December 31, 1994 to $1.9 million for the twelve months ended
December 31, 1995. This $1.6 million increase in net income reflects the
combination of the Company's increased subscriber services revenues and license
fees, stable gross margins and increased leverage from selling and marketing and
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $919,000 in the nine
months ended December 31, 1994, provided cash of $730,000 in the year ended
December 31, 1994, $3.1 million in the year ended December 31, 1995 and $12.4
million in the year ended December 31, 1996. Cash provided by operating
activities for the nine months ended December 31, 1994 and the year ended
December 31, 1994, reflects the Company's attainment of a level of operating
revenues sufficient to cover its operating costs due to increased subscribers to
the Company's AFCOM and Premiere WorldLink services and increased revenues from
license fees. The increase in cash provided by operating activities in the year
ended December 31, 1995, as compared to earlier periods, reflects the
acceleration of the growth of the Company's subscriber base during that period
and the relatively greater contribution from license fees with their associated
higher gross margin. The increase in cash provided by operating activities in
the year ended December 31, 1996 reflects the acceleration of the growth of the
Company's subscriber base during the period and increased income from the
investment of the net proceeds from the Company's initial public offering.
The Company's investing activities used cash of $4.3 million in the nine
months ended December 31, 1994, $4.4 million for the year ended December 31,
1994, $2.9 million for the year ended December 31, 1995 and $84.6 million for
the year ended December 31, 1996. The Company's investing activities for the
nine months ended December 31, 1994 and the year ended December 31, 1994
consisted primarily of the investment of $3.5
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<PAGE>
million of the proceeds of the Company's sale of Series 1994 Preferred Stock
(which was converted into Series A Preferred Stock in December 1995) and
$819,000 in purchases of property and equipment. Cash used in investing
activities for the year ended December 31, 1995, consisted primarily of
purchases of property and equipment. The Company's investing activities for the
year ended December 31, 1996 consisted primarily of purchases of investments in
the amount of $63.8 million. Additionally, the Company purchased property and
equipment of $13.7 million. The Company also used cash to partially fund certain
acquisitions and strategic alliances during the year ended December 31, 1996.
See Notes 2 and 3 of Notes to Consolidated Financial Statements.
The Company's financing activities used $12,000 in cash in the nine months
ended December 31, 1994, and provided cash of $3.9 million in the year ended
December 31, 1994, $223,000 for the year ended December 31, 1995 and $77.0
million for the year ended December 31, 1996. Cash used in financing activities
for the nine months ended December 31, 1994 reflects principal payments under
capital leases offset by proceeds from subscriptions for common stock. Cash
provided by financing activities for the year ended December 31, 1995 reflects
proceeds from exercises of stock options. Cash provided in the year ended
December 31, 1996 was primarily from the net proceeds of the Company's initial
public offering in March 1996. Additionally, proceeds from the repayment of the
above mentioned subscriptions for common stock also provided cash of $2.4
million in 1996. These sources of cash were partially offset in 1996 by the
repayment of notes payable outstanding at December 31, 1995 as well as payment
of dividends on Preferred Stock. See Notes 2, 4 and 6 of Notes to Consolidated
Financial Statements.
The Company has financed its cash requirements through a combination of
equity and debt financing and, beginning in the nine months ended December 31,
1994, through cash flows from operating activities. In May 1992, the Company
borrowed $1.0 million (the "First Sirrom Note") from Sirrom Capital Corporation
("Sirrom"), an independent lender unaffiliated with the Company, which was used
to fund the Company's operations and for capital expenditures. In December
1993, the Company borrowed an additional $1.0 million from Sirrom (the "Second
Sirrom Note") (the First Sirrom Note and Second Sirrom Note are referred to as
the "Notes"). In connection with entering into the Notes, the Company granted
Sirrom warrants to purchase an aggregate of 568,392 shares of common stock at
$0.042 per share, the terms of which do not require the cancellation or exercise
of the warrants upon repayment of the Notes. The Company used $2.0 million of
the net proceeds of its initial public offering to retire the Notes in March
1996. In January 1994, the Company issued 8% cumulative Series A Preferred
Stock to NationsBanc Capital Corporation ("NationsBanc"), from which it realized
net proceeds of $3.9 million. In connection with the issuance of the Company's
Series A Preferred Stock, all of the Company's outstanding 1993 Preferred Stock
and Debentures were converted into common stock. A portion of the net proceeds
of the Second Sirrom Note and the issuance of the Series A Preferred Stock was
used to fund operations. The Company invested the remainder of the proceeds of
the Second Sirrom Note and the Series A Preferred Stock, amounting to $3.5
million, in short-term interest-bearing securities. On January 19, 1996, the
Company exercised its right to redeem the Series A Preferred Stock from
NationsBanc. On February 1, 1996, NationsBanc elected to convert all of the
Series A Preferred Stock into common stock. Thus, effective February 1, 1996,
all outstanding shares of Series A Preferred Stock were converted into 3,095,592
shares of common stock. In connection with the conversion, the Company paid
NationsBanc $677,000 in accrued but unpaid dividends and interest on the Series
A Preferred Stock during the year ended December 31, 1996. In connection with
the Company's initial public offering, the Company issued 4,570,000 shares of
its $0.01 par value common stock in March 1996. The Company received net
proceeds of $74.6 million after the underwriting discount and expenses of the
offering.
At December 31, 1996, the Company had working capital of $69.6 million.
At December 31, 1995, the Company had working capital of $5.5 million. In
October 1996, the Company established a $5 million line-of-credit with
NationsBank, N.A. to facilitate interim capital equipment financing needs. As
of March 17, 1997, the Company had total borrowings of $4.1 million under the
line-of-credit.
The Company's principal commitments consist of an obligation under a
capital lease for switching equipment, which amounted to $524,000 at December
31, 1996 and $528,000 at December 31, 1995, and the line-of-credit, which had a
balance of $4.1 million as of March 17, 1997. The Company believes that its
current cash balances, other working capital and cash flows from operations will
be sufficient to meet its capital requirements for at least the next 12 months
and for the currently foreseeable future.
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FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
shareholders. Statements made in this Annual Report, other than those
concerning historical information, should be considered forward-looking and
subject to various risks and uncertainties. Such forward-looking statements are
made based on management's belief as well as assumptions made by, and
information currently available to, management pursuant to "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results may differ materially from the results anticipated in
these forward-looking statements due to, among other things:
Factors Affecting Operating Results; Seasonality; Potential Fluctuations in
Quarterly Results. The Company's operating results have varied significantly in
the past and may vary significantly in the future. Special factors that may
cause the Company's future operating results to vary include the unique nature
of strategic relationships into which the Company may enter in the future,
changes in operating expenses resulting from such strategic relationships and
other factors, the continued acceptance of the Company's licensing program, the
financial performance of the Company's licensees, the timing of new service
announcements, market acceptance of new and enhanced versions of the Company's
services, potential acquisitions, changes in legislation and regulation that may
affect the competitive environment for the Company's communications services and
general economic and seasonal factors.
In the future, revenues from the Company's strategic relationships may
become an increasingly significant portion of the Company's total revenues. Due
to the unique nature of each strategic relationship, these relationships may
change the Company's mix of expenses relative to revenues.
Quarterly revenues are difficult to forecast because the market for the
Company's information and telecommunications services is rapidly evolving. The
Company's expense levels are based, in part, on its expectations as to future
revenues. If revenue levels are below expectations, the Company may be unable
or unwilling to reduce expenses proportionately and operating results would
likely be adversely affected. As a result, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance. Due to all
of the foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the market price of the Company's common stock will
likely be adversely affected.
Intense Competition. The information and telecommunications services
industries are intensely competitive, rapidly evolving and subject to rapid
technological change. The Company expects competition to increase in the
future. Many of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger customer bases and
substantially greater financial, personnel, marketing, engineering, technical
and other resources than the Company. Such competition could materially
adversely affect the Company's business, operating results or financial
condition.
The Company attempts to differentiate itself from its competitors by
offering an integrated suite of information and telecommunications services.
Other providers currently offer each of the individual services and certain
combinations of the services offered by the Company. The Company's worldwide
long distance services and features such as conference calling compete with
services provided by companies such as AT&T, MCI and Sprint, as well as smaller
interexchange long distance providers. The Company's voice mail services
compete with voice mail services provided by certain RBOCs as well as by
independent voice mail vendors such as Octel. The Company's enhanced travel
services, concierge services, news services and electronic mail services are
competing with services provided by America Online, Prodigy and numerous
Internet service providers. When implemented, the Company's Orchestrate(SM)
product will compete with companies such as Octel, Microsoft, Novell, Inc. and
Lucent Technologies Inc. ("Lucent"). The Company's call center technology will
compete with companies such as AT&T, MCI and Lucent. The Company expects that
other parties will develop and implement information and
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telecommunications service platforms similar to its platform, thereby increasing
competition for the Company's services.
In addition, on February 8, 1996, the President signed into law the 1996
Act that will allow local exchange carriers, including the RBOCs, to provide
inter-LATA long distance telephone service, which will likely significantly
increase competition for long distance services. The new legislation also
grants the FCC the authority to deregulate other aspects of the
telecommunications industry, which in the future may, if authorized by the FCC,
facilitate the offering of an integrated suite of information and
telecommunications services by regulated entities, including the RBOCs, in
competition with the Company. Such increased competition could have a material
adverse effect on the Company's business, operating results or financial
condition.
Telecommunication companies compete for consumers based on price, with
major long distance carriers conducting extensive advertising campaigns to
capture market share. There can be no assurance that a decrease in the rates
charged for communications services by the major long distance carriers or other
competitors, whether caused by general competitive pressures or the entry of the
RBOCs and other local exchange carriers into the long distance market, would not
have a material adverse effect on the Company's business, operating results or
financial condition.
The Company expects that the information and telecommunications services
markets will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than the Company's technology. The Company does not have the
contractual right to prevent its subscribers from changing to a competing
network, and the Company's subscribers may generally terminate their service
with the Company at will.
Ability to Manage Growth; Acquisition Risks. The Company has experienced
substantial growth in recent years. This growth has placed significant demands
on all aspects of the Company's business, including its administrative,
technical and financial personnel and systems. Additional expansion by the
Company may further strain the Company's management, financial and other
resources. There can be no assurance that the Company's systems, procedures,
controls and existing space will be adequate to support expansion of the
Company's operations. The Company's future operating results will substantially
depend on the ability of its officers and key employees to manage changing
business conditions and to implement and improve its technical, administrative,
financial control and reporting systems. If the Company is unable to respond to
and manage changing business conditions, then the quality of the Company's
services, its ability to retain key personnel and its results of operations
could be materially adversely affected. At certain stages of growth in network
usage, the Company is required to add capacity to its computer telephony
platform and its digital central office switch, thus requiring the Company
continuously to attempt to predict growth in its network usage and add capacity
to its switch accordingly. Difficulties in managing continued growth, including
difficulties in predicting the growth in network usage, could have a material
adverse effect on the Company. The Company has grown, and intends to grow, in
substantial part through acquisitions of complementary services, products,
technologies or businesses. The Company acquired substantially all of the
assets and business operations of TeleT in September 1996. There can be no
assurance that the Company will be able to successfully integrate TeleT's
products, technologies, operations, personnel or business, or that once
integrated TeleT's operations will achieve comparable levels of revenue,
profitability or productivity as the Company's operations existing at the time
of the acquisition or otherwise perform as expected. Future acquisitions may
result in potentially dilutive issuances of equity securities, the incurrence of
additional debt, the write-off of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all of
which could have a material adverse effect on the Company's business, operating
results or financial condition. Future acquisitions also involve numerous
additional risks, including difficulties in the assimilation of the operations,
services, products and personnel of the acquired company, the diversion of
management's attention from other business concerns, entering markets in which
the Company has little or no direct prior experience and the potential loss of
key employees of the acquired company. The Company is unable to predict whether
or when any prospective acquisition candidate will become available or the
likelihood that any acquisition will be completed.
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Technological Change; Dependence on New Services. The computer telephony
market is characterized by rapid technological change, frequent new product
introductions and evolving industry standards. The Company's future success
will depend in significant part on its ability to anticipate industry standards,
continue to apply advances in technologies, enhance its current services,
develop and introduce new services on a timely basis, enhance its software and
its computer telephony platform and successfully compete with products and
services based on evolving or new technology. The Company expects new products
and services, and enhancements to existing products and services, to be
developed and introduced which will compete with the services offered by the
Company. Among the new and evolving technologies that the Company expects to
compete for the services offered by the Company are notebook computers equipped
with sound cards, fax modems and cellular modems, portable Internet appliances
which would allow connection to the Internet over wireless networks and personal
digital assistants with enhanced communications features. The Company is also
aware that products currently exist which allow text-to-voice e-mail conversion
and provide "meet me" services, and that several communications companies are
developing or have developed services that would compete with the Company's
proposed "follow me" service by allowing users to have a single telephone number
for all of their communications devices. The Company currently intends to
introduce and market new and enhanced services in 1997, including
Orchestrate(SM) and network-based call center technology. Development of these
services will require the implementation of new technologies and the integration
of these technologies into the Company's platform. There can be no assurance
that the Company will be successful in developing and marketing service
enhancements or new services that respond to these or other technological
changes or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of its services, or that its new services and the
enhancements thereto, will adequately meet the requirements of the marketplace
and achieve market acceptance. Delays in the introduction of new services, the
inability of the Company to develop such new services or the failure of such
services to achieve market acceptance could have a material adverse effect on
the Company's business, operating results or financial condition.
Uncertainty of Strategic Relationships. A principal element of the
Company's strategy is the creation and maintenance of strategic relationships
that will enable the Company to offer its services to a larger customer base
than the Company could otherwise reach through its direct marketing efforts.
The Company has experienced growth in its existing strategic relationships
during 1996, and has entered into or initiated new strategic relationships with
several companies, including WorldCom, CompuServe Interactive (United Kingdom),
MobileComm and PageNet. Although the Company intends to continue to expand its
direct marketing channels, the Company believes that strategic partner
relationships may offer a potentially more effective and efficient marketing
channel. Consequently, the Company's success depends in part on the ultimate
success of these relationships and on the ability of these strategic partners to
effectively market the Company's services. Failure of one or more of the
Company's strategic partners to successfully develop and sustain a market for
the Company's services, or the termination of one or more of the Company's
relationships with a strategic partner, could have a material adverse effect on
the Company's overall performance due to the possibility of more costly direct
marketing expenditures by the Company and other factors.
In November 1996 the Company entered into a strategic alliance agreement
with WorldCom, the fourth largest long-distance carrier in the United States, in
which WorldCom is required, among other things, to provide the Company with the
right of first opportunity to provide enhanced computer telephony services for a
period of at least 25 years. In connection with this agreement, the Company
issued to WorldCom 2,050,000 shares of common stock valued at approximately
$25.2 million (based on an independent appraisal) and paid WorldCom $4.7 million
in cash. The Company recorded the value of this agreement as an intangible
asset. While the Company believes that the intangible asset will be recovered
over the life of the agreement, this recoverability is dependent upon the
success of the strategic relationship. The Company will continually evaluate
the realizability of the intangible asset recorded.
Although the Company views its strategic relationships as a key factor in
its overall business strategy and in the development and commercialization of
its services, there can be no assurance that its strategic partners view their
relationships with the Company as significant for their own businesses or that
they will not reassess their commitment to the Company in the future. The
Company's arrangements with its strategic partners do not always establish
minimum performance requirements for the Company's strategic partners, but
instead rely on the
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voluntary efforts of these partners in pursuing joint goals. Certain of these
arrangements prevent the Company from entering into strategic relationships with
other companies in the same industry as the Company's strategic partners, either
for specified periods of time or while the arrangements remain in force. In
addition, even when the Company is without contractual restriction, it may be
restrained by business considerations from pursuing alternative arrangements.
The ability of the Company's strategic partners to incorporate the Company's
services into successful commercial ventures will require the Company, among
other things, to continue to successfully enhance its existing services and
develop new services. The Company's inability to meet the requirements of its
strategic partners or to comply with the terms of its strategic partner
arrangements could result in its strategic partners failing to market the
Company's services, seeking alternative providers of communication and
information services or canceling their contracts with the Company, any of which
could have a material adverse impact on the Company.
Dependence on Licensing and Strategic Relationships. The Company has
licensing relationships with companies that have chosen to outsource part or all
of their communications card services to Premiere. License fees accounted for
approximately 26.5% of Premiere's 1996 revenues. One licensee, CNC, accounted
for approximately 19.6% of Premiere's 1996 license fees and approximately 5.2%
of the Company's total 1996 revenues. On August 6, 1996, CNC was placed into
bankruptcy under Chapter 11 of the Bankruptcy Code. CNC owed the Company
approximately $627,000 as of December 31, 1996. However, CNC's transmission
provider, WilTel, is also obligated to pay this amount to the Company. In
addition, WorldCom accounted for approximately 43.5% of Premiere's 1996 license
fees and approximately 11.5% of Premiere's total 1996 revenues. The Company
believes that through a combination of new licensing agreements, the strategic
alliance agreement with WorldCom and increased revenues from existing licensees,
the Company has replaced all of the anticipated CNC revenue.
The Company intends to increase its number of licensees and its licensee
transaction volume in the future. The Company's success depends in part upon
the ultimate success or failure of its licensees. The telecommunications
industry is intensely competitive and rapidly consolidating. The majority of
companies that have chosen to outsource communications card services to Premiere
are small or medium-sized telecommunications companies that may be unable to
withstand the intense competition in the telecommunications industry. During
the past 12 months, one licensee, in addition to CNC, ceased doing business with
the Company primarily due to financial difficulties. Licensees that ceased
doing business with Premiere due to financial difficulties contributed in the
aggregate approximately $2.9 million of Premiere's 1996 revenues. Although the
Company was able to add new licensees in 1996, there can be no assurance that
the failure of one or more of the Company's licensees to develop and sustain a
market for the Company's services, or termination of one or more of the
Company's licensing relationships, will not have a material adverse effect on
the Company's business, operating results or financial condition.
Potential Adverse Impact of Pending Litigation. The Company has several
litigation matters pending, which the Company is defending vigorously. See Note
11 of Notes to Consolidated Financial Statements. Due to the inherent
uncertainties of the judicial system, the Company is unable to predict the
outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, operating results or financial condition.
Dependence on Key Management and Personnel. The Company's success is
largely dependent upon its executive officers and other key personnel, the loss
of one or more of whom could have a material adverse effect on the Company. The
Company believes that its continued success will depend to a significant extent
upon the efforts and abilities of Boland T. Jones, Chairman and President, D.
Gregory Smith, Executive Vice President, Gregg S. Freishtat, Senior Vice
President, and Leonard A. DeNittis, Vice President of Engineering and
Operations, and certain other key executives. The loss of services of any of
these individuals could have a material adverse effect upon the Company. Messrs.
Jones, Smith and DeNittis have entered into employment agreements with the
Company which expire in December 1999, and the Company maintains key man life
insurance on each of these persons in the amounts of $3.0 million, $2.0 million
and $2.0 million, respectively.
The Company also believes that to be successful it must hire and retain
highly qualified engineering and product development personnel. Competition in
the recruitment of highly qualified personnel in the information
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and telecommunications services industry is intense. The inability of the
Company to locate, hire and retain such personnel may have a material adverse
effect on the Company. No assurance can be given that the Company will be able
to retain its key employees or that it will be able to attract qualified
personnel in the future.
Dependence on Switching Facilities and Computer Telephony Platforms;
Damage, Failure and Downtime. The Company currently maintains switching
facilities and computer telephony platforms in Atlanta, Georgia and Dallas,
Texas, and a POP site in London, England. The Company's network service
operations are dependent upon its ability to protect the equipment and data at
its switching facilities against damage that may be caused by fire, power loss,
technical failures, unauthorized intrusion, natural disasters, sabotage and
other similar events. The Company has taken precautions to protect itself and
its subscribers from events that could interrupt delivery of the Company's
services. These precautions include physical security systems, uninterruptible
power supplies, on-site power generators designed to be sufficient to continue
operation of the Company's network in the event of a power outage for
approximately four days, upgraded backup hardware and chemical fire protection
systems. The Company's network is further designed such that the data on each
network server is duplicated on a separate network server. Notwithstanding such
precautions, there can be no assurance that a fire, act of sabotage, technical
failure, natural disaster or a similar event would not cause the failure of a
network server and its backup server, other portions of the Company's network or
one of the facilities as a whole, thereby resulting in an outage of the
Company's services. Such an outage could have a material adverse effect on the
Company. While the Company has not experienced any downtime of its network due
to natural disasters or similar events, on occasion the Company has experienced
downtime due to various technical failures. When such failures have occurred,
the Company has worked to remedy the failure as soon as possible. The Company
believes that these technical failures have been infrequent. Although the
Company maintains business interruption insurance providing for aggregate
coverage of approximately $10.8 million per policy year, there can be no
assurance that the Company will be able to maintain its business interruption
insurance, that such insurance would continue to be available at reasonable
prices, that such insurance would cover all such losses or that such insurance
would be sufficient to compensate the Company for losses it experiences due to
the Company's inability to provide services to its subscribers.
Limited Protection of Proprietary Technology; Risks of Infringement. The
Company relies primarily on a combination of copyright and trade secret laws and
contractual confidentiality provisions to protect its proprietary rights. These
laws and contractual provisions provide only limited protection of the Company's
proprietary rights. The Company has one patent application pending and 13
trademark or copyright registrations pending. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's software or services or to obtain and use information that the
Company regards as proprietary. Although the Company is not aware of any
current or previous infringement on its proprietary rights, there can be no
assurance that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competitors will not independently develop
similar technology. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as the laws of
the United States.
The Company is aware of other companies that use the terms "WorldLink" or
"Premiere" in describing their products and services, including
telecommunications products and services. Certain of those companies hold
registered trademarks which incorporate the names "WorldLink" or "Premiere."
The Company has received correspondence from a provider of prepaid calling cards
which claims that the Company's use of the term "Premiere WorldLink" infringes
upon its trademark rights. In addition, the Company has received correspondence
from a major bank, which is among the holders of registered trademarks
incorporating the term "WorldLink," inquiring as to the nature of the Company's
use of the term "WorldLink" as a part of its mark "Premiere WorldLink." Based
on, among other things, the types of businesses in which the other companies are
engaged and the low likelihood of confusion, the Company believes these claims
to be without merit. No assurance can be given that actions or claims alleging
trademark, patent or copyright infringement will not be brought against the
Company with respect to current or future products or services, or that, if such
actions are brought, the Company will ultimately prevail. Any such claiming
parties may have significantly greater resources than the Company to pursue
litigation of such claims. Any such claims, whether with or without merit, could
be time consuming, result in costly litigation, cause delays in introducing new
or improved services, require the Company to enter into royalty or licensing
agreements or cause the Company to discontinue use of the challenged tradename,
service mark or technology at potential significant expense to the Company
associated with the marketing of a new name
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or the development or purchase of replacement technology, all of which could
have a material adverse effect on the Company.
On June 28, 1996, AudioFAX filed a complaint against the Company and PCI in
the United States District Court for the Northern District of Georgia. In the
complaint, AudioFAX alleged that the Company manufactures, uses, sells and/or
distributes certain enhanced facsimile products which infringe three United
States patents and one Canadian patent allegedly held by AudioFAX. In the third
quarter of 1996 the Company took a one-time charge for the estimated legal fees
and other costs that the Company expected to incur to resolve this matter. On
February 11, 1997, the Company entered into a long term, non-exclusive license
agreement with AudioFAX settling the litigation.
Dependence Upon Software. The software developed and utilized by the
Company in providing its services may contain undetected errors. Although the
Company engages in extensive testing of its software prior to introducing the
software onto its network, there can be no assurance that errors will not be
found in software after commencement of use of such software. Any such error
may result in partial or total failure of the Company's network, additional and
unexpected expenses to fund further product development or to add programming
personnel to complete a development project, and loss of revenue because of the
inability of subscribers to use Premiere's network or the cancellation by
subscribers of their service with Premiere, any of which could have a material
adverse effect on the Company. The Company maintains technology errors and
omissions insurance coverage of $10.0 million per policy aggregate.
Dependence Upon Telecommunication Providers; No Guaranteed Supply. The
Company does not own a transmission network and, accordingly, depends on WilTel,
Corporate Telemanagement, Inc. ("CTG"), Cherry Communications, Incorporated
("Cherry"), Sprint and other facilities-based and non-facilities based carriers
for transmission of its subscribers' long distance calls. For the year ended
December 31, 1996, WilTel, CTG, Cherry and MCI were responsible for carrying
traffic representing approximately 38%, 29%, 13% and 2%, respectively, of the
minutes of long distance transmissions billed to the Company. Further, the
Company is dependent upon local exchange carriers for call origination and
termination. In October 1995, a carrier utilized by the Company to originate
calls experienced a regional network outage due to Hurricane Opal. The Company's
losses due to this outage were approximately $37,000, all of which, less a
$5,000 deductible, was reimbursed by the Company's insurance carrier. In
September 1995, a provider utilized by the Company to originate calls
experienced a regional network outage due to a technical malfunction caused by a
third party vendor performing software maintenance on the provider's network.
The Company estimated its losses at approximately $17,000 due to this outage.
This loss was not covered by the Company's insurance. Although the Company's
originating providers are generally able to reroute the Company's inbound calls
within several hours of an outage, rerouting was not possible in these instances
due to the widespread nature of the outages. If there is an outage affecting one
of the Company's terminating carriers, the Company's platform automatically
switches calls to another terminating carrier if capacity is available. The
Company has not experienced significant losses in the past because of
interruptions of service at terminating carriers, but no assurance can be made
in this regard with respect to the future. The Company's ability to maintain and
expand its business depends, in part, on its ability to continue to obtain
telecommunication services on favorable terms from long distance carriers and
the cooperation of both interexchange and local exchange carriers in originating
and terminating service for its subscribers in a timely manner. A partial or
total failure of the Company's ability to receive or terminate calls would
result in a loss of revenues by the Company and could lead to a loss of
subscribers, which could have a material adverse effect on the Company.
Regulation. Various regulatory factors may have an impact on the Company's
ability to compete and on its financial performance. The Company is subject to
regulation by the FCC and by various state public service and public utility
commissions. Federal and state regulations and regulatory trends have had, and
may have in the future, both positive and negative effects on the Company and on
the information and telecommunications service industries as a whole. FCC
policy currently requires interexchange carriers to provide resale of the use of
their transmission facilities. The FCC also requires local exchange carriers to
provide all interexchange carriers with equal access to the origination and
termination of calls. If either or both of these requirements were removed, the
Company could be adversely affected. These carriers may experience disruptions
in service due to factors outside the Company's control, which may cause the
Company to lose the ability to complete its subscribers' long distance
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calls. The Company has made all filings with the FCC necessary to allow the
Company to provide interstate and international long distance service. In order
to provide intrastate long distance service, the Company is generally required
to obtain certification to provide telecommunications services from the public
service or public utility commissions of each state, or to register or be found
exempt from registration by such commissions. Premiere has made the filings and
taken the actions it believes are necessary to become certified or tariffed to
provide intrastate card services to customers throughout the United States,
except in two states, Alaska and Hawaii, which have historically had
restrictions making the cost prohibitive in light of the immaterial amount of
intrastate traffic the Company handles in those states. This, however, has
recently changed and the Company anticipates authorization to occur in 1997. To
date, the Company has not been denied any licenses or tariffs. The Company has
received authorization to provide intrastate card services in 44 states, and its
applications to provide intrastate card services are pending in 4 states. With
the exception of one state, New Mexico, in which the Company's application to
provide "0+" service is pending, the Company has received authorization to
provide "0+" service in each state where the Company provides such service. The
Company's platform does not prevent subscribers from using the platform to make
intrastate long distance calls in any state, including states in which the
Company has not received approval to provide intrastate long distance services.
There can be no assurance that the Company's provision of intrastate card
services and "0+" service in states where it is not certified or tariffed to
provide such services will not have a material adverse effect on the Company's
business, operating results or financial condition.
On February 8, 1996, the President signed into law the 1996 Act which will
allow local exchange carriers, including the RBOCs, to provide inter-LATA long
distance telephone service and which also grants the FCC authority to deregulate
other aspects of the telecommunications industry. The new legislation may result
in increased competition to the Company from others, including the RBOCs and
increased transmission costs in the future. In addition, the Company may be
subject to additional regulatory requirements and fees as a result of changes
made by the 1996 Act.
In conducting various aspects of its business, the Company is subject to
various laws and regulations relating to commercial transactions generally, such
as the Uniform Commercial Code and is also subject to the electronic funds
transfer rules embodied in Regulation E promulgated by the Board of Governors of
the Federal Reserve. Given the expansion of the electronic commerce
market, the Federal Reserve might revise Regulation E or adopt new rules for
electronic funds transfer affecting users other than consumers. Congress has
held hearings on whether to regulate providers of services and transactions in
the electronic commerce market, and it is possible that Congress or individual
states could enact laws regulating the electronic commerce market. If enacted,
such laws, rules and regulations could be imposed on the Company's business and
industry and could have a material adverse effect on the Company's business,
operating results or financial condition.
Risks Associated with International Expansion. A key component of the
Company's strategy is its planned expansion into international markets. In
1996, the Company opened a POP site in London, England and the Company intends
to pursue long term strategic relationships with European partners. The Company
also intends to establish Telnodes and Network Managers in New Zealand, Canada
and potentially other countries in 1997. If international revenues are not
adequate to offset the expense of establishing and maintaining these
international operations, the Company's business, operating results or financial
condition could be materially adversely affected. To date, the Company has only
limited experience in marketing and distributing its services internationally.
There can be no assurance that the Company will be able to successfully
establish the proposed international Telnodes and Network Managers, or to
market, sell and deliver its services in these markets. In addition to the
uncertainty as to the Company's ability to expand its international presence,
there are certain difficulties and risks inherent in doing business on an
international level, such as burdensome regulatory requirements and unexpected
changes in these requirements, export restrictions, export controls relating to
technology, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world and potentially adverse tax
consequences, which could have a material adverse effect on the performance of
the Company's international operations. There can be no assurance that one or
more of such factors will not have a material adverse effect on the Company's
future international operations and, consequently, on the Company's business,
operating results or financial condition.
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Risk of Loss From Returned Transactions; Fraud; Bad Debt; Theft of
Services. The Company utilizes two principal financial payment clearance
systems: the Federal Reserve's Automated Clearing House ("ACH") for electronic
fund transfers and the national credit card systems for electronic credit card
settlement. In its use of these established payment clearance systems, the
Company generally bears credit risks similar to that normally assumed by other
users of these systems arising from returned transactions caused by insufficient
funds, stop payment orders, closed accounts, frozen accounts, unauthorized use,
disputes, theft or fraud. From time to time, persons have gained unauthorized
access to the Company's network and obtained services without rendering payment
to the Company by unlawfully utilizing the access numbers and PINs of authorized
users. No assurance can be given that future losses due to unauthorized use of
access numbers and PINs will not be material. The Company attempts to manage
these risks through its internal controls and proprietary billing system. The
Company's computer telephony platform prohibits a single access number and PIN
from establishing multiple simultaneous connections to the platform, and the
Company establishes preset spending limits for each subscriber. Past experience
in estimating and establishing reserves, and the Company's historical losses are
not necessarily accurate indications of the Company's future losses or the
adequacy of the reserves established by the Company in the future. Although the
Company believes that its risk management and bad debt reserve practices are
adequate, there can be no assurance that the Company's risk management practices
or reserves will be sufficient to protect the Company from unauthorized or
returned transactions or thefts of services which could have a material adverse
effect on the Company's business, operating results or financial condition.
Volatility of Stock Price. There may be significant volatility in the
market price for the common stock. The Company believes factors such as actual
or anticipated quarterly fluctuations in financial results, changes in earnings
estimates by securities analysts and announcements of material events by the
Company, its major strategic partners or licensees or its competitors may cause
the market price for the common stock to fluctuate, perhaps substantially.
These fluctuations, as well as general economic conditions, may have a material
adverse effect on the market price of the common stock. In addition, in recent
years the stock market in general, and technology-related stocks in particular,
have experienced price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies.
The Company cautions that such factors are not exclusive. The Company does
not undertake to update any forward-looking statement that may be made from time
to time by, or on behalf of, the Company.
-32-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................................. 34
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................................... 35
Consolidated Statements of Operations for the nine months ended December 31, 1994
and for the years ended December 31, 1995 and 1996.................................................. 36
Consolidated Statements of Shareholders' Equity for the nine months ended
December 31, 1994 and for the years ended December 31, 1995 and 1996................................ 37
Consolidated Statements of Cash Flows for the nine months ended December 31, 1994
and for the years ended December 31, 1995 and 1996.................................................. 38
Notes to Consolidated Financial Statements............................................................ 39
</TABLE>
-33-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Premiere Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of PREMIERE
TECHNOLOGIES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31,
1995 and 1996 and the related consolidated statements of operations,
shareholders' equity and cash flows for the nine months ended December 31, 1994
and for the years ended December 31, 1995 and 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Premiere Technologies, Inc.
and subsidiaries as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for the nine months ended December 31, 1994 and
for the years ended December 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 1997
-34-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 1,981,144 $ 6,800,057
Investments......................................................................... 3,515,782 67,333,688
Accounts receivable (less allowance for doubtful accounts
of $107,613 and $609,769, respectively)......................................... 3,013,185 4,743,304
Due from related parties............................................................ 276,477 127,444
Prepaid expenses and other.......................................................... 497,746 2,283,944
Deferred tax asset.................................................................. 2,533,403 3,571,938
------------- --------------
Total current assets.......................................................... 11,817,737 84,860,375
------------- --------------
PROPERTY AND EQUIPMENT................................................................. 5,734,992 19,775,141
Less: accumulated depreciation..................................................... (980,943) (3,001,941)
------------- --------------
Net property and equipment.................................................... 4,754,049 16,773,200
------------- --------------
OTHER ASSETS:
Deferred software development costs, net............................................ 78,105 507,221
Due from related parties............................................................ 100,672 189,618
Deferred tax asset.................................................................. 0 7,566,401
Strategic alliance contract intangible, net (Note 2)................................ 0 29,814,143
Other............................................................................... 237,099 340,151
------------- --------------
$16,987,662 $140,051,109
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 849,584 $ 4,172,542
Accrued payroll..................................................................... 357,345 1,036,866
Accrued transmission................................................................ 1,325,094 496,210
Accrued sales taxes................................................................. 780,661 993,829
Accrued bonuses..................................................................... 15,000 138,671
Accrued construction costs.......................................................... 883,850 1,445,517
Other accrued expenses.............................................................. 887,726 3,725,470
Unearned revenue.................................................................... 352,541 452,618
Current portion of capital lease obligation......................................... 172,422 286,642
Dividends payable on preferred stock................................................ 647,644 0
Notes payable....................................................................... 10,500 2,560,500
------------- --------------
Total current liabilities..................................................... 6,282,367 15,308,865
------------- --------------
LONG TERM LIABILITIES:
Notes payable....................................................................... 1,915,192 11,543
Obligation under capital lease...................................................... 355,160 237,692
Deferred tax liability.............................................................. 242,216 334,520
------------- --------------
Total long term liabilities................................................... 2,512,568 583,755
------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Series A convertible, redeemable 8% cumulative preferred stock, $0.01 par value;
5,000,000 shares authorized, 128,983 and 0 shares issued and outstanding,
respectively, converted to common stock......................................... 3,906,500 0
Common stock, $0.01 par value; 150,000,000 shares authorized, 12,367,920 and
24,011,777 shares issued and outstanding, respectively........................ 123,679 240,118
Additional paid-in-capital.......................................................... 7,237,795 125,785,798
Subscriptions receivable............................................................ (2,436,703) 0
Stock warrants outstanding.......................................................... 243,760 0
Accumulated deficit................................................................. (882,304) (1,867,427)
------------- --------------
Total shareholders' equity.................................................... 8,192,727 124,158,489
------------- --------------
$16,987,662 $140,051,109
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-35-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Subscriber services............................. $5,391,184 $15,084,985 $36,556,688
License fees.................................... 1,747,942 5,934,587 13,777,335
Other revenues.................................. 1,181,014 1,306,366 1,745,315
------------- ------------- -------------
Total revenues............................... 8,320,140 22,325,938 52,079,338
COST OF SERVICES.................................... 2,796,332 7,602,511 16,710,820
------------- ------------- -------------
GROSS MARGIN........................................ 5,523,808 14,723,427 35,368,518
------------- ------------- -------------
OPERATING EXPENSES:
Selling and marketing........................... 3,022,203 7,266,998 16,985,235
General and administrative...................... 1,817,708 4,460,561 8,780,604
Depreciation and amortization................... 245,687 696,898 2,255,253
Charge for purchased research and development... 0 0 11,030,000
Accrued litigation costs........................ 0 0 1,250,000
------------- ------------- -------------
Total operating expenses..................... 5,085,598 12,424,457 40,301,092
OPERATING INCOME (LOSS)............................. 438,210 2,298,970 (4,932,574)
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income................................. 127,177 283,082 2,529,197
Interest expense................................ (242,561) (366,034) (188,340)
Other, net...................................... 42,750 32,062 68,641
------------- ------------- -------------
Total other income (expense)................. (72,634) (50,890) 2,409,498
------------- ------------- -------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS.................... 365,576 2,248,080 (2,523,076)
PROVISION FOR (BENEFIT FROM) INCOME
TAXES........................................... 47,529 330,486 (1,626,541)
------------- ------------- -------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS............................................ 318,047 1,917,594 (896,535)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF TAX EFFECT OF $37,880.................... 0 0 59,251
------------- ------------- -------------
NET INCOME (LOSS)................................... 318,047 1,917,594 (955,786)
PREFERRED STOCK DIVIDENDS........................... 256,000 308,419 29,337
------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS............................. $ 62,047 $ 1,609,175 $ (985,123)
============= ============= =============
PRO FORMA INCOME (LOSS) ATTRIBUTABLE
TO COMMON SHAREHOLDERS FOR
PRIMARY EARNINGS PER SHARE...................... $ 225,614 $ 1,807,382 $ (985,123)
============= ============= =============
PRO FORMA INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARES:
Primary......................................... $0.01 $0.10 $(0.05)
============= ============= =============
SHARES USED IN COMPUTING EARNINGS PER
COMMON AND COMMON EQUIVALENT
SHARES (in thousands): Primary................. 19,147 17,529 20,170
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-36-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
SERIES A
(FORMERLY
SERIES STOCK TOTAL
1994) ADDITIONAL SUBSCRIP- WARRANTS ACCUMU- SHARE-
PREFERRED COMMON PAID-IN TIONS OUT- LATED HOLDERS'
STOCK STOCK CAPITAL RECEIVABLE STANDING DEFICIT EQUITY
------------ --------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994........... $ 3,906,500 $ 59,678 $ 1,959,717 $ (114,110) $ 243,760 $(2,553,526) $ 3,502,019
Subscriptions receivable
payments received............... 0 0 0 39,359 0 0 39,359
Dividends on preferred stock...... 0 0 0 0 0 (256,000) (256,000)
Net income........................ 0 0 0 0 0 318,047 318,047
------------ --------- ------------- ------------ ------------ ------------ -------------
BALANCE, December 31, 1994........ 3,906,500 59,678 1,959,717 (74,751) 243,760 (2,491,479) 3,603,425
Subscriptions receivable
on loans to shareholders........ 0 55,523 2,306,429 (2,361,952) 0 0 0
Issuance of common stock.......... 0 8,478 349,976 0 0 0 358,454
Income tax benefit from
exercise of stock options....... 0 0 2,621,673 0 0 0 2,621,673
Dividends on preferred stock...... 0 0 0 0 0 (308,419) (308,419)
Net income........................ 0 0 0 0 0 1,917,594 1,917,594
------------ --------- ------------- ------------ ------------ ------------ -------------
BALANCE, December 31, 1995........ 3,906,500 123,679 7,237,795 (2,436,703) 243,760 (882,304) 8,192,727
Conversion of Series A
Preferred Stock to common
stock........................... (3,906,500) 30,956 3,875,544 0 0 0 0
Conversion of stock warrants
to common stock................. 0 6,265 237,520 0 (243,760) 0 25
Subscriptions receivable on
loans to shareholders........... 0 0 0 2,436,703 0 0 2,436,703
Issuance of common stock:
Initial public offering......... 0 45,700 74,571,348 0 0 0 74,617,048
TeleT Communications LLC........ 0 4,982 7,495,018 0 0 0 7,500,000
Strategic alliance contract
intangible...................... 0 20,500 25,174,000 0 0 0 25,194,500
Income tax benefit from
exercise of stock options....... 0 0 6,886,091 0 0 0 6,886,091
Exercise of stock options......... 0 8,036 308,482 0 0 0 316,518
Dividends on preferred stock...... 0 0 0 0 0 (29,337) (29,337)
Net loss.......................... 0 0 0 0 0 (955,786) (955,786)
------------ --------- ------------- ------------ ------------ ------------ -------------
BALANCE, December 31, 1996........ $ 0 $240,118 $125,785,798 $ 0 $ 0 $(1,867,427) $124,158,489
============ ========= ============= ============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-37-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................... $ 318,047 $ 1,917,594 $ (955,786)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 245,687 696,898 2,255,253
Amortization of note discount.................................... 30,779 47,369 8,677
Non-recurring charges............................................ 0 0 12,280,000
(Loss) gain on sale of assets.................................... (47,729) 6,180 17,672
Provision for (benefit from) income taxes........................ 0 330,486 (1,626,541)
Loss on early extinguishment of debt............................. 0 0 97,131
Changes in assets and liabilities:
Accounts receivable, net..................................... (233,738) (2,387,451) (1,730,119)
Prepaid expenses and other................................... 5,917 (597,513) (1,981,554)
Accounts payable............................................. (378,893) 653,940 3,222,958
Accrued expenses............................................. 976,234 2,320,441 680,299
Unearned revenue............................................. 2,879 123,381 100,077
-------------- ------------- ---------------
Total adjustments........................................ 601,136 1,193,731 13,323,853
-------------- ------------- ---------------
Net cash provided by operating activities................ 919,183 3,111,325 12,368,067
-------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments, net............................................ (3,510,963) (14,819) (63,817,906)
Purchase of property and equipment, net................................. (819,207) (3,503,771) (13,705,386)
Acquisition of TeleT Communications LLC................................. 0 0 (2,870,000)
Strategic alliance contract intangible.................................. 0 0 (4,777,303)
Increase in accrued construction costs.................................. 0 883,850 561,667
Due from related parties, net........................................... (58,597) (231,647) 60,087
Software development costs.............................................. (7,431) 0 0
Proceeds from sale of equity securities................................. 97,729 0 0
-------------- ------------- ---------------
Net cash used in investing activities.................... (4,298,469) (2,866,387) (84,548,841)
-------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............................. 0 0 74,617,048
Proceeds from payments of subscriptions receivable...................... 39,359 0 2,436,703
Proceeds from exercises of stock options................................ 0 358,454 316,542
Payment of dividends on preferred stock................................. 0 0 (676,981)
Principal payments under capital lease obligation....................... (51,608) (135,776) (234,168)
Principal payments on notes payable..................................... 0 0 (9,457)
Proceeds from issuance of line-of-credit................................ 0 0 2,550,000
Early extinguishment of debt............................................ 0 0 (2,000,000)
-------------- ------------- ---------------
Net cash (used in) provided by financing activities...... (12,249) 222,678 76,999,687
-------------- ------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................................... (3,391,535) 467,616 4,818,913
CASH AND CASH EQUIVALENTS, beginning of period............................. 4,905,063 1,513,528 1,981,144
-------------- ------------- ---------------
CASH AND CASH EQUIVALENTS, end of period................................... $ 1,513,528 $ 1,981,144 $ 6,800,057
============== ============= ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................................. $ 211,782 $ 299,465 $ 178,463
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property purchased under a capitalized lease............................ $ 132,512 $ 299,586 $ 230,920
Stock issued for subscriptions receivable............................... $ 0 $ 2,361,952 $ 0
Equity issued for TeleT Communications LLC.............................. $ 0 $ 0 $ 7,500,000
Equity issued for strategic alliance contract intangible................ $ 0 $ 0 $ 25,194,500
NON-CASH TRANSACTIONS:
Assets acquired with TeleT Communications LLC acquisition............... $ 0 $ 0 $ 627,225
Liabilities assumed with TeleT Communications LLC acquisition........... $ 0 $ 0 $ 100,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-38-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND NATURE OF BUSINESS
Premiere Technologies, Inc. (the "Company" or "Premiere") was incorporated
in Florida in July 1991. On December 18, 1995, Premiere merged into a wholly
owned Georgia subsidiary in order to effect a reincorporation from Florida to
Georgia (the "Reincorporation Merger"). The Company's principal business
operations are carried out through its wholly owned subsidiary, Premiere
Communications, Inc. ("PCI" or "Premiere Communications"), which was organized
in October 1991 and began operations in January 1992. Through Premiere
Communications, the Company provides a comprehensive, integrated suite of
information and telecommunications services to a wide range of users. The
Company delivers its services through its computer telephony platform, which
provides users with a single, user-friendly point of access to the Company's
services. The platform is accessible from virtually any telephone in the world
and is also designed to communicate with PCs, facsimile machines and pagers.
The Company's proprietary software, together with the modular and scalable
architecture and open-systems design of the platform, enables the Company to
customize its services at the individual subscriber level and to easily expand
system capacity.
The Company acquired substantially all of the assets and business
operations of TeleT Communications LLC ("TeleT") on September 18, 1996 through
its wholly owned subsidiary, PTEK Acquisition Corporation (the "Sub"), which was
formed in 1996. The Sub was subsequently merged into Premiere Communications on
December 31, 1996. Additionally, on November 13, 1996 the Company acquired all
of the outstanding shares of EBIS Communications, Inc. that it did not already
own. See Note 3 - Acquisitions.
The Company issued 4,570,000 shares of its $0.01 par value common stock in
an initial public offering in March 1996. Proceeds to the Company, net of the
underwriting discount and expenses of the offering, were $74,617,048.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PRESENTATION
Certain prior years' data presented in the consolidated financial
statements have been reclassified to conform with the current year presentation.
The Company declared a 24-to-1 stock split through the declaration of a stock
dividend for each share of common stock outstanding on December 18, 1995. All
references to the number of common shares and per share amounts have been
restated to reflect the effect of the split.
In connection with the Reincorporation Merger, the designation of the
Series 1994 preferred stock was changed to Series A preferred stock.
-39-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, cash and cash equivalents includes cash
on hand and highly liquid money market investments.
INVESTMENTS
The Company follows the Financial Accounting Standards Board Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for debt and equity
securities at the time of purchase and a reevaluation of such designation as of
each balance sheet date. At December 31, 1995 and 1996, investments consisted
of commercial paper, United States Treasury bills with maturities within 90
days, municipal bonds, coupon municipals, auction rate preferred investments
with various maturities and other equity instruments. Management considers all
debt instruments as "held to maturity" and all equity instruments as "available
for sale." Debt instruments are carried at cost and equity instruments are
carried at the lower of cost or market. As cost approximates market, there were
no unrealized gains or losses at December 31, 1995 or 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciation is provided
for using the straight-line method over the estimated useful lives of the
assets, commencing when the assets are placed in service. The estimated useful
lives are ten years for furniture and fixtures, seven years for office equipment
and five years for computer equipment. The cost of installed equipment includes
expenditures for installation. Assets recorded under capital leases and
leasehold improvements are depreciated over the shorter of their useful lives or
the term of the related lease. Accrued construction costs consist of payables
and accruals related to property, equipment and leasehold improvements under
construction.
DEFERRED CHARGES
The Company has capitalized costs related to the development of proprietary
software which is licensed to other long-distance carriers and which is used
internally for processing communications card calls. All costs in the software
development process that are classified as research and development are expensed
as incurred until technological feasibility has been established. Once
technological feasibility has been established, such costs are considered for
capitalization. The Company's policy is to amortize capitalized software costs
by the greater of (a) the ratio that current gross revenues for a product bear
to the total of current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining estimated life of the
product, including the period being reported on. It is reasonably possible that
those estimates of anticipated future gross revenues, the remaining economic
life of the product or both will be reduced significantly in the near term due
to competitive pressures. Additionally, as part of the TeleT acquisition, the
Company recorded software development costs for technologically feasible in-
process research and development. The valuation of this acquired developed
software was $500,000 as of the date of the acquisition, based on an independent
appraisal. The total accumulated amortization for all capitalized software
development was $109,652 and $180,536 at December 31, 1995 and 1996,
respectively.
-40-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LONG-LIVED ASSETS
In 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The effect of adopting SFAS No. 121 was not material.
The Company periodically reviews the values assigned to long-lived assets,
such as property and equipment, software costs and intangibles, to determine
whether any impairments are other than temporary. Management believes that the
long-lived assets in the accompanying balance sheets are appropriately valued.
In November 1996 the Company entered into a strategic alliance agreement
with WorldCom, the fourth largest long-distance carrier in the United States, in
which WorldCom is required, among other things, to provide the Company with the
right of first opportunity to provide enhanced computer telephony services for a
period of at least 25 years. In connection with this agreement, the Company
issued to WorldCom 2,050,000 shares of common stock valued at approximately
$25.2 million (based on an independent appraisal), and paid WorldCom $4.7
million in cash. As required by SFAS No. 121, this intangible has been reviewed
for possible impairment based on events or changes in circumstances that
indicate the carrying value may not be recoverable. Based on such review,
management believes that this intangible asset is appropriately valued. This
intangible will be reviewed periodically, and there can be no assurance that
future reviews will not require a write down of this asset.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB" No. 25"). Effective in 1995, the Company adopted the
disclosure option of SFAS No. 123, "Accounting for Stock-based Compensation."
SFAS No. 123 requires that companies which do not choose to account for stock-
based compensation as prescribed by the statement, shall disclose the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted.
Additionally, certain other disclosures are required with respect to stock
compensation and the assumptions used to determine the pro forma effects of SFAS
No. 123. See Note 9 - Stock Options, Warrants and Benefit Plans.
REVENUE RECOGNITION
The Company recognizes revenues when services are provided. Subscriber
services revenues consist of services related to the Company's communications
cards, including Premiere WorldLink, AFCOM and co-branded cards. Subscriber
services revenues are based primarily on per minute charges. License fees
represent charges to companies which have license relationships with the Company
for the use of the Company's computer telephony platform. License fees are
contracted on a long term basis with each licensee and are generally based on a
per minute charge and, in certain circumstances, a per service charge.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." In accordance with this statement, deferred income taxes are
recorded using enacted tax laws and rates for the years in which the taxes are
expected to be paid. Deferred income taxes are provided for items when there is
a temporary difference in recording such items for financial reporting and
income tax reporting. See Note 12 - Income Taxes.
-41-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRO FORMA NET INCOME (LOSS) PER SHARE
Primary net income (loss) per share is computed under the modified treasury
stock method using the weighted average number of shares of common stock and
dilutive common stock equivalent shares ("CSEs") from stock options outstanding
during the period, at the weighted average market value of stock prices during
the period. For periods prior to the Company's initial public offering,
earnings per share was calculated pursuant to Securities and Exchange Commission
Staff Accounting Bulletins. Under the modified treasury stock method, proceeds
from the exercise of CSEs consist of the exercise price of the CSEs, as well as
the related income tax benefit to the Company. CSE proceeds are assumed to be
applied first to repurchase up to 20% of the Company's common stock and then to
repay outstanding long term indebtedness. Any remaining CSE proceeds are
assumed to be invested in United States government securities.
In determining the Company's primary net income (loss) per share under the
modified treasury stock method, net income (loss) per share applicable to common
shareholders has been adjusted on a pro forma basis to reflect the decrease in
interest expense related to a capitalized lease obligation and to notes payable
outstanding during the period. To the extent that excess proceeds from the
assumed exercise of outstanding options and tax benefits from the assumed
exercise were in excess of the capitalized lease obligation and the notes
payable, an increase in interest income related to the investment of such excess
proceeds in United States government securities is reflected in adjusted net
income per share applicable to common shareholders. The pro forma net interest
adjustment to primary net income (loss) per share under the modified treasury
stock method was $198,207 for the year ended December 31, 1995. For the year
ended December 31, 1996, earnings per share was not calculated under the
modified treasury stock method as the results were anti-dilutive.
Fully diluted net income per common and common equivalent shares is
computed by including convertible instruments which are not CSEs in the weighted
average per share calculation (using the modified treasury stock method) at
period-end market value of stock prices. To the extent that the convertible
securities are anti-dilutive, they are not included in the fully diluted net
income (loss) per common and common equivalent shares. To the extent that
period-end market value of stock prices is less than the average market value
for the period, then the average market value is used for fully diluted net
income (loss) per common and common equivalent shares. For all periods
presented, the inclusion of convertible securities in the fully diluted
calculation are anti-dilutive. Accordingly, fully diluted earnings per share
data is not presented.
REGULATION
The Company is subject to regulation by the FCC and by various state public
service and public utility commissions. As an international presence is
established, the Company will be subject to regulation by various other
regulatory agencies.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and non-facilities based long distance carriers and other
companies to provide transmission of its subscribers' long-distance calls.
Although management feels that alternative telecommunications facilities could
be found in a timely manner, disruption of these services for more than a brief
period would have an adverse effect on operating results. During 1995 and 1996,
certain carriers utilized by the Company experience regional network outages.
The effect of these outages on the Company was not material.
-42-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DEPENDENCE ON LICENSING RELATIONSHIPS
The Company has licensing relationships with companies that have chosen to
outsource part or all of their communications card services to Premiere.
License fees accounted for approximately 26.6% and 26.5% of Premiere's 1995 and
1996 revenues, respectively. One licensee, Communications Network Corporation
("CNC"), accounted for approximately 25.3% of Premiere's year ended 1995 license
fees and approximately 6.7% of the Company's total 1995 revenues. CNC accounted
for approximately 19.6% of Premiere's 1996 license fees and approximately 5.2%
of the Company's total 1996 revenues. On August 6, 1996, CNC was placed into
bankruptcy under Chapter 11 of the Bankruptcy Code. CNC owed the Company
approximately $627,000 as of December 31, 1996. However, CNC's transmission
provider, WorldCom Network Services, d/b/a WilTel ("WilTel"), is also obligated
to pay this amount to the Company. In addition, WorldCom accounted for
approximately 43.5% of the Company's 1996 license fees and approximately 11.5%
of the Company's total 1996 revenues.
The Company intends to increase its number of licensees and its licensee
transaction volume in the future. The Company's success depends in part upon
the ultimate success or failure of its licensees. The telecommunications
industry is intensely competitive and rapidly consolidating. The majority of
companies that have chosen to outsource communications card services to Premiere
are small or medium-sized telecommunications companies that may be unable to
withstand the intense competition in the telecommunications industry. During
the past 12 months, one licensee, in addition to CNC, ceased doing business with
the Company primarily due to financial difficulties. Licensees that ceased
doing business with the Company due to financial difficulties contributed in the
aggregate approximately $2.9 million of Premiere's 1996 revenues. Although the
Company was able to add new licensees in 1996 there can be no assurance that the
failure of one or more of the Company's licensees to develop and sustain a
market for the Company's services, or termination of one or more of the
Company's licensing relationships, will not have a material adverse effect on
the Company's business, operating results or financial condition.
DEPENDENCE ON SWITCHING FACILITIES AND COMPUTER TELEPHONY PLATFORMS; DAMAGE,
FAILURE AND DOWNTIME
The Company currently maintains switching facilities and computer telephony
platforms in Atlanta, Georgia and Dallas, Texas, and a point-of-presence ("POP")
site in London, England. The Company's network service operations are dependent
upon its ability to protect the equipment and data at its switching facilities
against damage that may be caused by fire, power loss, technical failures,
unauthorized intrusion, natural disasters, sabotage and other similar events.
The Company has taken precautions to protect itself and its subscribers from
events that could interrupt delivery of the Company's services. These
precautions include physical security systems, uninterruptible power supplies,
on-site power generators sufficient to continue operation of the Company's
network in the event of a power outage for four days, upgraded backup hardware
and chemical fire protection systems. The Company's network is further designed
such that the data on each network server is duplicated on a separate network
server. Notwithstanding such precautions, there can be no assurance that a
fire, act of sabotage, technical failure, natural disaster or a similar event
would not cause the failure of a network server and its backup server, other
portions of the Company's network, or the facilities as a whole, thereby
resulting in an outage of the Company's services and having a material adverse
effect on the Company.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Company is dependent upon a number of factors,
including the effect of rapid technological changes affecting the markets for
Premiere's products and services and management's ability to effectively respond
to those changes, including the development, implementation, marketing and
support of new or improved products and services to respond to the changing
environment; the success of Premiere's marketing arrangements, including its
strategic and licensing relationships with various parties including WorldCom;
the effects of intense competition in information and telecommunications
services markets, including, among other things, the consequent effects on the
prices that Premiere may charge for its products and services; the outcome of
-43-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
pending litigation; the risks of potential claims of trademark, patent or
copyright infringement from competitors and other parties, including the expense
of defending claims that Premiere may consider unmeritorious; management's
ability to integrate the operations of TeleT, which was acquired in September
1996, or the operations of any other entity that Premiere may acquire in the
future without, among other things, incurring unexpected obligations or
experiencing unexpected management distractions; the effects in connection with
any potential acquisition of the write-off of acquisition expenses, the write-
off of software development costs and the amortization of expenses related to
goodwill and other intangible assets; Premiere's ability to expand successfully
internationally; the effect of regulatory changes in the telecommunications
industry; and the risk of dependence on key managerial personnel. In addition,
the market price of Premiere's stock may from time to time be significantly
volatile as a result of, among other things: Premiere's operating results; the
operating results of other information and telecommunications companies; future
issuances by Premiere of securities, including options to purchase its stock;
and changes in the performance of the stock market in general.
3. ACQUISITIONS
On September 18, 1996, the Company, through the Sub, acquired substantially
all of the assets and business operations of TeleT for: (i) 498,187 shares of
the Company's $0.01 par value common stock (the "Shares"), for which $4,982 was
recorded to common stock and $7,495,018 was recorded to additional paid-in-
capital, (ii) $2,870,000 in cash and (iii) the assumption of approximately
$100,000 in liabilities (the "Acquisition"). TeleT is an Internet-based
technology development company focused on applications that create an
interchange between telephone and computer resources. The Acquisition was made
pursuant to an Asset Purchase Agreement dated as of September 18, 1996 by and
among the Company, the Sub, TeleT and the Members of TeleT. The Company
financed the cash portion of the purchase price from working capital.
An aggregate of 75,000 of the Shares were placed in escrow pursuant to an
Escrow Agreement among the Company and the Members of TeleT to secure certain
indemnification obligations of those Members. All Shares issued are subject to
Lock-up Agreements prohibiting the sale of such Shares for a weighted average
period of one year following the closing of the Acquisition. Pursuant to the
Acquisition, the Company granted registration rights to the holder of 320,833 of
the Shares. The registration rights are subordinate to the lock-up restrictions
applicable to such Shares. Also pursuant to the Acquisition, Premiere entered
into Employment Agreements with the two senior executives of TeleT.
In connection with the Acquisition, the Company allocated $11.0 million of
the purchase price to incomplete research and development projects.
Accordingly, this cost was expensed as of the Acquisition date. This allocation
represents the estimated value related to the incomplete projects determined by
an independent appraisal. The development of these projects had not yet reached
technological feasibility and the technology had no alternative future use. The
technology acquired in the acquisition of TeleT required substantial additional
development by the Company.
This Acquisition has been accounted for under the purchase method of
accounting and the results of TeleT's operations since the Acquisition date have
been included with those of the Company.
The table below reflects the historical results of the Company and the
historical results of the Company and TeleT, as adjusted for pro forma purchase
accounting adjustments to reflect additional depreciation and amortization of
acquired software, and the related pro forma income tax effects of the
adjustments. The charge for purchased research and development has been
excluded from the pro forma results of operations since it has no continuing
effect on operations. Pro forma results for fiscal year 1995 are not presented
as the pro forma results do not differ materially from the historical results of
the Company. These pro forma amounts are provided for informational purposes
only and are not necessarily indicative of what actually would have occurred if
the
-44-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
acquisition had occurred at the beginning of the period presented. In addition,
they are not intended to be projections of future results and do not reflect any
synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------
Historical As Adjusted
---------- -----------
<S> <C> <C>
Revenues $ 52,079 $ 2,330
Net income (loss) $ (956) $ 5,277
Earnings (loss) per share $ (0.05) $ 0.24
</TABLE>
4. SUBSCRIPTIONS RECEIVABLE
The founders of the Company purchased their shares of common stock by
giving the Company a total of $150,000 in non-recourse, non-interest-bearing
notes, of which $50,000 were short term and $100,000 were due no later than June
30, 1999 (The "Founders Notes"). In addition, in November 1995, certain
officers gave to the Company full-recourse notes to finance the exercise of
stock options (the "1995 Notes"). See Note 11 - Commitments and Contingencies.
These notes were paid in full subsequent to the initial public offering in March
1996. The outstanding principal and accrued interest balance of $2,436,703 of
the Founders Notes and the 1995 Notes was reflected as a reduction to
shareholders' equity at December 31, 1995.
5. PROPERTY AND EQUIPMENT
Balances of major classes of property and equipment and the related
accumulated depreciation at December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Computer equipment $3,263,658 $ 8,046,543
Furniture and fixtures 247,283 1,053,036
Office equipment 147,778 1,057,785
Leasehold improvements 455,862 4,287,253
Construction in progress 883,850 1,450,329
--------------- ----------------
4,998,431 15,894,946
Less accumulated depreciation (725,603) (2,437,763)
--------------- ----------------
Property and equipment, net $4,272,828 $13,457,183
=============== ================
</TABLE>
The assets under capital leases included in property and equipment in the
balance sheets at December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Telecommunications equipment $ 736,561 $3,880,195
Less accumulated depreciation (255,340) (564,178)
--------------- ----------------
Property and equipment, net $ 481,221 $3,316,017
=============== ================
</TABLE>
-45-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. NOTES PAYABLE
Pursuant to a loan agreement dated May 26, 1992, the Company borrowed
$1,000,000 from a small business investment company ("SBIC"). The loan was
scheduled to mature in May 1997, with interest accruing at 12.5%. On December
23, 1993, the Company borrowed an additional $1,000,000 from the same SBIC. The
additional loan was scheduled to mature in December 1998, with interest accruing
at 12%. The loans were secured by accounts receivable, contract rights, chattel
paper and general intangibles. In connection with the original loan, the
Company issued to the SBIC 424,392 stock warrants at $0.042 per share. The fair
value of the stock at the date of the transaction was estimated by the Board of
Directors to be $0.042 per share. Accordingly, the Company discounted the note
by $159,147 resulting in an effective interest rate of 17.3%, In December 1993,
the Company issued to the SBIC 144,000 stock warrants at $0.042 per share in
conjunction with the additional loan. The fair value of the stock at the date
of the transaction was estimated by the Board of Directors to be $0.54 per
share. The loan was discounted by $72,000 resulting in an effective interest
rate of 13.0%. Stock warrants of $231,147 are included in stock warrants
outstanding in the accompanying balance sheets at December 31, 1995. Both of
these loans were repaid subsequent to the Company's initial public offering.
The previously mentioned stock warrants were exercised during the year ended
December 31, 1996, thus the balance of the loans and the stock warrants at
December 31, 1996 was $0.
In October 1996, the Company established a $5 million unsecured revolving
line-of-credit (the "Facility") with NationsBank, N.A. to facilitate interim
long term capital equipment financing needs. The interest rate, at the option
of the Company, is prime, adjusted daily, or LIBOR plus 1.75%, adjusted every
30, 60 or 90 days. The Company elected the LIBOR option, for which the rate was
6.625% at December 31, 1996. Interest is payable monthly and principal at
maturity, which is September 30, 1997. Fees associated with the Facility were
$3,000. There is an additional commitment fee of 0.125% on the unused
availability of the Facility, which is payable quarterly. As of March 17, 1997,
the Company had total borrowings of $4.1 million under the Facility.
7. FINANCIAL INSTRUMENTS
In 1995, the Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet.
The carrying amount of cash and investments approximates fair value because
their maturity is generally less than one year in duration.
The fair value of notes payable and capital lease obligations was
determined using valuation techniques that considered cash flows discounted at
current rates. The fair value of notes payable as of December 31, 1995 was
$1,933,187, as compared to the recorded value of $1,915,192. This note was paid
in full during 1996 thus the carrying value was $0 at December 31, 1996. During
the year ended December 31, 1996, a line-of-credit was established and the fair
value was $2,550,000 at the end of the year. The fair value of the line-of-
credit approximates its carrying value as of December 31, 1996. The fair value
of the capital lease obligation approximates its carrying value at December 31,
1995 and 1996.
8. SHAREHOLDERS' EQUITY
In connection with the Reincorporation Merger, each outstanding share of
common stock was converted into one share of $0.01 par value common stock of the
Georgia corporation, and each outstanding share of the Series 1994 Preferred
Stock was converted into one share of Series A Preferred Stock. Premiere
thereafter declared
-46-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
a 24-to-1 stock split through the declaration of a 23 share common stock
dividend for each share of common stock outstanding on December 18, 1995.
On January 18, 1996, the Company notified the holder of the Series A
Preferred Stock of the Company's intention to redeem the preferred stock and the
holder elected to convert all of the shares of the Series A Preferred Stock into
3,095,592 shares of $0.01 par value common stock at $93 per share (pre-split).
The Series A Preferred Stock was fully cumulative, and the holders of the shares
were entitled to receive dividends at a rate of 8%. The Company accrued $308,419
and $29,337 of dividends payable, plus accrued interest, if applicable, during
the year ended December 31, 1995 and 1996, respectively. The dividends were
payable annually on March 31, commencing on March 31, 1995. All accrued but
unpaid dividends accrue interest after each annual dividend date at a rate of
8%. No dividends were paid during the year ended December 31, 1995 and $676,981
in dividends were paid during the year ended December 31, 1996.
During 1995 and 1996, stock options were exercised under the Company's
stock option plans. None of the options exercised qualified as incentive stock
options, as defined in Section 422 of the Internal Revenue Code (the "Code").
Accordingly, common stock and additional paid-in-capital increased from the
proceeds of the exercises totaling $64,001 and $2,656,405, respectively, for the
year ended December 31, 1995, and $8,035 and $308,481, respectively, for the
year ended December 31, 1996. Additionally, $2,621,673 and $6,886,091 were
recorded as an increase in additional paid-in-capital due to the tax benefit to
be realized by the Company as a result of the exercise of such options during
the years ended December 31, 1995 and 1996, respectively.
9. STOCK OPTIONS, WARRANTS AND BENEFIT PLANS
1994 STOCK OPTION PLAN
In March 1994, the Board of Directors adopted a stock option plan under
which 960,000 shares of common stock were available to be granted (the "1994
Stock Option Plan") to employees, consultants, and others rendering services to
the Company. Options for all of such shares had been granted as of December 31,
1995. Options granted under the 1994 Stock Option Plan are not incentive stock
options ("ISOs") as defined in Section 422 of the Code. The 1994 Stock Option
Plan is administered by a stock option plan committee (the "1994 Stock Option
Plan Committee") consisting of the president of the Company and two members of
the Board of Directors selected by the president.
The stock option agreements governing options granted under the 1994 Stock
Option Plan provide for an exercise price equal to the fair market value at the
date of the option grant as determined by the 1994 Stock Option Plan Committee
and generally vest ratably over the three years following the grant date.
Generally, the options are nontransferable.
The Company has granted nonqualified options and warrants to purchase
common stock to officers, directors and key employees of the Company as well as
to other individual third parties rendering services to the Company. The
exercise price of the options granted to date has been at the market value of
the shares on the date of grant, which prior to a public trading market for the
Company's common stock was determined by the Board of Directors based upon
arm's-length trade information and other analysis. Generally, the options vest
over three years and expire eight years from the date of grant.
1995 STOCK PLAN
The Board of Directors has adopted, and the Company's shareholders have
approved, the Premiere Technologies, Inc. 1995 Stock Plan (the "1995 Stock
Plan"), the primary focus of which is to provide an incentive to key employees
who are in a position to make significant contributions to the Company. Under
the 1995 Stock
-47-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Plan, the stock plan committee of the Board (the "1995 Stock Plan Committee")
has discretion to award stock options, Stock Appreciation Rights ("SARs") and
restricted stock to employees. A total of 1,500,000 shares of common stock has
been reserved for issuance pursuant to the exercise of options or the grant of
restricted stock awards. Options may be either ISOs, which permits the deferral
of taxable income related to the exercise of such options, or nonqualified
options not entitled to such deferral.
The 1995 Stock Plan is administered by the 1995 Stock Plan Committee.
Subject to the provisions of the 1995 Stock Plan, this committee, at its
discretion, selects the recipients of awards and the number of shares or options
granted thereunder and determines other matters such as (i) vesting schedules,
(ii) the exercise price of options (which cannot be less than 100% of the fair
market value of the common stock on the date of grant for ISOs), (iii) the
duration of awards (which cannot exceed ten years), and (iv) the price of SARs.
DIRECTORS' COMPENSATION
Directors are reimbursed for reasonable expenses incurred by them in
connection with their attendance at Board meetings. Directors are also eligible
to receive options, SARs, and restricted stock grants under the 1995 Stock Plan.
Additionally, in December 1991, the Company's Board of Directors authorized the
issuance of warrants to acquire up to 419,328 shares of common stock for $0.42
per share, the fair value at the date of grant, to each of the Company's
nonmanagement directors. The warrants issued in 1991 vested over a three-year
period provided that the individual was serving on the Board of Directors on
such dates. Pursuant to this action of the Board of Directors, George W. Baker,
a current member of the Company's Board of Directors, was granted warrants to
acquire 86,832 shares of common stock and former members of the Board of
Directors were granted warrants to acquire 332,496 shares of common stock.
In May 1993, the Board of Directors issued warrants to acquire 72,000
shares of common stock at a price of $0.52 per share, the fair value at the date
of grant, to Buford H. Ortale who was at that time a member of the Company's
Board of Directors and is now a holder of approximately 3% of the Company's
outstanding common stock in consideration of his election to the Board of
Directors and his investment in the Company.
In December 1993, the Board of Directors granted options to acquire 240,000
and 84,000 shares of common stock at an exercise price of $0.52 per share, the
fair value at the date of grant, to Buford H. Ortale and George L. MacKay,
respectively, who were at the time members of the Company's Board of Directors.
In July 1995, the Board of Directors granted each director warrants to
acquire 24,000 shares of common stock for $0.71 per share, the fair value at the
date of grant, which vested in 1995, provided that the director was a member of
the Board of Directors on that date. In addition, Eduard Mayer was granted
warrants to acquire 86,400 shares of common stock at $0.71 per share, the fair
value at the date of grant, in recognition of his exemplary service on the Board
of Directors.
In July 1996, the Board of Directors granted each nonemployee director
warrants to acquire 10,000 shares of common stock for $18.50 per share, the fair
value at the date of grant, which vested at December 31, 1996, provided that the
director was a member of the Board of Directors on that date.
-48-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OPTION AND WARRANT ACTIVITY
In November 1995, Boland T. Jones, D. Gregory Smith, and Leonard A.
DeNittis exercised options to acquire 2,277,864, 2,277,864 and 996,552 shares of
common stock, respectively. Pursuant to the terms of each of their employment
agreements, the Company loaned such officers $825,000, $825,000 and $688,000,
respectively, to fund the exercise of these options. The loans were evidenced
by recourse promissory notes bearing interest at 6.55%, which were secured by a
pledge of the common stock acquired upon the exercise of the options. These
loans and accrued interest were repaid in full in 1996. Additionally, loans
were made as part of the exercise of these options to assist the officers in
paying the associated taxes. The loans to such officers for taxes totaled
$73,086, $73,086, and $22,048, respectively, and were also repaid in full in
1996.
In July 1995, the Board of Directors authorized the sale of warrants to
acquire 24,000 shares of common stock at $0.71 per share for $1,000 to an
individual who became the Company's Senior Vice President of Finance and Legal
in November 1995.
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted with an exercise price equal to the fair value of the Company's
common stock on the date of grant. The Company adopted SFAS No. 123 for
disclosure purposes in January 1995. For SFAS No. 123 purposes, the fair value
of each option grant has been estimated as of the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.26 percent, expected life of 2.34 years, dividend
rate of zero percent, and expected volatility of 42 percent. Using these
assumptions, the fair value of the stock options granted in 1996 is $8,402,324,
which would be amortized as compensation expense over the vesting period of the
options. Options generally vest over three or four years. Had compensation
cost been determined consistent with SFAS No. 123, utilizing the assumptions
detailed above, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Net Income (loss):
As Reported................................ $1,917,594 $ (955,786)
Pro forma.................................. $1,766,900 $(2,314,412)
Primary EPS:
As Reported................................ $0.10 $(0.05)
Pro forma.................................. $0.09 $(0.13)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years.
A summary of the status of the Company's stock options plans at December
31, 1994, 1995 and 1996 and for the years then ended is presented in the table
and narrative below:
-49-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNDER APB NO. 25:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
----------- -------------
<S> <C> <C>
Options outstanding, March 31, 1994................... 8,578,464 $0.13 - 0.52
Granted............................................ 54,000 0.54 - 0.71
Exercised.......................................... 0 0
Forfeited.......................................... (240,000) 0.52
-----------
Options outstanding, December 31, 1994................ 8,392,464 $0.13 - 0.71
===========
</TABLE>
In November 1995, the Company granted a total of 4,256,400 options to
employees at $1.61 per share, the fair market value on the grant dates. The
fair market value for the options granted in November 1995 was supported by an
independent appraisal. The remaining 1,009,200 options granted in 1995 were
granted at various dates throughout the year prior to November 1995.
UNDER SFAS NO. 123:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE
- - ----------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Options outstanding at December 31, 1994................... 8,392,464 $ 0.39
Granted................................................. 5,265,600 1.44
Exercised............................................... (5,831,688) 0.43
Forfeited............................................... (367,992) 0.45
----------------- -------------------
Options outstanding at December 31, 1995................... 7,458,384 1.07
Granted................................................. 1,299,799 18.89
Exercised............................................... (1,371,938) 0.51
Forfeited............................................... (44,800) 18.03
----------------- -------------------
Options outstanding at December 31, 1996................... 7,341,445 $ 4.27
================= ===================
Exercisable at end of year................................. 1,741,543 $ 1.51
================= ===================
Weighted average fair value of options granted in 1996..... $ 6.46
===================
</TABLE>
Of the 7,341,445 employee and director options outstanding at December 31,
1996, (i) 146,016 options have an exercise price of $0.13, with a remaining
contractual life of 2.5 years, of which all are exercisable, (ii) 1,197,730
options have exercise prices between $0.42 and $0.52, with a weighted average
exercise price of $0.50 and a weighted average remaining contractual life of 4.5
years, of which all are exercisable, (iii) 750,320 options have an exercise
price of $0.71, with a weighted average remaining contractual life of 6.2 years,
of which 64,880 are exercisable, (iv) 3,987,580 options have an exercise price
of $1.61, with a weighted average remaining contractual life of 6.8 years, of
which 1,223,504 are exercisable, (v) 495,350 options have exercise prices
between $15.125 and $19.375, with a weighted average exercise price of $16.61
and a weighted average remaining contractual life of 8.1 years, of which 30,000
are exercisable, (vi) 764,449 options have exercise prices between $20.00 and
$25.25, with a weighted average exercise price of $20.31 and a weighted average
remaining contractual life of 6.7 years, of which 39,400 are exercisable.
In the year ended March 31, 1994, the Company entered into an agreement
with a hotel management company. The agreement, which expired June 30, 1995,
represented a variable stock option plan (with a measurement date upon vesting)
whereby the Company granted stock options to the hotel management company based
on the level of call traffic handled at certain properties. The options were
exercisable at $0.00042 per share and vested over three years. A total of
59,981 options were earned under the agreement. During the nine months
-50-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ended December 31, 1994 and the year ended December 31, 1995, 19,752 and 16,925
options vested, respectively. All of the vested options under this agreement
were exercised in 1996.
EMPLOYEE BENEFITS
In 1995, the Company adopted a tax-qualified profit sharing plan for
eligible employees that also includes a 401(k) component (the "Profit Sharing
Plan"). All full-time employees are eligible to participate in the Profit
Sharing Plan upon the attainment of age 21 and completion of three months of
service. Under the Profit Sharing Plan, an employee may elect to defer up to
15% of his compensation and direct the Company to contribute such deferred
amounts to the Profit Sharing Plan. Each year the Company determines whether to
make a discretionary matching contribution equal to a percentage, determined by
the Company, of the employee's deferred compensation contribution. The Company
has not made any matching contributions to the Profit Sharing Plan.
Accordingly, no compensation expense related to the Profit Sharing Plan has been
recognized in the accompanying financial statements. All contributions to the
Profit Sharing Plan by or on behalf of employees are subject to annual limits
prescribed by the Code.
In July 1994, the Company began offering a medical and dental health plan
to its employees. The Company was self-insured for certain health and dental
benefits up to a maximum amount per month of approximately $10,000 based on
claims history and current employment levels through January 1996. The Company
accrued for estimated losses occurring from both asserted and unasserted claims.
The estimate of the liability for unasserted claims arising from unreported
incidents was based on an analysis of historical claims data. The cost of such
claims was approximately $35,000 and $135,000 for the periods December 31, 1994
and 1995, respectively. In February 1996, the Company changed its medical and
dental plan insurance provider and is no longer self-insured.
10. RELATED-PARTY TRANSACTIONS
The Company has in the past entered into agreements and arrangements with
certain officers, directors and principal shareholders of the Company involving
loans of funds, grants of options and warrants and the acquisition of a
business. Certain of these transactions may be on terms more favorable to
officers, directors and principal shareholders than they could acquire in a
transaction with an unaffiliated party. The Company adopted a policy requiring
that, in the future, all material transactions between the Company and its
officers, directors or other affiliates must (i) be approved by a majority of
the disinterested members of the Board of Directors of the Company, and (ii) be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
In September 1993, the Company loaned a total of $65,000 to the three
principal officers of the Company to purchase 219,984 shares of stock and
175,992 stock purchase warrants exercisable at $0.125 per share from one of the
Company's Board members. The loans, which were interest free, were repaid
during 1996.
In prior years, the Company advanced $25,000 to certain officers and
shareholders of the Company to purchase the common stock and debentures of
another shareholder, and $5,000 was repaid during the year ended March 31, 1994.
The Board of Directors forgave $10,000 during the nine months ended December 31,
1994. The advances were repaid during 1996.
During the year ended March 31, 1994 and the nine months ended December 31,
1994, management made salary advances of $25,000 and $35,849, respectively, to
certain officers of the Company. During the year ended December 31, 1995,
$50,000 of these amounts were repaid. The balance was repaid during 1996.
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In November 1995, the Company loaned a certain officer $90,000 in
connection with the officer's transition from his previous employer to the
Company. This unsecured loan is evidenced by a promissory note bearing interest
at 6.11%, the interest on which is payable beginning in November 1997 and
continuing each year until November 1999. Principal is to be repaid in five
equal annual installments, with accrued interest, commencing in November 2000;
however, pursuant to the officer's employment agreement, the officer may be
required to make earlier payments from certain bonus compensation paid to the
officer under such employment agreement.
In November 1995, the Company loaned three officers a total of $2,338,000,
to fund the exercise of stock warrants and options which were repaid in full in
1996. These loans were evidenced by recourse promissory notes bearing interest
at 6.55%, which were secured by a pledge of the common stock acquired upon the
exercise of the warrants and options. All principal and accrued interest were
to be paid in November 2005; however, if any of the common stock securing the
promissory notes was sold, the net proceeds of such sale were to be applied to
the outstanding principal and interest due under that promissory note.
Additionally, the Company loaned such officers an additional total amount of
$168,220, to assist the officers in paying the federal and state income taxes
associated with the exercise of the warrants and options which were repaid in
full in 1996.
In September 1996, the Company loaned a certain officer $75,000 in
connection with the officer's transition from his previous employer to the
Company. This unsecured loan is evidenced by a promissory note bearing interest
at 6.64%, the interest on which is payable beginning in September 1998 and
continuing each year until September 2000. Principal is to be repaid in five
equal annual installments, with accrued interest, commencing in September 2001;
however, pursuant to the officer's employment agreement, the officer may be
required to make earlier payments from certain bonus compensation paid to the
officer under such employment agreement.
In October 1996, the Company loaned a certain officer $10,000. This
unsecured loan is evidenced by a promissory note bearing interest at 6.5%.
Principal and interest are to be repaid in one payment in October 1998.
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases central office switching equipment, office space and
other equipment under non-cancelable lease agreements. The leases generally
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased assets. Future minimum operating and capital lease
payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASE
--------------- ---------------
<S> <C> <C>
1997...................................................... $ 667,610 $ 352,326
1998...................................................... 326,283 264,244
1999...................................................... 179,810 0
2000...................................................... 179,810 0
2001...................................................... 104,890 0
Thereafter................................................ 0 0
--------------- ---------------
$1,458,403 616,570
===============
Less amount representing taxes............................ (34,900)
---------------
Net minimum lease payments................................ 581,670
Less amount representing interest......................... (57,336)
---------------
Present value of net minimum lease payments............... 524,334
Less current portion...................................... (286,642)
---------------
Obligation under capital lease, net of current portion.... $ 237,692
===============
</TABLE>
Rental expense under operating leases amounted to $206,563, $339,329 and
$734,321 for the nine months ended December 31, 1994, and the years ended
December 31, 1995 and 1996, respectively. During 1994, 1995 and 1996, additions
to the Company's switching equipment resulted in an increase to the capital
lease obligation of $132,512, $299,586 and $230,920, respectively.
SUPPLY AGREEMENTS
The Company obtains long distance telecommunications services pursuant to
supply agreements with suppliers of long distance telecommunications
transmission services. Although these contracts generally provide fixed
transmission prices for terms of three to five years, they are subject to
earlier termination in certain events. No assurance can be given that the
Company will be able to obtain long distance services in the future at favorable
prices or at all, and the unavailability of long distance service, or a material
increase in the price at which the Company is able to obtain long distance
service, would have a material adverse effect on the Company's business,
financial condition and results of operations. Certain of these agreements
provide for minimum purchase requirements. The Company is currently a party to
four long distance telecommunications services contracts that require the
Company to purchase a minimum amount of services each month. The first such
agreement which is with Company A, requires the Company to utilize 100,000
transmission minutes each month per transmission circuit and to incur a minimum
of $75,000 in charges. In the event of a shortfall in minute usage, the Company
would be required to pay Company A an amount equal to $0.015 multiplied by the
difference between 100,000 minutes and the number of minutes actually utilized
by the Company on each transmission circuit. In the event the Company uses less
than $75,000 in services, the Company would be required to pay the difference
between $75,000 and the actual charges incurred. The second such agreement
which is with Company B, requires the Company to use 75,000 transmission minutes
each month per transmission circuit from Company B. The Company is required to
use 100,000 minutes per month per transmission circuit in order to receive
discounts under this agreement. If the Company fails to utilize 75,000 minutes,
Company B may cancel the contract. The third such agreement requires the
Company to use 100,000 minutes per transmission circuit from Company C. In the
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
event of a shortfall, the Company would be required to pay an amount equal to
$0.03 multiplied by the difference between 100,000 minutes and the actual
minutes used. This agreement also requires the Company, from the period of
November 1, 1997 through October 31, 1998, to maintain at least the level of
monthly charges incurred by the Company in the October 1997 billing period and
grants Company C a right of first refusal to provide all telecommunications
service to the Company. The final agreement which is with Company D provides
for a minimum of 300,000 billable minutes per month beginning January 1996.
Subject to certain exceptions, if the Company does not meet the minimum
commitment, the Company will be required to pay $0.02 per billed minute below
the minimum. The minimum requirement is terminable by the Company after it pays
$576,000 to Company D under the agreement. The agreement provides Company D
with the right to be the exclusive service provider of terminating traffic in a
defined region. The Company has not failed to fulfill the minimum usage
requirement under any of these contracts in the past. The Company monitors its
transmission usage in an attempt to avoid any such shortfall. In the future the
Company may determine that it is desirable to enter into additional agreements
containing minimum purchase requirements. No assurance can be given that demand
for services in the areas covered by the Company's transmission suppliers will
exceed these minimum purchase requirements in the future.
RISK OF INFRINGEMENT
The Company is aware of other companies that utilize the term "WorldLink"
or "Premiere" in describing their products and services, including
telecommunications products and services. Certain of those companies hold
registered trademarks which incorporate the name "WorldLink" or "Premiere." The
Company has received correspondence from a provider of prepaid calling cards
which claims that the Company's use of the term "Premiere WorldLink" infringes
upon its trademark rights. In addition, the Company has received correspondence
from a major bank, which is among the holders of registered trademarks
incorporating the term "WorldLink," inquiring as to the nature of the Company's
use of the term "WorldLink" as a part of its mark "Premiere WorldLink." Based
on, among other things, the types of businesses in which the other companies are
engaged and the low likelihood of confusion, the Company believes these claims
to be without merit. No actions other than the AudioFAX litigation have been
filed with respect to either the patent or trademark claims. See Litigation
below. However, no assurance can be given that actions or claims alleging
trademark, patent, or copyright infringement will not be brought by these or
other parties against the Company with respect to current or future products or
services or that, if such actions are brought, the Company will ultimately
prevail. Any such claiming parties may have significantly greater resources
than the Company to pursue litigation of such claims. Any such claims, whether
with or without merit, could be time-consuming, result in costly litigation,
cause delays in introducing new or improved services, require the Company to
enter into royalty or licensing agreements, or cause the Company to discontinue
use of the challenged trademark, service mark or technology at potential
significant expense to the Company associated with the marketing of a new name
or the development or purchase of replacement technology, all of which could
have a material adverse effect on the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with Boland T. Jones, Chairman of the Board of Directors and
President; D. Gregory Smith, Executive Vice President, Assistant Secretary, and
Director; and Leonard A. DeNittis, Vice President of Engineering and Operations
(the "Executives"). Each Employment Agreement provides for an employment term
expiring December 31, 1999. Under their respective Employment Agreements,
Boland T. Jones and D. Gregory Smith were each paid base salaries of $200,000
for the year ended December 31, 1996 and are each to be paid a base salary of
$210,000 beginning in 1997. Leonard A. DeNittis was paid a base annual salary
of $175,000 and is to be paid a base annual salary of $183,750 beginning in
1997. Patrick G. Jones, who joined the Company in November 1995 as the Senior
Vice President of Finance and Legal and Secretary, has entered into a similar
agreement. Mr. Jones was paid a base salary of $150,000 and is to be paid a
base annual salary of $157,500 beginning in 1997. Gregg S. Freishtat, who
joined the Company as Senior Vice President in September 1996 from TeleT, has
entered into a similar
-54-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
agreement. Mr. Freishtat's base salary is $150,000 through 1997. Each of the
base salaries will increase 5% each year, with additional increases, if any, as
set by the Board of Directors.
Under the Employment Agreements, each of the Executives is eligible to
receive bonus compensation based on the financial performance of the Company.
The amount of bonus compensation is calculated based on operating revenues and
the Company's adjusted net income before interest and taxes as determined in
accordance with the Employment Agreements ("Adjusted EBIT"). Boland T. Jones
and D. Gregory Smith received as a bonus (i) 0.25% of the Company's operating
revenues and (ii) 2.5% of the Company's Adjusted EBIT for the year ended
December 31, 1995 which amounted to a bonus of $126,128 for both Mr. Jones and
Mr. Smith. Beginning in 1996, Boland T. Jones and D. Gregory Smith will receive
as a bonus 1.5% of the Company's Adjusted EBIT. Leonard A. DeNittis received a
bonus of 1.5% of the Company's Adjusted EBIT for the year ended December 31,
1995 which amounted to $42,217, and his bonus beginning in 1996 will be 0.5% of
the Adjusted EBIT. The changes in arrangement for Boland T. Jones, D. Gregory
Smith, Leonard A. DeNittis were affected in amendments to their Employment
Agreements entered into in November 1995. In conjunction with these amendments,
Boland T. Jones, D. Gregory Smith, Leonard A. DeNittis were granted options to
acquire 1,440,000, 1,400,000 and 720,000 shares of common stock respectively at
an exercise price of $1.61 per share, the fair value of the common stock at the
date of grant as determined by an independent appraisal. Beginning in 1996,
Patrick G. Jones was entitled to receive a bonus of 0.45% of the Company's
Adjusted EBIT, and beginning in 1997, Gregg S. Freishtat will be entitled to
receive a bonus of 0.45% of the Company's adjusted EBIT. Bonuses payable to the
Executives will be deferred if the net effect of the payment of the bonuses to
the Executives would cause the Company to recognize a net loss for the year.
The amount of any deferred bonus will be paid in the next succeeding year in
which the payment of the deferred bonus and the bonus for such year would not
cause the Company to recognize a net loss. To date no bonus amounts have been
deferred. In July 1996, Messrs. Boland Jones, Smith, DeNittis and Patrick Jones
each agreed to waive any rights to bonuses otherwise due under the Employment
Agreements for 1996. In connection with such waiver, Messrs. Boland Jones,
Smith, DeNittis and Patrick Jones were granted options to acquire an aggregate
of 50,000, 50,000, 20,000 and 15,000 shares of common stock, respectively, at an
exercise price of $18.50 per share, which was the fair market value of the
common stock on the date of grant as determined by the Board of Directors. The
options granted will vest on March 31, 1997.
LITIGATION
On January 30, 1996, Eric Bott, E.B. Elliott and Cost Recovery Systems,
Inc. ("CRS") filed a complaint against the Company's wholly-owned subsidiary,
Premiere Communications, Inc. ("PCI" or "Premiere Communications") and the
Company's President, Boland T. Jones, in the Superior Court of Fulton County,
Georgia. In the complaint, the plaintiffs allege that: (i) Mr. Bott, a former
Company employee, is entitled to options to purchase 10,000 shares of common
stock of PCI at $5.00 per share; (ii) Mr. Bott is entitled to a commission equal
to 10% of all revenues that have been and in the future are collected as a
result of the Company's licensing arrangement with one of its customers; (iii)
Mr. Bott is entitled to $7,000 for consulting work allegedly performed for the
Company; (iv) Mr. Bott is entitled to unspecified damages resulting from his
sale in June 1995 of 750 shares of common stock of PCI to an unrelated third
party for an unspecified amount; (v) Mr. Elliott or CRS, an affiliate of Mr.
Elliott, is entitled to options to purchase 5,000 or 10,000 shares of common
stock of PCI at an unspecified exercise price arising out of work allegedly
performed by CRS for the Company; and (vi) CRS is owed an unspecified amount of
commissions from the Company relating to sales of the Company's
telecommunications services by CRS. Subsequent to the filing of the complaint,
the plaintiffs dismissed without prejudice count (iv) above. The plaintiffs
also seek attorneys' fees and unspecified amounts of punitive damages. The
Company filed an answer and counterclaim denying all allegations of the
complaint and asserting various affirmative defenses. Assuming that the
allegations concerning stock options and stock sales relate to the common stock
of Premiere Technologies, Inc., rather than PCI, as alleged, the Company
believes that the share numbers and exercise prices have not been adjusted for
the 24-to-1 stock split effected in December 1995. In this regard, the
plaintiffs filed a motion to add the Company as a defendant and to amend their
complaint to assert their claims against the
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company. Adjusting the share numbers and exercise prices of these options to
reflect the 24-to-1 stock split, the plaintiffs' claims relate to options to
purchase up to a total of 480,000 shares of common stock and the alleged
exercise price of $5.00 per share with regard to a portion of such options
becomes approximately $0.21 per share. The plaintiffs' motion was denied on
December 17, 1996, and the plaintiffs dismissed the case without prejudice on
January 13, 1997. The plaintiffs filed a new complaint against the Company on
January 21, 1997 setting forth the same allegations as described above. The
Company has filed an answer and counterclaim denying all allegations of the
complaint and asserting various affirmative defenses and a motion to dismiss
with respect to all counts of the complaint. The Company believes it has
meritorious defenses to the plaintiffs' allegations, but due to the inherent
uncertainties of the judicial system, the Company is unable to predict the
outcome of this litigation. If the outcome of this litigation is adverse to the
Company, it could have a material adverse effect on the Company's business,
operating results or financial condition.
On June 28, 1996, AudioFAX IP LLC ("AudioFAX") filed a complaint against
the Company and PCI in the United States District Court for the Northern
District of Georgia. In the complaint, AudioFAX alleged that the Company
manufactures, uses, sells and/or distributes certain enhanced facsimile products
which infringe three United States patents and one Canadian patent allegedly
held by AudioFAX. In the third quarter of 1996, the Company took a one-time
charge for the estimated legal fees and other costs that the Company expected to
incur to resolve this matter. On February 11, 1997, the Company entered into a
long term, non-exclusive license agreement with AudioFAX settling the
litigation. The one-time charge was adequate to cover the actual costs of
litigation, and the cost of the license agreement is not expected to have a
material effect on the Company's earnings. See Note 13 - Subsequent Events.
On August 6, 1996, CNC, a licensing customer of the Company, was placed
into bankruptcy under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). On August 23, 1996, CNC filed a motion to intervene in a
separate lawsuit brought by a CNC creditor in the United States District Court
for the Southern District of New York against certain guarantors of CNC's
obligations and to file a third party action against numerous entities,
including such CNC creditor and PCI for alleged negligent misrepresentations of
fact in connection with an alleged fraudulent scheme designed to damage CNC.
The court has not ruled on CNC's request. Based upon the bankruptcy examiner's
findings, the bankruptcy trustee, who has been substituted for CNC in this
action, is investigating the merits of any potential actions directed at PCI.
No actions or suits have been filed by the trustee against PCI, but the trustee
has notified PCI that as one of the potential claims he is investigating, he
intends to assert an avoidable preference claim under the Bankruptcy Code of an
amount up to approximately $800,000. Due to the inherent uncertainties of the
judicial system, the Company is unable to predict with certainty the outcome of
the trustee's investigation and the potential litigation. If the outcome of any
such litigation is adverse to the Company, it could have a material adverse
effect on the Company's business, operating results or financial condition.
On September 20, 1996, Peter Lucina ("Lucina") filed a complaint against
the Company, Donald B. Gasgarth ("Gasgarth") and Patrick G. Jones ("Jones") in
the United States District Court for the Eastern District of Illinois. In the
complaint, Lucina alleges, among other things, that: (i) in November 1995 he
sold 1,563 shares of the Company common stock to Gasgarth, a former director of
the Company, for $31,260; (ii) Jones offered to "facilitate" the sale; (iii) in
December 1995 the Company filed a registration statement relating to the initial
public offering of its common stock; (iv) prior to his sale of stock to
Gasgarth, neither Gasgarth nor Jones told Lucina that the Company planned an
initial public offering; and (v) the 1,563 shares sold to Gasgarth, adjusted for
the 24-to-1 stock split subsequently effected, was worth $675,216 based on the
Company's initial public offering at $18 per share in March, 1996. In his
complaint, Lucina asserts violations of the Securities Exchange Act of 1934 and
the rules promulgated thereunder, the Illinois Consumer Fraud and Deceptive
Business Practices Act and common law fraud. Lucina seeks the return of 37,512
shares of common stock of the Company, or in the alternative, compensatory
damages in the amount of $975,312 with interest thereon, punitive damages in the
amount of $1 million and costs of the suit, including reasonable attorneys' fees
and other associated costs. The Company has filed an answer to the complaint
denying allegations of the complaint and asserting various defenses. Discovery
is
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
in its initial stages, and no trial date has been set. The Company believes
that it has meritorious defenses to the Lucina complaint; however, due to the
inherent uncertainties of the judicial system, the Company is unable to predict
the outcome of this litigation. If the outcome of any such litigation is
adverse to the Company, it could have a material adverse effect on the Company's
business, operating results or financial condition.
12. INCOME TAXES
The difference between the statutory federal income tax rate and the
Company's effective income tax rate applied to income before income taxes and
extraordinary loss was as follows for the nine months ended December 31, 1994
and for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income taxes at federal statutory rate $124,296 $ 844,401 $ (857,846)
State tax provision, net of federal benefit 14,623 124,176 (126,154)
Utilization of net operating loss (93,959) 0 0
Change in valuation allowance 0 (693,208) 0
Non-taxable investment income 0 0 (722,970)
Non-deductible expenses 2,569 55,117 80,429
------------- ------------- -------------
Income taxes at the Company's effective rate $ 47,529 $ 330,486 $(1,626,541)
============= ============= =============
</TABLE>
<TABLE>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 0 $ 0 $ 2,733,717
Other 47,529 0 402,016
Deferred:
Federal 0 288,116 (4,151,726)
Other 0 42,370 (610,548)
</TABLE>
During the year ended December 31, 1995, the Company reduced its valuation
reserve to zero based upon management's conclusion that it is more likely than
not that future taxable income will be sufficient to realize all net operating
loss carryforwards. At December 31, 1996, the remaining $5,959,202 of net
operating loss carryforwards relate primarily to non-qualified stock
compensation expense for tax purposes in excess of stock compensation for book
purposes, the benefit of which was credited directly to additional paid-in-
capital in accordance with APB No. 25 and SFAS No. 109.
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<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The sources of differences between the financial accounting and tax bases
of assets and liabilities which give rise to the deferred tax assets and
liabilities are as follows at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax asset:
Net operating loss $2,208,844 $ 5,959,202
In-process research and development 0 4,218,056
Unearned revenue 135,297 174,327
Accounts receivable reserve 41,969 237,810
Accrued expenses 147,293 548,944
------------ ------------
2,533,403 11,138,339
Deferred tax liability:
Depreciation (242,216) (334,520)
------------ ------------
Net deferred tax asset $2,291,187 $10,803,819
============ ============
</TABLE>
The Company and its subsidiaries file a consolidated income tax return.
The Company has not paid income taxes for any of the years presented in the
accompanying financial statements. At December 31, 1996, the Company had net
operating loss carryforwards of approximately $15,280,004 expiring $439,587 in
2008, $955,846 in 2009 and $4,268,270 in 2010 and $9,616,301 in 2011.
13. SUBSEQUENT EVENTS
On February 11, 1997, the Company entered into a long term, non-exclusive
license agreement with AudioFAX settling the litigation. The one-time charge
was adequate to cover the actual costs of litigation, and the cost of the
license agreement is not expected to have a material effect on the Company's
earnings. See Note 11 - Commitments and Contingencies.
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<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements with or change in the registrant's
independent accountant since the Company's inception.
PART III
Certain information required by Part III is omitted from this report in
that the Registrant will file a Definitive Proxy Statement pursuant to
Regulation 14A ("Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the index set forth in
Item 8 of this report are filed as part of this report.
2. Financial Statement Schedules
Financial statement schedules required to be included in
this report are either shown in the financial statements and
notes thereto, included in Item 8 of this report or have
been omitted because they are not applicable.
3. Exhibits
2.1 Agreement and Plan of Merger between Premiere
Technologies, Inc. and Premiere Technologies
Reincorporation, Inc. (incorporated by reference to
Exhibit 2.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
2.2 Asset Purchase Agreement, together with exhibits,
dated September 18, 1996 by and among the Registrant,
PTEK Acquisition Corporation, TeleT Communications
LLC and the Members of TeleT Communications LLC
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated
September 18, 1996).
3.1 Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
3.2 Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Articles of Incorporation and Bylaws defining the
rights of the holders of common stock of the
Registrant (incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-
1 (No. 33-80547) .
4.2 Specimen Stock Certificate (incorporated by reference
to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
9.1 Form of Voting Trust Agreement to be entered into
under the Registrant's 1994 Stock Option Plan
(incorporated by reference to Exhibit 9.1 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.1 Loan Agreement dated May 26, 1992 between the
Registrant and Sirrom Capital, L.P. n/k/a Sirrom
Capital Corporation ("Sirrom") (incorporated by
reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.2 Secured Promissory Note dated May 26, 1992 made by
the Registrant in favor of Sirrom (incorporated by
reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
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<PAGE>
10.3 Pledge and Security Agreement dated May 26, 1992
between the Registrant and Sirrom (incorporated by
reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.4 Guaranty Agreement dated May 26, 1992 between
Premiere Communications, Inc. and Sirrom
(incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.5 Security Agreement dated May 26, 1992 between
Premiere Communications, Inc. and Sirrom
(incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.6 Stock Purchase Warrant dated May 26, 1992 between the
Registrant and Sirrom (incorporated by reference to
Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.7 First Amendment to Loan Agreement and Loan Documents
dated as of December 23, 1993 between the Registrant
and Sirrom (incorporated by reference to Exhibit 10.7
to the Registrant's Registration Statement on Form S-
1 (No. 33-80547).
10.8 Secured Promissory Note dated December 23, 1993 made
by the Registrant in favor of Sirrom (incorporated by
reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.9 Stock Purchase Warrant dated December 23, 1993
between the Registrant and Sirrom (incorporated by
reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.10 Letter Agreement dated February 9, 1994 between the
Registrant and Sirrom regarding the date of certain
loan document and the exercise price of the Stock
Purchase Warrant dated December 23, 1993
(incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.11 Stock Purchase Agreement dated January 18, 1994
between the Registrant and NationsBanc Capital
Corporation (incorporated by reference to Exhibit
10.11 to the Registrant's Registration Statement on
Form S-1 (No. 33-80547).
10.12 Shareholder Agreement dated as of January 18, 1994
among the Registrant, NationsBanc Capital
Corporation, Boland T. Jones, D. Gregory Smith,
Leonard A. DeNittis and Andrea L. Jones (incorporated
by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.13 Amended and Restated Employment and Incentive Option
Agreement dated November 6, 1995 between the
Registrant and Leonard A. DeNittis (incorporated by
reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.14 Amended and Restated Employment Agreement dated
November 6, 1995 between Premiere Communications,
Inc. and Leonard A. DeNittis (incorporated by
reference to Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
-61-
<PAGE>
10.15 Amended and Restated Executive Employment and
Incentive Option Agreement dated November 6, 1995
between the Registrant and David Gregory Smith
(incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.16 Amended and Restated Executive Employment Agreement
dated November 6, 1995 between Premiere
Communications, Inc. and David Gregory Smith
(incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.17 Amended and Restated Executive Employment and
Incentive Option Agreement dated November 6, 1995
between the Registrant and Boland T. Jones
(incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.18 Amended and Restated Executive Employment Agreement
dated November 6, 1995 between Premiere
Communications, Inc. and Boland T. Jones
(incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.19 Executive Employment and Incentive Option Agreement
dated November 1, 1995 between the Registrant and
Patrick G. Jones (incorporated by reference to
Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.20 Executive Employment Agreement dated November 1, 1995
between Premiere Communications, Inc. and Patrick G.
Jones (incorporated by reference to Exhibit 10.20 to
the Registrant's Registration Statement on Form S-1
(No. 33-80547).
10.21 Promissory Note dated November 6, 1995 in favor of
the Registrant made by Leonard A. DeNittis
(incorporated by reference to Exhibit 10.21 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.22 Stock Pledge Agreement dated November 6, 1995 between
the Registrant and Leonard A. DeNittis (incorporated
by reference to Exhibit 10.22 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.23 Promissory Note dated November 6, 1995 in favor of
the Registrant made by D. Gregory Smith (incorporated
by reference to Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.24 Stock Pledge Agreement dated November 6, 1995 between
the Registrant and D. Gregory Smith (incorporated by
reference to Exhibit 10.24 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.25 Promissory Note dated November 6, 1995 in favor of
the Registrant made by Boland T. Jones (incorporated
by reference to Exhibit 10.25 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.26 Stock Pledge Agreement dated November 6, 1995 between
the Registrant and Boland T. Jones (incorporated by
reference to Exhibit 10.26 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
-62-
<PAGE>
10.27 Promissory Note dated November 17, 1995 payable to
the Registrant made by Patrick G. Jones (incorporated
by reference to Exhibit 10.27 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.28 Stock Option Plan dated March 18, 1994 (incorporated
by reference to Exhibit 10.28 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.29 Intentionally omitted.
10.30 Premiere Communications, Inc. 401(k) Profit Sharing
Plan (incorporated by reference to Exhibit 10.30 to
the Registrant's Registration Statement on Form S-1
(No. 33-80547).
10.31 Form of Director Indemnification Agreement between
the Registrant and Non-employee Directors
(incorporated by reference to Exhibit 10.31 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.32 Lease Agreement dated April 5, 1993 between Premiere
Communications, Inc. and Telecommunications Finance
Group, as amended (incorporated by reference to
Exhibit 10.32 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.33 Sublease Agreement dated August 22, 1994 between
Premiere Communications, Inc. and Sales Technologies,
Inc., as amended by the First Amendment dated
September 28, 1995 and the Second Amendment dated
October 31, 1995 (incorporated by reference to
Exhibit 10.33 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.34 55 Park Place Office Lease dated May 31, 1993 between
Premiere Communications, Inc. and Mara-Met Venture,
as amended by First Amendment dated December 15, 1995
(incorporated by reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.35 Office Lease Agreement dated April 7, 1995 between
Premiere Communications, Inc. and Boston Avenue
Management Company (incorporated by reference to
Exhibit 10.35 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.36 Form of Officer Indemnification Agreement between the
Registrant and each of the executive officers
(incorporated by reference to Exhibit 10.36 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.37 Carrier Agreement dated January 1, 1996 between
Premiere Communications, Inc. and Communications
Network Corporation (incorporated by reference to
Exhibit 10.37 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).*
10.38 Carrier Service Agreement dated August 4, 1995
between Premiere Communications, Inc. and Cherry
Communications Incorporated, as amended (incorporated
by reference to Exhibit 10.38 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).*
-63-
<PAGE>
10.39 Carrier Services Agreement Dated July 12, 1995
between Premiere Communications, Inc. and Corporate
Telemanagement Group, Inc., as amended (incorporated
by reference to Exhibit 10.39 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).*
10.40 Telecommunications Services Agreement dated December
1, 1995 between Premiere Communications, Inc. and
WorldCom Network Services, Inc. d/b/a WilTel
(incorporated by reference to Exhibit 10.40 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).*
10.41 First Amendment to Stock Purchase Warrant dated
December 14, 1995 between Registrant and Sirrom
amending Stock Purchase Warrant dated May 26, 1992
(incorporated by reference to Exhibit 10.41 to the
Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.42 First Amendment to Stock Purchase Warrant dated
December 14, 1995 between Registrant and Sirrom
amendment Stock Purchase Warrants dated December 23,
1993 (incorporated by reference to Exhibit 10.42 to
the Registrant's Registration Statement on Form S-1
(No. 33-80547).
10.43 Strategic Alliance Agreement dated November 13, 1996
by and between the Registrant and WorldCom, Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated
November 13, 1996).*
10.44 Investment Agreement dated November 13, 1996 by and
between the Registrant and WorldCom, Inc.
(incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated
November 13, 1996.)
10.45 Form of Stock Purchase Warrant Agreement
(incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8 (No.
333-11281)).
10.46 Form of Warrant Transaction Statement (incorporated
by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (No. 333-11281)).
10.47 Form of Director Stock Purchase Warrant (incorporated
by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (No. 333-17593)).
10.48 Second Amended and Restated 1995 Stock Plan
(incorporated by reference to Exhibit 4.8 to the
Registrant's Registration Statement on Form S-8 (No.
333-17593)).
10.49 Second and Third Amendment to 55 Park Place Office
Lease dated November 5, 1996 between Premiere
Communications, Inc. and Mara-Met Venture.
10.50 Office Lease Agreement dated May 12, 1996 between
Premiere Communications, Inc. and Beverly Hills
Center LLC, as amended by the First Amendment dated
August 1, 1996.
10.51 Promissory Note dated October 18, 1996 between
Premiere Communications, Inc. and NationsBank, N.A.
(South).
10.52 Continuing and Unconditional Guaranty Agreement dated
October 18, 1996, between Premiere Communications and
NationsBank, N.A. (South).
-64-
<PAGE>
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21.1 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
________________
* Confidential treatment has been granted. The copy on file as an
exhibit omits the information subject to the confidentiality request.
Such omitted information has been filed separately with the
Commission.
(b) Reports on Form 8-K
The Registrant has filed the following reports on Form 8-K during the
fourth quarter of 1996:
Current Report on Form 8-K dated September 18, 1996, filed on
October 1, 1996 pursuant to Item 2 of Form 8-K, reporting the
acquisition of TeleT Communications LLC.
Amended Current Report on Form 8-K/A dated September 18, 1996,
filed on December 2, 1996 pursuant to Item 7 of Form 8-K,
reporting the following financial statements of business acquired
and pro-forma financial information.
(1) Balance Sheet of Connect, Inc. (a predecessor of TeleT
Communications LLC) as of December 31, 1995
(2) Statement of Operations of Connect, Inc. for the period
from inception (March 3, 1995) to December 31, 1995
(3) Statement of Shareholders' Deficit of Connect, Inc. for
the period from inception (March 3, 1995) to December 31,
1995
(4) Statement of Cash Flows of Connect, Inc. for the period
from inception (March 3, 1995) to December 31, 1995
(5) Unaudited Pro Forma Consolidated Statements of Income
of Premiere Technologies, Inc. for the year ended December
31, 1995 to reflect the acquisition of TeleT Communications
LLC
(6) Unaudited Pro Forma Consolidated Statements of Income
of Premiere Technologies, Inc. for the nine months ended
September 30, 1996 to reflect the acquisition of TeleT
Communications LLC
Current Report on Form 8-K dated November 13, 1996, filed on
November 22, 1996 pursuant to Item 5 of Form 8-K, reporting the
entering into of a Strategic Alliance Agreement with WorldCom,
Inc.
Amended Current Report on Form 8-K/A dated November 13, 1996,
filed on February 25, 1997 pursuant to Item 7 of Form 8-K,
amending an exhibit.
-65-
<PAGE>
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedule
See Item 14(a) above.
-66-
<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.
PREMIERE TECHNOLOGIES, INC.
BY: /s/Boland T. Jones
--------------------
Boland T. Jones
Chairman of the
Board of Directors
and President
Date: March 26, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Boland T. Jones Chairman of the Board and President March 26, 1997
- - ---------------------------- (principal executive officer)
Boland T. Jones
/s/ D. Gregory Smith Executive Vice President and Director March 26, 1997
- - ----------------------------
D. Gregory Smith
/s/ Patrick G. Jones Senior Vice President of Finance and March 26, 1997
- - ---------------------------- Legal and Secretary (principal
Patrick G. Jones financial and accounting officer)
/s/ George W. Baker, Sr. Director March 26, 1997
- - ----------------------------
George W. Baker, Sr.
/s/ Eduard J. Mayer Director March 26, 1997
- - ----------------------------
Eduard J. Mayer
/s/ Robert A. Jetmudsen Director March 26, 1997
- - ----------------------------
Robert A. Jetmudsen
</TABLE>
-67-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- - ------- ----------- ----
2.1 Agreement and Plan of Merger between Premiere Technologies, Inc.
and Premiere Technologies Reincorporation, Inc. (incorporated by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
2.2 Asset Purchase Agreement, together with exhibits, dated September
18, 1996 by and among the Registrant, PTEK Acquisition
Corporation, TeleT Communications LLC and the Members of TeleT
Communications LLC (incorporated by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated September 18,
1996).
3.1 Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws defining the rights of the holders of
common stock of the Registrant (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
9.1 Form of Voting Trust Agreement to be entered into under the
Registrant's 1994 Stock Option Plan (incorporated by reference to
Exhibit 9.1 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.1 Loan Agreement dated May 26, 1992 between the Registrant and
Sirrom Capital, L.P. n/k/a Sirrom Capital Corporation ("Sirrom")
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.2 Secured Promissory Note dated May 26, 1992 made by the Registrant
in favor of Sirrom (incorporated by reference to Exhibit 10.2 to
the Registrant's Registration Statement on Form S-1 (No. 33-
80547).
10.3 Pledge and Security Agreement dated May 26, 1992 between the
Registrant and Sirrom (incorporated by reference to Exhibit 10.3
to the Registrant's Registration Statement on Form S-1 (No. 33-
80547).
10.4 Guaranty Agreement dated May 26, 1992 between Premiere
Communications, Inc. and Sirrom (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.5 Security Agreement dated May 26, 1992 between Premiere
Communications, Inc. and Sirrom (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
<PAGE>
10.6 Stock Purchase Warrant dated May 26, 1992 between the Registrant
and Sirrom (incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.7 First Amendment to Loan Agreement and Loan Documents dated as of
December 23, 1993 between the Registrant and Sirrom (incorporated
by reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.8 Secured Promissory Note dated December 23, 1993 made by the
Registrant in favor of Sirrom (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.9 Stock Purchase Warrant dated December 23, 1993 between the
Registrant and Sirrom (incorporated by reference to Exhibit 10.9
to the Registrant's Registration Statement on Form S-1 (No. 33-
80547).
10.10 Letter Agreement dated February 9, 1994 between the Registrant
and Sirrom regarding the date of certain loan document and the
exercise price of the Stock Purchase Warrant dated December 23,
1993 (incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.11 Stock Purchase Agreement dated January 18, 1994 between the
Registrant and NationsBanc Capital Corporation (incorporated by
reference to Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.12 Shareholder Agreement dated as of January 18, 1994 among the
Registrant, NationsBanc Capital Corporation, Boland T. Jones, D.
Gregory Smith, Leonard A. DeNittis and Andrea L. Jones
(incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.13 Amended and Restated Employment and Incentive Option Agreement
dated November 6, 1995 between the Registrant and Leonard A.
DeNittis (incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.14 Amended and Restated Employment Agreement dated November 6, 1995
between Premiere Communications, Inc. and Leonard A. DeNittis
(incorporated by reference to Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.15 Amended and Restated Executive Employment and Incentive Option
Agreement dated November 6, 1995 between the Registrant and David
Gregory Smith (incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.16 Amended and Restated Executive Employment Agreement dated
November 6, 1995 between Premiere Communications, Inc. and David
Gregory Smith (incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.17 Amended and Restated Executive Employment and Incentive Option
Agreement dated November 6, 1995 between the Registrant and
Boland T. Jones (incorporated by reference to Exhibit 10.17 to
the Registrant's Registration Statement on Form S-1 (No. 33-
80547).
<PAGE>
10.18 Amended and Restated Executive Employment Agreement dated
November 6, 1995 between Premiere Communications, Inc. and Boland
T. Jones (incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.19 Executive Employment and Incentive Option Agreement dated
November 1, 1995 between the Registrant and Patrick G. Jones
(incorporated by reference to Exhibit 10.19 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.20 Executive Employment Agreement dated November 1, 1995 between
Premiere Communications, Inc. and Patrick G. Jones (incorporated
by reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547).
10.21 Promissory Note dated November 6, 1995 in favor of the Registrant
made by Leonard A. DeNittis (incorporated by reference to Exhibit
10.21 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.22 Stock Pledge Agreement dated November 6, 1995 between the
Registrant and Leonard A. DeNittis (incorporated by reference to
Exhibit 10.22 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.23 Promissory Note dated November 6, 1995 in favor of the Registrant
made by D. Gregory Smith (incorporated by reference to Exhibit
10.23 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.24 Stock Pledge Agreement dated November 6, 1995 between the
Registrant and D. Gregory Smith (incorporated by reference to
Exhibit 10.24 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.25 Promissory Note dated November 6, 1995 in favor of the Registrant
made by Boland T. Jones (incorporated by reference to Exhibit
10.25 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.26 Stock Pledge Agreement dated November 6, 1995 between the
Registrant and Boland T. Jones (incorporated by reference to
Exhibit 10.26 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.27 Promissory Note dated November 17, 1995 payable to the Registrant
made by Patrick G. Jones (incorporated by reference to Exhibit
10.27 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
10.28 Stock Option Plan dated March 18, 1994 (incorporated by reference
to Exhibit 10.28 to the Registrant's Registration Statement on
Form S-1 (No. 33-80547).
10.29 Intentionally omitted.
10.30 Premiere Communications, Inc. 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit 10.30 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.31 Form of Director Indemnification Agreement between the Registrant
and Non-employee Directors (incorporated by reference to Exhibit
10.31 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
<PAGE>
10.32 Lease Agreement dated April 5, 1993 between Premiere
Communications, Inc. and Telecommunications Finance Group, as
amended (incorporated by reference to Exhibit 10.32 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).
10.33 Sublease Agreement dated August 22, 1994 between Premiere
Communications, Inc. and Sales Technologies, Inc., as amended by
the First Amendment dated September 28, 1995 and the Second
Amendment dated October 31, 1995 (incorporated by reference to
Exhibit 10.33 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.34 55 Park Place Office Lease dated May 31, 1993 between Premiere
Communications, Inc. and Mara-Met Venture, as amended by First
Amendment dated December 15, 1995 (incorporated by reference to
Exhibit 10.34 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.35 Office Lease Agreement dated April 7, 1995 between Premiere
Communications, Inc. and Boston Avenue Management Company
(incorporated by reference to Exhibit 10.35 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).
10.36 Form of Officer Indemnification Agreement between the Registrant
and each of the executive officers (incorporated by reference to
Exhibit 10.36 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
10.37 Carrier Agreement dated January 1, 1996 between Premiere
Communications, Inc. and Communications Network Corporation
(incorporated by reference to Exhibit 10.37 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547).*
10.38 Carrier Service Agreement dated August 4, 1995 between Premiere
Communications, Inc. and Cherry Communications Incorporated, as
amended (incorporated by reference to Exhibit 10.38 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).*
10.39 Carrier Services Agreement Dated July 12, 1995 between Premiere
Communications, Inc. and Corporate Telemanagement Group, Inc., as
amended (incorporated by reference to Exhibit 10.39 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547).*
10.40 Telecommunications Services Agreement dated December 1, 1995
between Premiere Communications, Inc. and WorldCom Network
Services, Inc. d/b/a WilTel (incorporated by reference to Exhibit
10.40 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).*
10.41 First Amendment to Stock Purchase Warrant dated December 14, 1995
between Registrant and Sirrom amending Stock Purchase Warrant
dated May 26, 1992 (incorporated by reference to Exhibit 10.41 to
the Registrant's Registration Statement on Form S-1 (No. 33-
80547).
10.42 First Amendment to Stock Purchase Warrant dated December 14, 1995
between Registrant and Sirrom amendment Stock Purchase Warrants
dated December 23, 1993 (incorporated by reference to Exhibit
10.42 to the Registrant's Registration Statement on Form S-1 (No.
33-80547).
<PAGE>
10.43 Strategic Alliance Agreement dated November 13, 1996 by and
between the Registrant and WorldCom, Inc. (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated November 13, 1996).*
10.44 Investment Agreement dated November 13, 1996 by and between the
Registrant and WorldCom, Inc. (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
November 13, 1996.)
10.45 Form of Stock Purchase Warrant Agreement (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 (No. 333-11281)).
10.46 Form of Warrant Transaction Statement (incorporated by reference
to Exhibit 4.4 to the Registrant's Registration Statement on Form
S-8 (No. 333-11281)).
10.47 Form of Director Stock Purchase Warrant (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 (No. 333-17593)).
10.48 Second Amended and Restated 1995 Stock Plan (incorporated by
reference to Exhibit 4.8 to the Registrant's Registration
Statement on Form S-8 (No. 333-17593)).
10.49 Second and Third Amendment to 55 Park Place Office Lease dated
November 5, 1996 between Premiere Communications, Inc. and
Mara-Met Venture.
10.50 Office Lease Agreement dated May 12, 1996 between Premiere
Communications, Inc. and Beverly Hills Center LLC, as amended by
the First Amendment dated August 1, 1996.
10.51 Promissory Note dated October 18, 1996 between Premiere
Communications, Inc. and NationsBank, N.A. (South).
10.52 Continuing and Unconditional Guaranty Agreement dated October 18,
1996, between Premiere Communications, Inc. and NationsBank, N.A.
(South).
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
_________________
* Confidential treatment has been granted. The copy on file as an exhibit
omits the information subject to the confidentiality request. Such omitted
information has been filed separately with the Commission.
<PAGE>
EXHIBIT 10.49
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is entered into as of
this the 5th day of November, 1996, by and between PREMIERE COMMUNICATIONS,
INC., a Florida corporation ("Tenant") and 55 PARK PLACE, L.P., a Delaware
limited partnership ("Landlord"),
WITNESSETH:
-----------
WHEREAS, Mara-Met Venture and Tenant entered into that certain Lease dated
May 31, 1993; as amended by that certain First Lease Amendment dated December
15, 1993 (collectively, the "Lease"); and
WHEREAS, at the request of Tenant, and for the benefit of Tenant and
certain other tenants within the Building (as defined in the Lease), Landlord
has agreed to arrange for the installation of a shared generator system,
including a shared 750KW generator, 2,000 gallon diesel fuel tank to replace the
existing tank located within the Building, the output panel and feeders, battery
charger, remote annunciator, all rigging and all terminations (such system being
hereinafter referred to as the "Diesel Generator System"), which Diesel
Generator System will be located in that certain space or premises containing
approximately three hundred (300) square feet of floor area as more particularly
identified on Exhibit "A" attached hereto and made a part hereof (the "Generator
-----------
Space"), and
WHEREAS, Tenant has agreed to pay for a portion of the Diesel Generator
System and, during the remainder of the Term of the Lease, to pay Tenant's
proportionate share of the costs for maintaining and repairing the Diesel
Generator System, including without limitation, the costs of maintaining a full
service maintenance and repair agreement for the Diesel Generator System as
hereinafter provided; and
WHEREAS, Tenant has agreed to pay its proportionate share of the Base Rent
for the Generator Space as more particularly hereinafter provided; and
WHEREAS, Landlord and Tenant desire to amend the Lease as provided herein
in order to provide for the installation, maintenance and payment of the Diesel
Generator System and the payment of Base Rent attributable to the Generator
Space.
<PAGE>
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00), the mutual covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Landlord and Tenant hereby acknowledge and agree that Allison-Smith
Company (the "Contractor") shall be the general contractor for the installation
of the Diesel Generator System, pursuant to that certain letter from Contractor
to Tenant dated July 10, 1996 (the "Letter"), a copy of which is attached hereto
as Exhibit "B" and made a part hereof.
-----------
2. As provided in the Letter, Tenant's total estimated cost for the
installation of the Diesel Generator System is Eighty Nine Thousand Six Hundred
Eighty-Seven Dollars and No/100 Dollars (89,687.000), which cost is calculated
as follows:
(a) One-third (1/3) of the total
cost for the base generator
and cooling tower systems
($208,430.00 divided by 3) $69,477.00
(b) Feeders, circuit breaker
and terminators to tie
Tenant's space to the
generator distribution panel $20,210.00
----------
TOTAL $89,687.00
==========
3. Tenant shall pay the total cost due from Tenant for the Diesel Generator
System (as provided in Paragraph 2 above) directly to Contractor within thirty
(30) days following receipt of written notice from Contractor that it has
completed the installation of the Diesel Generator System. In the event that
Tenant shall fail to pay such amount within the said thirty (30) day period,
such failure shall be deemed a default of Tenant under the Lease and Landlord
shall have the right to exercise any available remedies under the Lease.
4. In addition to the payment for the cost of the Diesel Generator System as
provided above, following the completion of the installation of the Diesel
Generator System and continuing throughout the remainder of the Term of the
Lease, Tenant shall pay to Landlord its "proportionate share" (as hereinafter
defined) of all costs and expenses incurred by Landlord in connection with the
maintenance and repairs of the Diesel Generator System, including without
limitation, the costs incurred in connection with the maintenance/service
agreement to be maintained for the Diesel Generator System. Tenant shall pay its
proportionate share of such maintenance and repair costs to
-2-
<PAGE>
Landlord as Additional Rent within thirty (30) days following receipt of invoice
thereof. In the event that Tenant shall fail to pay such amount within said
thirty (30) day period, such failure shall be deemed a default of Tenant under
the Lease and Landlord shall have the right to exercise any available remedies
under the Lease. As used herein, Tenant's proportionate share shall be based on
the total number of users utilizing the Diesel Generator System during the
period in which the costs reflected in the invoice accrued [for example, if
there were four (4) users of the Diesel Generator System during the period in
question, Tenant's proportionate share would be twenty-five percent (25%)].
5. In addition to the costs to be paid by Tenant pursuant to paragraphs 2, 3
and 4 above, Tenant shall pay its proportionate share (as defined in paragraph
4 above) of the Base Rent due for the Generator Space. The Base Rent for the
Generator Space shall be at the rate of Twenty and No/100 Dollars ($20.00) per
square foot of floor area, multiplied by Tenant's proportionate share, and shall
be due and payable as Base Rent in accordance with the terms of the Lease.
6. In consideration of Tenant's payment of the costs and expenses for the
construction, installation, maintenance and repair of the Diesel Generator
System, Tenant shall be entitled to use 135 KW of the Diesel Generator System.
7. Tenant hereby acknowledges and agrees that Tenant and the other users of
the Diesel Generator System shall be responsible for the periodic testing and
running of the Diesel Generator System in order that it does not remain dormat
for an extended period of time beyond the manufacturer's recommendations.
8. Tenant further acknowledges and agrees that in assisting Tenant to provide
for the installation and maintenance of the Diesel Generator System for Tenant
and certain other tenants of the Building, Landlord shall incur no liability for
injury or damage to persons or property in connection with the Diesel Generator
System. In addition to, and not in lieu of, any indemnifications provided for in
the Lease, Tenant hereby agrees to indemnify, defend and hold Landlord harmless
from and against any loss, liability, costs, claims, demands, damages, actions,
causes of action, and suits arising out of or in any manner related to the
installation, maintenance, repair or replacement of the Diesel Generator System.
9. Except as set forth in this Agreement, all provisions of the Lease shall
remain unchanged and in full force and effect and are hereby reaffirmed by the
parties hereto.
-3-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have cause this Amendment to be
executed, under seal, as of the day and year first written above.
LANDLORD:
55 PARK PLACE, L.P.,
a Delaware Limited Partnership
By: 55 Park Place, Inc.
It's General Partner
By: /s/ S. Johnson
-----------------------------
Name: Skip Johnson
---------------------------
Title:
--------------------------
Attest: /s/ Raymond G. Gardner
------------------------------
TENANT:
PREMIERE COMMUNICATIONS, INC.
a Florida corporation
By: /s/ Patrick G. Jones
------------------------------
Name: Patrick G. Jones
----------------------------
Title: Sr. V.P.
---------------------------
Attest: /s/ Julianne J. Vaio
------------------------------
-4-
<PAGE>
THIRD AMENDMENT TO LEASE
------------------------
THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made this 5th day of
November, 1996 by and between 55 PARK PLACE, L.P., a Delaware limited
partnership successor in interest to MARA-MET VENTURE (hereinafter referred to
as "Landlord"), and PREMIERE COMMUNICATIONS, INC., a Florida corporation
(hereinafter referred to as "Tenant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain 55 Park Place Office
Lease, dated as of May 31, 1993, as amended, for the lease of certain premises
located on the Third Floor of the office building located at 55 Park Place, NE,
Atlanta, Georgia (said 55 Park Place Office Lease, as so amended, is hereinafter
referred to as the "Lease"); and
WHEREAS, Tenant desires to lease from Landlord additional space in the
Building upon the terms and conditions set forth herein; and
WHEREAS, Landlord and Tenant desire to amend and modify the Lease in order
to add certain space in the Building to the Premises.
NOW, THEREFORE, for and in consideration of the premises, the keeping and
performance of the covenants and agreements hereinafter contained, and TEN AND
NO/100 Dollars ($10.00) and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Landlord and Tenant, it is
hereby agreed as follows:
1. DEFINITION OF TERMS. Terms used hereinafter and indicated by their
---------- -- -----
initial capitalization shall have the meanings ascribed to them in the Lease
unless otherwise defined herein.
2. ADDITIONAL SPACE. From and after November 1, 1996 (the "Effective
---------- -----
Date"), Landlord hereby leases and rents to Tenant and Tenant hereby leases from
Landlord upon the terms and conditions set forth in the Lease, that certain
space containing approximately 1,238 Square Feet situated on the Third Floor of
the Building as outlined on the floor plan attached hereto as EXHIBIT "A" and by
-----------
this reference made a part hereof (the "Additional Space"). From and after the
Effective Date, the term "Premises" as used in the Lease, as amended hereby,
shall include not only the space heretofore leased by Tenant under the terms of
the Lease, but also the Additional Space, and the terms and conditions contained
in the Lease shall apply to the Additional Space. Accordingly, commencing on the
Effective Date, "Square Feet in the Premises" shall mean Seven Thousand Three
Hundred and Nine (7,309) rentable Square Feet, including Tenant's pro rata share
of Building common areas, subject to adjustment in accordance with Paragraph 32
of the Lease.
3. BASE RENT. From and after the Effective Date, Tenant shall pay Base
---- ----
Rent and its pro rata share of Operating Expenses based on the Square Feet in
the Premises as provided in Paragraph 2 above.
<PAGE>
4. NO BROKERS. Landlord and Tenant each warrant and represent to the
-- -------
other that such party has not employed or dealt with a real estate broker or
agent in connection with the transaction contemplated hereby. Landlord and
Tenant covenant and agree, each to the other, to indemnify the other against any
loss, liability, costs, claims, demands, damages, actions, causes of action, and
suits arising out of or in any manner related to the alleged employment or use
by the indemnifying party of any real estate broker or agent in connection with
this transaction.
5. APPLICABILITY OF TERMS AND CONDITIONS. Except as otherwise expressly
------------- -- ----- --- ----------
provided herein to the contrary, all of the terms, conditions and provisions
contained in the Lease, as amended hereby, shall apply to and govern Tenant's
use and occupancy of the Additional space, as if the Additional Space were
originally part of the Premises.
6. MISCELLANEOUS. This Third Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of Georgia, and shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, representative and permitted assigns. The terms of this
Third Amendment shall be deemed incorporated into and made a part of the Lease.
In the event of any inconsistency or conflict between this Third Amendment and
of the Lease, the terms of this Third Amendment shall control. Time is of the
essence of all of the terms of the terms of the Third Amendment. Except as
expressly modified or amended hereby or added to herein, the Lease shall remain
and is in full force and effect between Landlord and Tenant, and nothing
contained herein shall diminish or shall be deemed to diminish, or otherwise
alter the terms and conditions of the Lease. Landlord and Tenant hereby ratify
and confirm the terms of the Lease, as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed by their duly authorized representative, under seal, of the day
and year first above written.
LANDLORD:
---------
55 PARK PLACE, L.P.,
a Delaware limited partnership
By: 55 PARK PLACE, INC., a Nevada corporation
By: /s/ Raymond G. Gardner
---------------------------
Its: [TITLE]
---------------------------
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON NEXT PAGE]
-2-
<PAGE>
TENANT:
-------
PREMIERE COMMUNICATIONS, INC., a Florida
corporation
By: /s/ Patrick G. Jones
--------------------------------
Its: Sr. V.P.
--------------------------------
[CORPORATE SEAL]
-3-
<PAGE>
EXHIBIT 10.50
- - --------------------------------------------------------------------------------
ALLIANZ FINANCIAL CENTRE
- - --------------------------------------------------------------------------------
OFFICE LEASE AGREEMENT
Between
BEVERLY HILLS CENTER LLC
as Landlord
and
PREMIERE COMMUNICATIONS, INC.
as Tenant
Dated
May 12, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Paragraph 1. DEFINITION AND BASIC PROVISIONS.............................. 1
Paragraph 2. GRANTING CLAUSE.............................................. 2
Paragraph 3. EARLY OCCUPANCY.............................................. 2
Paragraph 4. RENTAL....................................................... 2
Paragraph 5. USE.......................................................... 2
Paragraph 6. SERVICES TO BE PROVIDED BY LANDLORD.......................... 2
Paragraph 7. REPAIR AND MAINTENANCE....................................... 4
Paragraph 8. FIRE OR OTHER CASUALTY....................................... 4
Paragraph 9. COMPLIANCE WITH LAWS AND USAGE............................... 5
Paragraph 10. LIABILITY AND INDEMNITY...................................... 5
Paragraph 11. ADDITIONS AND FIXTURES....................................... 6
Paragraph 12. ASSIGNMENT AND SUBLETTING.................................... 6
Paragraph 13. SUBORDINATION................................................ 7
Paragraph 14. OPERATING EXPENSES........................................... 8
Paragraph 15. EMINENT DOMAIN............................................... 10
Paragraph 16. ACCESS BY LANDLORD........................................... 10
Paragraph 17. LANDLORD'S LIEN.............................................. 10
Paragraph 18. DEFAULTS..................................................... 10
Paragraph 19. NONWAIVER.................................................... 12
Paragraph 20. HOLDING OVER................................................. 12
Paragraph 21. COMMON AREA.................................................. 12
Paragraph 22. RULES AND REGULATIONS........................................ 12
Paragraph 23. TAXES........................................................ 12
Paragraph 24. INSURANCE.................................................... 12
Paragraph 25. PARKING...................................................... 13
Paragraph 26. PERSONAL LIABILITY........................................... 13
Paragraph 27. NOTICE....................................................... 13
Paragraph 28. LANDLORD'S MORTGAGE.......................................... 13
Paragraph 29. BROKERAGE.................................................... 13
Paragraph 30. PREPAID RENTAL............................................... 13
Paragraph 31. SPRINKLERS................................................... 13
Paragraph 32. LICENSE FOR MICROWAVE DISH ANTENNA........................... 13
Paragraph 33. INTERCONNECTION RIGHTS....................................... 14
Paragraph 34. EMERGENCY GENERATOR.......................................... 15
Paragraph 35. SUPPLEMENTAL HVAC............................................ 15
Paragraph 36. TENANT FINISH................................................ 16
Paragraph 37. RIGHT OF FIRST REFUSAL....................................... 17
Paragraph 38. RENEWAL OPTION............................................... 18
Paragraph 39. MISCELLANEOUS................................................ 19
Paragraph 40. ENTIRE AGREEMENT AND BINDING EFFECT.......................... 21
</TABLE>
EXHIBIT A LEASED PREMISES AND ROFR AREA
EXHIBIT B LAND
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D EMERGENCY GENERATOR AND HVAC LOCATIONS
EXHIBIT E NON-DISTURBANCE AND ATTORNMENT AGREEMENT
<PAGE>
OFFICE LEASE AGREEMENT
1. DEFINITIONS AND BASIC PROVISIONS.
--------------------------------
A. Date of Lease: _____________, 1996.
B. "Landlord": Beverly Hills Center LLC
C. Address of Landlord:
2323 Bryan Street, Suite 2020
Lock Box 120
Dallas, Texas 75201
D. "Tenant": Premiere Communications, Inc.
E. Address of Tenant: 3399 Peachtree Road
--------------------------
Suite 400
--------------------------
Atlanta, 6A 30326
--------------------------
F. "Building": The structure commonly known as the allianz Financial
Centre and which is located on the 0.8437 acre tract of land (the "Land")
described by metes and bounds on Exhibit B attached hereto and made a part
---------
hereof all purposes.
G. "Leased Premises": Approximately 6,952 square feet of rentable area on
the eighth (8th) floor of the Building, as outlined and hatched on the floor
plan attached hereto as Exhibit A and made a part hereof for all purposes.
---------
Tenant acknowledges that Tenant has had the opportunity to measure the Leased
Premises and that there has been applied to the usable square footage of the
Leased Premises a common area factor to arrive at the rentable square footage of
the Leased Premises. Therefore, Landlord and Tenant hereby stipulate that
notwithstanding anything herein to the contrary, the Leased Premises shall be
deemed to consist of 6,952 rentable square feet, and that no shortage or overage
in the rentable square feet of the Leased Premises purported by either party
shall be the basis for changing the number of rentable square feet herein
stipulated.
H. "Project": The Building, the parking facilities, parking garage, the
Skybridge and other structures, improvements, landscaping, fixtures,
appurtenances and other common areas now or hereafter, constructed or erected on
the Land.
I. "Rentable area in the Building" shall be 464,542 square feet of
rentable area, unless modified as provided herein.
J. "Commencement Date": August 1, 1996, or Tenant's Cutover Date (as
hereinafter defined), whichever shall first occur. As used herein, the term
"Tenant's Cutover Date" shall mean the date on which the telephone switch is
installed in the Leased Premises and substantially performing according to all
material specifications as verified by the manufacturer's standard testing
procedures. Upon request of either party hereto, Landlord and Tenant agree to
execute and deliver a written declaration in recordable form expressing the
Commencement Date hereof.
K. "Term": Commencing on the Commencement Date and ending five (5) years
after the Commencement Date, plus any partial calendar month following the
Commencement Date, unless sooner terminated as provided herein.
L. "Base Rental" $118,184.00 per year for the first five (5) years of the
Term of this Lease, payable in equal monthly installments of $9,848.67 each;
each such monthly installment shall be due and payable on the first day of each
calendar month, monthly in advance without demand and without setoff or
deduction whatsoever. Subject to the terms of Paragraph 33, Tenant may install
two (2) 4-inch and one (1) 3-inch conduits or equivalent cable runs in the riser
facilities of the Building and Tenant's rental obligations with respect thereto
shall be abated during the first five (5) years of the Term. In the event at
Tenant's request Landlord permits Tenant to install additional conduits or
equivalent cable runs, Tenant shall pay an additional Riser Fee with respect to
such additional installations in an amount equal to the then prevailing market
riser fee rate.
M. "Prepaid Rental": $9,848.67, to be applied to the first accruing
monthly installments of rental.
N. "Security Deposit": $ -0-.
O. "Permitted Use": The Leased Premises shall be used only for office
purposes and for a telecommunications facility.
P. "Common Area": That part of the Project designated by Landlord from
time to time for the common use of all tenants, including among other
facilities, the Skybridge, sidewalks, service corridors, curbs, truckways,
loading areas, private streets and alleys, lighting facilities, mechanical and
electrical rooms, janitors' closets, halls, lobbies, delivery passages,
elevators, drinking fountains, meeting rooms, public toilets, parking areas and
garages, decks and other parking facilities, landscaping and other common rooms
and common facilities.
Q. "Prime Rate": The rate announced as such from time to time by Chase
Manhattan Bank, N.A., or its successors, at its principal office.
R. "Broker": Trammell Crow Company/COMPASS Management and Leasing, Inc.
S. "Parking": Four (4) parking spaces, subject, however, to the payment
of prevailing market rental established from time to time for similar parking
spaces and further subject to the other terms, covenants and conditions
specified in Paragraph 25 hereof. Notwithstanding the foregoing or anything in
Paragraph 25 to the contrary, Tenant's rental obligations during the first five
(5) years of the Term of the Lease with respect to such four (4) parking
spaces shall be $120.00 (plus applicable taxes) per month per parking space used
for the parking of vehicles and $250.00 (plus applicable taxes) per month per
parking space used for the placement of equipment.
T. "Base Operating Expenses Rate": The Actual Operating Expenses Rate for
the 1996 calendar year.
-1-
<PAGE>
U. "Skybridge": The aerial walkway connecting the Building with the
Plaza of the Americas, together with any alterations, improvements and/or
replacements thereof.
Each of the foregoing definitions and basic provisions shall be
construed in conjunction with the references thereto contained in the other
provisions of this Lease and shall be limited by such other provisions. Each
reference in this Lease to any of the foregoing definitions and basic provisions
shall be construed to incorporate each term set forth above under such
definition or provision.
2. GRANTING CLAUSE. Landlord, in consideration of the covenants and
---------------
agreements to be performed by Tenant and upon the terms and conditions
hereinafter stated, does hereby lease, demise and let unto Tenant, and Tenant
does hereby lease from Landlord, the Leased Premises specified in Paragraph 1.G.
hereof to have and to hold for the Term of this Lease, as specified in Paragraph
1.K. hereof.
3. EARLY OCCUPANCY. Any occupancy of the Leased Premises by Tenant prior
---------------
to the Commencement Date shall be subject to all of the terms and provisions of
this Lease excepting only those requiring the payment of rental and other
charges.
If this Lease is executed before the Leased Premises becomes vacant,
or if any present tenant or occupant of the Leased Premises holds over and
Landlord cannot acquire possession thereof prior to the Commencement Date, then
Landlord shall not be deemed in default hereunder, and Tenant agrees to accept
possession of the Leased Premises at such time as Landlord is able to tender the
same and, in such event, the date of such tender by Landlord shall be deemed to
be the Commencement Date, and Landlord hereby waives the payment of rental and
other charges covering any period prior to the date of such tender.
4. RENTAL. As rental for the Lease and use of the Leased Premises, Tenant
------
will pay Landlord or Landlord's assigns, at the address of Landlord specified in
Paragraph 1.C. hereof, without demand and without deduction, abatement or setoff
(except as otherwise expressly provided for herein in Paragraph 8 hereof and
Paragraph 15 hereof), the Base Rental in the manner specified in Paragraph 1.L.
hereof, in lawful money of the United States. If the Term of this Lease does not
commence on the first day of a calendar month, Tenant shall pay to Landlord in
advance a pro rata part of such sum as rental for such first partial month.
Tenant shall not pay any installment of rental more than one (1) month in
advance. All past due installments of rental or other payment specified herein
shall bear interest at the highest lawful rate per annum from the date due until
paid.
If Tenant fails to timely pay two (2) consecutive installments of Base
Rental, or other payment specified herein, or any combination thereof after ten
(10) days notice to Tenant of such failure, in each case, and Tenant fails to
make the required payment within such ten (10) day period, Landlord may require
Tenant to pay (in addition to any interest) Base Rental and other payments
specified herein (as estimated by Landlord, if necessary) quarterly in advance,
and, in such event, all future payments shall be made on or before the due date
in cash or by cashier's check or money order, and the delivery of Tenant's
personal or corporate check shall no longer constitute payment thereof. Any
acceptance of Tenant's personal or corporate check thereafter by Landlord shall
not be construed as a waiver of the requirement that such payments be made in
cash or by cashier's check or money order. Any amount so estimated by Landlord
and paid by Tenant shall be adjusted promptly after actual figures become
available and paid or credited to Landlord or Tenant, as the case may be.
5. USE. Tenant shall use the Leased Premises solely for the Permitted Use
---
specified in Paragraph 1.0 hereof and for no other business or purpose without
the prior written consent of Landlord.
6. SERVICES TO BE PROVIDED BY LANDLORD.
-----------------------------------
A. Subject to the rules and regulations hereinafter referred to,
Landlord shall furnish Tenant, at Landlord's expense, while Tenant is occupying
the Leased Premises and is not in default hereunder, the following services
during the Term of this Lease:
(1) Air conditioning and heating in season, at such times as Landlord
normally furnishes such services to other tenants in the Building, and at
such temperatures and in such amounts as are considered by Landlord to be
standard, but such service on Saturday afternoons, Sundays and holidays to
be furnished only upon the request of Tenant, who shall bear the cost
thereof. Tenant acknowledges that such service and temperature may be
subject to change by local, county, state or federal regulation. Whenever
machines or equipment that generate abnormal heat are used in the Leased
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord shall have the right to install supplemental
air conditioning in the Leased Premises, and the cost thereof, including
the cost of installation, operation, use and maintenance, shall be paid by
Tenant to Landlord as additional rental upon demand.
(2) Water at those points of supply provided for general use.
(3) Janitor service in and about the Building, and the Leased
Premises, as may in the reasonable judgment of Landlord be required for
Tenant's use of the Leased Premises; however, Tenant shall pay the
additional costs attributable to the cleaning of improvements within the
Leased Premises other than building standard improvements.
(4) Elevators for ingress to and egress from the Building as may in
the judgment of Landlord be reasonably required. Landlord may reasonably
limit the number of elevators in operation after usual and customary
business hours and on Saturday afternoons, Sundays and legal holidays.
(5) Replacement of fluorescent lamps in the building standard ceiling
mounted fixtures installed by Landlord and incandescent bulb replacement in
all public areas.
8. Landlord shall provide or cause to be provided to the Leased
Premises all electrical current required by Tenant in the normal use and
occupancy of the Leased Premises. Without Landlord's prior written consent,
Tenant shall not install any equipment which would result in Tenant's connected
load exceeding 3.0 watts per square foot of rentable area within the Leased
Premises or which would generate sufficient heat to affect the temperature
otherwise maintained in the Leased Premises by the normal operation of the
Building air conditioning equipment serving the
-2-
<PAGE>
Leased Premises. The obligation of Landlord to provide or cause to be provided
electrical service shall be subject to the rules and regulations of the supplier
of such electricity and of any municipal or other governmental authority
regulating the business of providing electrical utility service. Landlord shall
not be liable or responsible to Tenant for any loss, damage or expense which
Tenant may sustain or incur if either the quantity or character of the electric
service is changed or is no longer available or no longer suitable for Tenant's
requirements. At any time when Landlord is furnishing electric current to the
Leased Premises pursuant to this Paragraph 6.B., Landlord may, at its
option, upon not less than thirty (30) days prior written notice to Tenant,
discontinue the furnishing of such electric current. If Landlord gives such
notice of discontinuance, Landlord shall make all reasonably necessary
arrangements with the public utilities supplying the electric current to the
Project with respect to connecting electric current to the Leased Premises, but
Tenant shall contract directly with such public utility with respect to
supplying such service. Landlord shall have the right to measure electrical
usage in the Leased Premises (1) by installing a submeter, (2) by periodic
determinations by Landlord's engineers or other competent consultants selected
by Landlord, or (3) by any combination of such methods. The cost of purchase and
installation of a submeter in the Leased Premises shall be borne by Tenant.
C. Tenant shall be obligated to pay to Landlord, as additional
rental, (1) Tenant's proportionate share of all electrical service to the Common
Area (collectively, "Common Area Electrical Service") and (2) the cost of
electrical service to the Leased Premises. Tenant's proportionate share of the
cost of Common Area Electrical Service shall be equal to the cost of such
service times a fraction in which the numerator is the rentable area of the
Leased Premises and the denominator is the rentable area of the Building. In
the event the electrical service to the Leased Premises is submetered or
otherwise measured in accordance with the provisions of Paragraph 6.B., Tenant
shall pay to Landlord the cost of such electrical service based upon rates
determined by Landlord from time to time (which shall not exceed the amount
Tenant would have been charged for such service by the local utility company
furnishing such service). In the event electrical service to the Leased
Premises is not measured by a submeter or periodic determination by Landlord's
engineers or other competent consultants selected by Landlord (or a combination
of such methods), then, Tenant shall pay to Landlord Tenant's proportionate
share of the cost of all electrical service to tenants in the Building which
does not exceed Building standard consumption as established from time to time
by Landlord. Such proportionate share shall be based upon the statements
therefor received by Landlord from the electrical utility company providing
such service, adjusted as Landlord determines appropriate to eliminate
over-standard consumption, and shall be determined by multiplying the cost of
such service times a fraction (the "Leased Premises Electrical Expense
Percentage") the numerator of which is the rentable area of the Leased Premises
and the denominator of which is the rentable area of the Building. In the event
that other tenants of the Building pay directly either to Landlord or third
parties for electricity supplied to their respective premises (e.g. separately
metered electricity), then Landlord may, at its sole option, adjust the Leased
Premises Electrical Expenses Percentage by excluding from the denominator
thereof the rentable area of all tenants making such payments. The cost of
electrical service shall include without limitation all fuel adjustment charges,
demand charges and taxes. If, during any period of time, the Building is not
fully leased, then, for purposes of this Paragraph 6.C., the area of the
Building shall be deemed to mean and include that portion of the Building which
is occupied (calculated on the basis of rentable area).
D. Prior to the Commencement Date, Landlord shall deliver to Tenant
a statement which sets forth the Estimated Monthly charge (as hereinafter
defined) due and payable by Tenant under the terms of Paragraph 6.C. hereof for
electrical service each month during the Term. Tenant shall pay to Landlord on
the first day of each calendar month during the Term, commencing with the
Commencement Date, as additional rental, the Estimated Monthly Charge. In the
event the Commencement Date occurs on a day other than the first day of a
calendar month, the Estimated Monthly Charge payable in respect of the month in
which the Commencement Date falls shall be prorated and the Estimated Monthly
charge, as so prorated, shall be due and payable on or before the Commencement
Date. Thereafter, as the actual amounts owed by Tenant for Tenant's
proportionate share of Common Area Electrical Service and electrical service to
the Leased Premises are determined, Landlord shall deliver to Tenant a statement
setting forth the electrical service utilized during the period in question and
the actual amount owed by Tenant under the terms of Paragraph 6.C. hereof in
respect of such electrical service. If the Estimated Monthly Charge previously
paid by Tenant is less than the amount owed by Tenant based upon Landlord's
actual utility bills (for the period covered in such bills), Tenant shall pay to
Landlord the amount of the deficiency for such period within ten (10) days after
receipt of Landlord's statement. In the event the Estimated Monthly Charge
exceeds Tenant's proportionate share of such costs, the excess payment shall be
credited against subsequent amounts due from Tenant for electrical service. From
time to time Landlord shall review the Estimated Monthly Charge and make such
adjustments as may appear to be appropriate in the discretion of Landlord.
Landlord shall have the right to revise the Estimated Monthly Charge at any time
and from time to time in the exercise of Landlord's reasonable judgment upon at
least ten (10) days prior written notice to Tenant. All payments due under this
paragraph 6.D. after the expiration of such ten (10) day period shall be
increased or decreased as may be required to make such payments consistent with
such revised Estimated Monthly Charge. As used in this Paragraph 6.D., the term
"Estimated Monthly Charge" shall mean Landlord's estimate of the amount due and
payable by Tenant each month during the Term with respect to Tenant's
proportionate share of Common Area Electrical Service and electrical service to
be provided to the Leased Premises.
E. If Tenant's connected load for electrical design exceeds 3.0
watts per square foot, Tenant shall pay as a surcharge a proportionate part of
all electrical service costs which are attributable to the aggregate over-
standard electrical consumption by all tenants in the Building. Such proportion
shall be equal to the product of the aggregate cost of all over-standard
electrical consumption in the Building (as determined by Landlord) times a
fraction in which the numerator is Tenant's electrical design load in excess of
3.0 watts per square foot and the denominator is the aggregate of the total
electrical design load of all tenants in the Building in excess of 3.0 watts per
square foot. Tenant's proportionate share of such sums shall be due within ten
(10) days after the date of receipt of a statement therefor from Landlord
setting forth the amount of the charges involved and calculating Tenant's
proportionate share thereof.
F. No interruption or malfunction of any of such services shall
constitute an eviction or disturbance of Tenant's use and possession of the
Leased Premises or the Building or a breach by Landlord of any of Landlord's
obligations hereunder to render Landlord liable for damages or entitle Tenant to
be relieved from any of Tenant's obligations hereunder (including the obligation
to pay rental) or grant Tenant any right of setoff or recoupment. In the event
of any such interruption, however, Landlord shall use reasonable diligence
during normal business hours to restore such service or cause same to be
restored in any circumstances in which such restoration
-3-
<PAGE>
is within the reasonable control of Landlord and the interruption was not caused
in whole or in part by Tenant's fault. Notwithstanding the foregoing, in the
event that an interruption of any of those services to be provided by Landlord
under this Paragraph 6 shall render the Leased Premises untenantable, such
interruption was not caused by any act or omission of Tenant or Tenant's
employees, agents or contractors and such interruption shall continue for a
period in excess of fifteen (15) consecutive days, then Tenant's Base Rental
obligations under the Lease shall abate for such period which exceeds fifteen
(15) consecutive days; provided, however, that such rental abatement shall be on
a pro rata basis to reflect only that portion of the Leased Premises affected by
the interruption of services. The abatement of rent provided for in this
paragraph shall not be applicable in the case of any interruption of malfunction
resulting from a reduction or elimination of electrical service to the Building
from the electrical utility company or governmental agency providing such
electrical service or change in quality of such service, nor shall such
abatement be applicable in the event of any interruption or malfunction of
services due to regulations of any government or governmental authority or any
utility company providing electrical service provided such interruption or
malfunction is not due to the failure of Landlord to make payment for such
service or the failure to comply or perform its contractual obligations or
Landlord's failure to comply with existing applicable rules or regulations.
G. Should Tenant desire any additional services beyond those
described in this Paragraph 6 hereof or rendition of any of such services
outside the normal times of Landlord for providing such service, Landlord may
(at Landlord's option), upon reasonable advance notice from Tenant to Landlord,
furnished such service, and Tenant agrees to pay Landlord such charges as may be
agreed on between Landlord and Tenant, but in no event at a charge less than
Landlord's actual cost plus overhead for the additional services provided.
H. Notwithstanding anything in this Paragraph 6 to the contrary,
Landlord shall provide 400 amp electrical service to the Leased Premises. Any
additional electrical requirements of Tenant shall be provided at Tenant's sole
cost and expense. In addition, notwithstanding anything in this Paragraph 6 to
the contrary, Tenant's electrical service in the Leased Premises shall be
measured by a separate meter, installed at Tenant's sole cost and expense.
Tenant may use any unused Finish Allowance to pay for such meter.
7. REPAIR AND MAINTENANCE.
----------------------
A. Landlord shall, at Landlord's own cost and expense, except as may
be provided elsewhere herein, make necessary repairs of damage to the Building
corridors, lobby, structural members of the Building and equipment used to
provide the services referred to in Paragraph 6 hereof, unless any such damage
is caused in whole or in part by acts of omission or Tenant, or Tenant's agents,
employees or invitees, in which event Tenant shall bear the cost of such
repairs. Tenant shall promptly give Landlord notice of any damage in the Leased
Premises requiring repair by Landlord, as aforesaid.
B. Tenant shall not in any manner deface or injure the Leased
Premises or the Building but shall maintain the Leased Premises, including,
without limitation, all fixtures installed by Tenant and all plate glass, walls,
carpeting and other floor covering placed or found therein, in a clean,
attractive, first-class condition and in good repair, except as to damage
required to be repaired by Landlord, as provided in Paragraph 7.A. hereof. Upon
the expiration of the Term of this Lease, Tenant shall surrender and deliver up
the Leased Premises with all improvements located thereon (except as provided in
Paragraph 11.B. hereof) to Landlord broom-clean and in the same condition in
which they existed at the commencement of the Lease, excepting only ordinary
wear and tear and damage arising from any cause not required to be repaired by
Tenant, failing which Landlord may restore the Leased Premises to such
condition, and Tenant shall pay the cost thereof.
C. This Paragraph 7 shall not apply in the case of damage or
destruction by fire or other casualty which is covered by insurance maintained
by Landlord on the Building (as to which Paragraph 8 hereof shall apply), or
damage resulting from an eminent domain taking (as to which Paragraph 15 hereof
shall apply).
8. FIRE AND OTHER CASUALTY.
-----------------------
A. If at any time during the Term of this Lease, the Leased Premises
or any portion of the Building shall be damaged or destroyed by fire or other
casualty, then Landlord shall have the election to terminate this Lease or to
repair and reconstruct the Leased Premises and the Building to substantially the
same condition in which they existed immediately prior to such damage or
destruction, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures and other improvements which may
have been installed by Tenant or other tenants within the Building. In the
event that the Leased Premises are damaged or destroyed by fire or other
casualty, or a portion of the Building is damaged or destroyed by fire or other
casualty so as to materially impair the use and occupancy by Tenant of the
Leased Premises, then Landlord shall be obligated to provide written notice (the
"Restoration Notice") to Tenant within sixty (60) days of such event of casualty
stating a good faith estimate, certified by an independent architect, of the
period of time (the "Stated Restoration Period") which shall be required for the
repair and restoration of the Leased Premises and/or the Building. Tenant shall
have the right, at its election, to terminate the Lease if either (i) the Stated
Restoration Period shall be in excess of ninety (90) days following the event of
casualty and Tenant terminates this Lease with written notice thereof to
Landlord within ten (10) days following delivery of the Restoration Notice, or
(ii) Landlord shall fail to substantially complete the repair and restoration of
the Leased Premises or the Building within the Stated Restoration Period
(subject to extension as provided in Paragraph 39.T of this Lease) and Tenant
delivers written notice of such termination to Landlord within ten (10) days
following the expiration of the restoration deadline.
B. In any of the aforesaid circumstances, rental shall abate
proportionately during the period and to the extent that the Leased Premises are
unfit for use by Tenant in the ordinary conduct of Tenant's business. If Tenant
does not elect, or does not have the right to elect, to terminate the Lease, and
Landlord has elected to repair and restore the Leased Premises, this Lease shall
continue in full force and effect and such repairs shall be made within a
reasonable time thereafter, subject to delays arising from shortages of labor or
material, acts of God, war or other conditions beyond Landlord's reasonable
control. In the event that this Lease is terminated as herein permitted,
Landlord shall refund to Tenant the prepaid rental (unaccrued as of the date of
damage or destruction) less any sum then owing Landlord by Tenant. If Tenant
does not elect, or does not have the right to elect, to terminate the Lease, and
Landlord has elected to repair and reconstruct the Leased Premises, then the
Term of this Lease shall be extended by a period of time equal to the period of
such repair and reconstruction. Any insurance which may be carried by Landlord
or Tenant against loss or damage to the Building or to the Leased Premises
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shall be for the sole benefit of the party carrying such insurance under its
control, and it is understood that Landlord shall in no event be obligated to
carry insurance on Tenant's contents.
9. COMPLIANCE WITH LAWS AND USAGE. Tenant, at Tenant's own expense, (a)
------------------------------
shall comply with all federal, state, municipal fire underwriting and other
laws, ordinances, orders, rules and regulations applicable to the Leased
Premises and the business conducted therein by Tenant, (b) shall not engage in
any activity which would cause Landlord's fire and extended coverage insurance
to be cancelled or the rate therefor to be increased (or, at Landlord's option,
Tenant shall pay any such increase to Landlord immediately upon demand as
additional rental in the event of such rate increase by reason of such
activity), (c) shall not commit, and shall cause Tenant's agents, employees and
invitees not to commit, any act which is a nuisance or annoyance to Landlord or
to other tenants, or which might, in the exclusive judgment of Landlord, damage
Landlord's goodwill or reputation, or tend to injure or depreciate the Building,
(d) shall not commit or permit waste in the Leased Premises or the Building, (e)
shall comply with rules and regulations from time to time promulgated by
Landlord applicable to the Leased Premises and/or the Building, (f) shall not
paint, erect or display any sign, advertisement, placard or lettering which is
visible in the corridors or lobby of the Building or from the exterior of the
Building without Landlord's prior written approval, and (g) shall not occupy or
use, or permit any portion of the Leased Premises to be occupied or used, for
any business or purpose other than the Permitted Use specified in Paragraph 1.0.
hereof. If a controversy arises concerning Tenant's compliance with any federal
state, municipal or other laws, ordinances, orders, rules or regulations
applicable to the Leased Premises and the business conducted therein by Tenant,
Landlord may retain consultants of recognized standing to investigate Tenant's
compliance. If it is determined that Tenant has not complied as required, Tenant
shall reimburse Landlord on demand for all consulting and other costs incurred
by Landlord in such investigation. Landlord shall comply with all federal,
state, municipal, fire underwriting and other laws, ordinances, orders, rules
and regulations applicable to the Common Area of the Building and the business
conducted therein by Tenant. Landlord and Tenant acknowledge that, in accordance
with the provisions of the Americans with Disabilities Act and the Texas
Elimination of Architectural Barriers Act, each as amended from time to time,
and all regulations and guidelines issued by authorized agencies with respect
thereto (collectively, the "ADA" and the "EAB", respectively), responsibility
for compliance with the terms and conditions of Title III of the ADA and the EAB
may be allocated as between Landlord and Tenant. Notwithstanding anything to the
contrary contained in the Lease, Landlord and Tenant agree that the
responsibility for compliance with the ADA and the EAB shall be allocated as
follows: (i) Tenant shall be responsible for compliance with the provisions of
Title III of the ADA and the EAB with respect to the Leased Premises, including
restrooms within the Leased Premises, and (ii) Landlord shall be responsible
for compliance with the provisions of Title III of the ADA and with the EAB with
respect to the exterior of the Building, parking areas, sidewalks and walkways,
and any and all areas appurtenant thereto, together with all common areas of the
Building not included within the Leased Premises. The allocation of
responsibility for ADA and EAB compliance between Landlord and Tenant, and the
obligations of Landlord and Tenant established by such allocations, shall
supersede any other provisions of the Lease that may contradict or otherwise
differ from the requirements of this paragraph.
In the event Tenant delivers to Landlord on or before May 10, 1996 written
evidence from Tenant's architect ("Architect's Evidence") that such architect
has determined in good faith that the cost to cause the leasehold improvements
(which exist in the Leased Premises as of the date of this lease and which will
remain in the Leased Premises after the Tenant Finish Work (as defined in
Paragraph 36) has been performed) to comply with the ADA and/or the EAB will
exceed $30,000.00, Tenant may terminate this Lease by delivering written notice
("Tenant's ADA Termination Notice") thereof to Landlord simultaneously with
Tenant's delivery of the Architect's Evidence to Landlord. Tenant's failure to
timely deliver the Architect's Evidence and/or Tenant's ADA Termination Notice
shall automatically extinguish Tenant's foregoing right to terminate this Lease.
Until the foregoing termination right is extinguished or waived in writing by
Tenant, Landlord shall not be obligated to pay to Tenant any portion of the
Finish Allowance. In the event Tenant exercises the foregoing termination right,
notwithstanding anything in this Lease to the contrary, Landlord shall not be
obligated to pay the Finish Allowance to Tenant, and Tenant shall, at its sole
cost and expense, promptly surrender the Leased Premises to Landlord in the same
condition as they existed upon Landlord's tendering of possession thereof to
Tenant.
10. LIABILITY AND INDEMNITY.
-----------------------
A. Tenant agrees to indemnify and save Landlord harmless from all
third-party claims (including costs and expenses of defending against such
claims) arising or alleged to arise from any negligent act or omission or
willful misconduct of Tenant or Tenant's agents, employees, or contractors.
Landlord agrees to indemnify and save Tenant harmless from all third-party
claims (including costs and expenses of defending against such claims) arising
or alleged to arise from any negligent act or omission or willful misconduct of
Landlord or Landlord's agents, employees or contractors.
B. Notwithstanding any provision in this Lease to the contrary,
Landlord and Tenant each hereby waives any and all rights of recovery, claim,
action, or cause of action, against the other, its agents, officers, or
employees, for any loss or damage that may occur to the Leased Premises, or any
improvements thereto, or the Building of which the Leased Premises are apart, or
any improvements thereto, or any personal property of such party therein, by
reason of fire, the elements, or any other cause which is or would be insured
against under the terms of the property insurance policies carried or required
to be carried under the terms of this Lease by the respective parties hereto,
regardless of cause or origin, including negligence of the other party hereto,
its agents, officers, or employees, and covenants that no insurer shall hold any
right of subrogation against such other party (and all such insurance policies
shall be amended or endorsed to reflect such waiver of subrogation). This waiver
of subrogation provision shall be effective to the full extent, but only to the
extent that it does not impair the effectiveness of insurance policies of
Landlord and Tenant.
C. Tenant, to the extent permitted by law, waives all claims Tenant
may have against Landlord, and against Landlord's agents and employees for
injury to person or damage to or loss of property sustained by Tenant or by any
occupant of the Leased Premises, or by any other person, resulting from any part
of the Building or any equipment or appurtenances becoming out of repair, or
resulting from any accident in or about the Building or resulting directly or
indirectly from any act or neglect of any tenant or occupant of any part of the
Building or of any other person, unless such damage is a result of the
negligence of Landlord's agents or employees or Landlord's default in the
performance of its obligations under this Lease. If any damage results from any
act or neglect of Tenant and if the cost of repair of such damage would not be
covered by a fire and extended coverage insurance policy maintained by Landlord
on the Project, then Landlord may, at Landlord's option, repair such damage, and
Tenant shall thereupon pay to Landlord the
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<PAGE>
total cost of such repair. All personal property belonging to Tenant or any
occupant of the Leased Premises that is in or on any part of the Building shall
be there at the risk of Tenant or of such other person only, and Landlord,
Landlord's agents and employees shall not be liable for any damage thereto or
for the theft or misappropriation thereof unless such damage, theft or
misappropriation is a result of the negligence of Landlord or Landlord's agents
or employees.
11. ADDITIONS AND FIXTURES.
----------------------
A. Tenant will make no alteration, change, improvement, repair,
replacement or physical addition in or to the Leased Premises without the prior
written consent of Landlord, such consent not to unreasonably withheld or
delayed; provided, however, that Landlord shall be deemed to have reasonably
withheld its consent if Landlord withholds its consent because any such
alteration, change, improvement, repair, replacement or addition negatively
impacts the structure of the Building or any system of the Building including,
without limitation, the Building's floor load-bearing requirements and its
mechanical, electrical, plumbing and HVAC systems. If such prior written
consent of Landlord is granted, the work in such connection shall be at Tenant's
expense but by workmen of Landlord or by workmen and contractors approved in
advance in writing by Landlord and in a manner and upon terms and conditions and
at times satisfactory to and approved in advance in writing by Landlord. In any
instance where Landlord grants such consent, Landlord may grant such consent
contingent and conditioned upon Tenant's contractors, laborers, materialmen and
others furnishing labor or materials for Tenant's job working in harmony and
not interfering with any labor utilized by Landlord, Landlord's contractors or
mechanics or by any other tenant or such other tenant's contractors or
mechanics; and if at any time such entry by one (1) or more persons furnishing
labor or materials for Tenant's work shall cause disharmony or interference for
any reason whatsoever without regard to fault, the consent granted by Landlord
to Tenant may be withdrawn at any time upon written notice to Tenant.
B. Tenant, if Tenant so elects, may remove Tenant's trade fixtures,
office supplies and movable office furniture and equipment not attached to the
Building provided (i) such removal is made prior to the expiration of the Term
of this Lease, (ii) Tenant is not in default of any obligation or covenant under
this Lease at the time of such removal, and (iii) Tenant promptly repairs all
damage caused by such removal. All other property at the Leased Premises and any
alteration or addition to the Leased Premises (including wall-to-wall carpeting,
paneling or other wall covering) and any other article attached or affixed to
the floor, wall or ceiling of the Leased Premises shall become the property of
Landlord shall be in good condition, normal wear and tear excepted, and shall
remain upon and be surrendered with the Leased Premises as part thereof at the
expiration of the Term of this Lease, Tenant hereby waiving all rights to any
payment or compensation therefor. If, however, Landlord so requests in writing,
Tenant will, prior to the termination of this Lease, remove in a good and
workmanlike manner any and all alterations, additions, fixtures, equipment and
property placed or installed by Tenant in the Leased Premises and will repair
any damage occasioned by such removal.
12. ASSIGNMENT AND SUBLETTING
-------------------------
A. Neither Tenant nor Tenant's Legal representatives or successors
in interest by operation of law or otherwise shall assign this Lease or sublease
the Leased Premises or any part thereof or mortgage, pledge or hypothecate its
Leasehold interest or grant any concession or license within the Leased Premises
without the prior express written permission of Landlord, which permission shall
not be unreasonably withheld or delayed, and any attempt to do any of the
foregoing without the prior express written permission of Landlord shall be void
and of no effect. In determining whether to grant permission to Tenant's request
to assign this lease or sublease the Leased Premises, Landlord may consider any
reasonable factor. Landlord and Tenant agree that any one of the following
factors, or any other reasonable factor, will be reasonable grounds for deciding
Tenant's request:
(i) The business reputation of the proposed assignee or
subleasee must be in accordance with generally acceptable commercial
standards and consistent with B class A office building environment;
(ii) The use of the Leased Premises by the proposed assignee or
sublessee must be for general office use or for a telecommunications
facility only;
(iii) The proposed assignee or sublessee may not be a tenant or
occupant in the Building; and
(iv) The use of the Leased Premises by the proposed assignee or
sublessee shall not violate any other agreements affecting the Leased
Premises, the Building, Landlord or other tenants.
Notwithstanding any provision in this Lease to the contrary, the undersigned
Tenant may, without Landlord's prior written consent, assign its rights
hereunder to any bona fide purchaser of substantially all of the undersigned
Tenant's assets or all of the corporate stock of the undersigned Tenant, or to
an entity with which the undersigned Tenant enters into a bona fide merger or
consolidation (collectively, a "Permitted Assignee"); provided, however, that
(i) the undersigned Tenant shall remain liable for the performance of all
covenants, duties and obligations under the Lease, irrespective of any such
assignment or sublease, (ii) the use of the Leased Premises by the Permitted
Assignee may not violate any other agreements affecting the Leased Premises,
the Building, Landlord or other tenants, and (iii) use of the Leased Premises by
the Permitted Assignee shall conform with the uses permitted by this Lease.
Tenant shall notify Landlord, in writing, of any such assignment or sublease
within thirty (30) days of its occurrence and shall provide Landlord with all
such reasonable information as Landlord may request regarding the identity and
status of such assignee or sublessee. In the event Tenant requests Landlord's
prior express permission as to any assignment of the Lease (other than to a
Permitted Assignee), Landlord shall have the right and option, (but no
obligation), to cancel and terminate this lease by giving Tenant ten (10) days'
prior written notice; provided, however, that Landlord's right to counsel and
terminate shall not apply if Tenant withdraws its request within such 10-day
period. In the event of any attempted assignment or attempted sublease without
the prior express written permission of Landlord, or should Tenant, in any other
nature of transaction, permit or attempt to permit anyone to occupy the Leased
Premises (or any portion thereof) without the prior express written permission
of Landlord, Landlord shall thereupon have the right and option to cancel and
terminate this Lease effective upon ten (10) days' notice to Tenant given by
Landlord at any time thereafter either as to the entire Leased Premises or as to
only the portion thereof which Tenant shall have attempted to assign or sublease
or otherwise permitted some other party's occupancy without Landlord's prior
express written permission, and if Landlord elects to cancel and terminate this
Lease as to the aforesaid portion of the Leased Premises, then the rental and
other charges payable hereunder shall thereafter be proportionately reduced.
This prohibition against assignment or subletting
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<PAGE>
shall be construed to include a prohibition against any assignment or subletting
by operation of law.
B. Notwithstanding that the prior express written permission of Landlord
to any of the aforesaid transactions may have been obtained, the following shall
apply:
(1) In the event of an assignment, contemporaneously with the granting of
Landlord's aforesaid consent, Tenant shall cause the assignee to expressly
assume in writing and agree to perform all of the covenants, duties and
obligations of Tenant hereunder, and such assignee shall be jointly and
severally liable therefor along with Tenant; Tenant shall further cause such
assignee to grant Landlord and express first and prior contract lien and
security interest in the manner hereinafter stated as applicable to Tenant;
(2) A signed counterpart of all instruments relative thereto (executed by
all parties to such transactions with the exception of Landlord) shall be
submitted by Tenant to Landlord prior to or contemporaneously with the
request for Landlord's prior express written permission thereto (it being
understood that no such instrument shall be effective without the prior
express written permission of Landlord);
(3) [Intentionally Deleted.]
(4) No usage of the Leased Premises different from the usage herein
provided to be made by Tenant shall be permitted, and all other terms and
provisions of this Lease shall continue to apply after any such transaction;
(5) In any case where Landlord consents to an assignment, sublease, grant
of a concession or license or mortgage, pledge or hypothecation of the
Leasehold, the undersigned Tenant will nevertheless remain directly and
primarily liable for the performance of all of the covenants, duties and
obligations of Tenant hereunder (including, without limitation, the
obligation to pay all rental and other sums herein provided to be paid), and
Landlord shall be permitted to enforce the provisions of this Lease against
the undersigned Tenant and/or any assignee, sublessee, concessionaire,
licensee or other transferee without demand upon or proceeding in any way
against any other person; and
C. If Tenant is a corporation, then any transfer of this Lease from
Tenant by merger, consolidation or dissolution or any change in ownership or
power to vote a majority of the voting stock in Tenant outstanding at the time
of execution of this Lease shall constitute an assignment for the purpose of
this Lease; provided, however, that acquisition of all stock of a corporate
tenant by any corporation, the stock of which is registered pursuant to the
Securities Act of 1933 or the merger of a corporate tenant into such a
corporation, the stock of which is so registered, shall not itself be deemed to
be a violation of Paragraph 12.A. For purposes of this Paragraph 12.C., the term
"voting stock" shall refer to shares of stock regularly entitled to vote for the
election of directors of the corporation involved.
If Tenant is a general partnership having one (1) or more corporations as
partners of if Tenant is a limited partnership having one (1) or more
corporations as general partners, the provisions of the preceding paragraph of
this Paragraph 12.C. shall apply to each of such corporations as if such
corporation alone had been the Tenant hereunder.
If Tenant is a general partnership (whether or not having any corporations
as partners) or if Tenant is a limited partnership (whether or not having any
corporations as general partners), the transfer of the partnership interest or
interests constituting a majority shall constitute an assignment for the
purposes of this Lease.
D. Consent by Landlord to a particular assignment or sublease or other
transaction shall not be deemed a consent to any other or subsequent
transaction. If this Lease is assigned, or if the Leased Premises are subleased
(whether in whole or in part), or in the event of the mortgage, pledge or
hypothecation of the leasehold interest or grant of any concession or license
within the Leased Premises without the prior express written permission of
Landlord, which permission as stated in Paragraph 12.A. above shall not be
unreasonably withheld or delayed, or if the Leased Premises are occupied in
whole or in part by anyone other than Tenant without the prior express written
permission of Landlord, then Landlord may nevertheless collect rental and other
charges from the assignee, sublessee, mortgagee, pledgee, party to whom the
leasehold interest was hypothecated, concessionaire or licensee or other
occupant and apply the net amount collected to the rental and other charges
payable hereunder, but no such transaction or collection of rental and other
charges or application thereof by Landlord shall be deemed a waiver of these
provisions or a release of Tenant from the further performance by Tenant of
Tenant's covenants, duties and obligations hereunder.
13. SUBORDINATION. Tenant accepts this lease subject and subordinate to
-------------
any ground lease, mortgage, deed of trust or other lien presently existing or
hereafter placed upon the Leased Premises or upon the Building or any part
thereof, and to any renewals, modifications, extensions and refinancings
thereof, which might now or hereafter constitute a lien upon the Building or any
part thereof, and to zoning ordinances and other building and fire ordinances
and governmental regulations relating to the use of the Leased Premises, but
Tenant agrees that any such ground lessor, mortgagee and/or beneficiary of any
deed of trust or other lien ("Landlord's Mortgagee") and/or Landlord shall have
the right at any time to subordinate such ground lease, mortgage, deed of trust
or other lien to this Lease on such terms and subject to such conditions as such
Landlord's Mortgagee may deem appropriate in its discretion. Upon demand Tenant
agrees to execute such further instruments subordinating this Lease, as Landlord
may request, and such nondisturbance and attornment agreements, as any such
Landlord's Mortgagee shall request, in form satisfactory to Landlord's
Mortgagee. In the event that Tenant shall fail to execute any such instrument
within ten (10) business days after requested, Tenant hereby irrevocably
constitutes
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Landlord as Tenant's attorney-in-fact to execute such instrument in Tenant's
name, place and stead, it being stipulated by Landlord and Tenant that such
agency is coupled with an interest in Landlord and is, accordingly, irrevocable.
Upon foreclosure of the Building or upon acceptance of a deed in lieu of such
foreclosure, Tenant hereby agrees to attorn to the new owner of such property
after such foreclosure or acceptance of a deed in lieu of foreclosure, if so
requested by such new owner of the Building. Notwithstanding any contrary
provision contained herein, Landlord shall use reasonable efforts to obtain from
the current Landlord's Mortgagee a duly executed non-disturbance and attornment
agreement providing Tenant with substantially the same protection as to Tenant's
use and enjoyment of Tenant's leasehold estate, use, possession, tenancy and
other rights hereunder as is afforded Tenant under the form instrument attached
hereto as Exhibit E. In the event that Landlord fails to obtain such
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non-disturbance and attornment agreement from Landlord's Mortgagee within
fifteen (15) business days of following the date of this Lease, then Tenant
shall have the option, as Tenant's sole and exclusive right and remedy, to
terminate this Lease by delivering written notice to Landlord of the exercise of
such right of termination on or before twenty-five (25) business days following
the date of this Lease. Tenant's failure to timely deliver such written notice
shall automatically extinguish Tenant's right to terminate this Lease as set
forth herein. Until the foregoing termination right is extinguished or is waived
in writing by Tenant, Landlord shall not be obligated to pay any portion of the
Finish Allowance to Tenant. In the event Tenant timely exercises the foregoing
termination right, notwithstanding anything in this Lease to the contrary,
Landlord shall not be obligated to pay any portion of the Finish Allowance to
Tenant, and Tenant shall immediately surrender the Leased Premises to Landlord.
In addition, notwithstanding any contrary provision contained herein, the
subordination of this Lease to any mortgage, deed of trust or other lien
hereafter placed upon the Leased Premises or the Building or any part thereof
and Tenant's agreement to attorn to the holder of such mortgage, deed of trust
or other lien as provided in this Paragraph 13 shall be conditioned upon such
holder's entering into a non-disturbance and attornment agreement providing
Tenant with substantially the same protection as to Tenant's use and enjoyment
of Tenant's leasehold estate, use, possession, tenancy and other rights
hereunder as is afforded Tenant under the form instrument attached hereto as
Exhibit E.
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14. OPERATING EXPENSES.
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A. For purposes of this Paragraph 14, the following definitions and
calculations shall apply:
(1) The term "Operating Expenses" shall mean all expenses, costs and
disbursements of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the ownership, operation,
maintenance, repair, replacement, protection and security of the Project,
determined on an accrual basis in accordance with generally accepted
accounting principles, including, without limitation, the following:
(i) Salaries and wages of all employees (at the level of
property manager and below) engaged in the operation, maintenance and
security of the Project, including taxes, insurance and benefits
(including pension, retirement of fringe benefits) relating thereto;
(ii) Cost of all supplies and materials used in the operation,
maintenance and security of the Project;
(iii) Cost of all water and sewage service supplied to the
Project;
(iv) Cost of all maintenance and service agreements for the
Project and the equipment therein, including, without limitation,
alarm service, parking facilities, security (both on-site and off-
site), janitorial service, landscaping, fire protection, sprinklers,
window cleaning and elevator maintenance;
(v) Cost of all insurance relating to the Project, including
the cost of casualty, rental and liability insurance applicable to the
Project and Landlord's personal property used in connection therewith;
(vi) All taxes, assessments and governmental charges (foreseen
or unforeseen, general or special, ordinary or extraordinary) whether
federal, state, county or municipal and whether levied by taxing
districts or authorities presently taxing the Project or by others
subsequently created or otherwise, and any other taxes and assessments
attributable to the Project or its operation, and all taxes of
whatsoever nature that are imposed in substitution for or in lieu of
any of the taxes, assessments or other charges herein defined;
provided, however, Operating Expenses shall not include taxes paid by
tenants of the Project as a separate charge on the value of their
leasehold improvements, death taxes, excess profits taxes, franchise
taxes and state and federal income taxes;
(vii) Cost of repairs and general maintenance, including,
without limitation, reasonable depreciation charges applicable to all
equipment used in repairing and maintaining the Project, but
specifically excluding repairs and general maintenance paid by
proceeds of insurance or by Tenant or by other third parties;
(viii) Cost of capital improvement items, including installation
thereof, which are acquired primarily for the purpose of reducing
Operating Expenses;
(xi) Reasonable management fees paid by Landlord to third
parties or to management companies owned by, or management divisions
of, Landlord, not to exceed the then prevailing market rate for the
management of high quality class A office buildings comparable to the
Project; and
(x) Any and all increases in ground rental and/or mortgage
debt service requirements on the Project in accordance with the terms
and conditions of any ground leases, mortgages or deeds of trust now
or hereafter encumbering the Project; excluding, however, any and all
increases in debt service caused by a refinancing which enables
Landlord to net any proceeds or additional debt placed upon the
Project to finance additional capital improvements, additions or
alterations.
Notwithstanding anything herein to the contrary, the following
shall not be included in Operating Expenses:
(a) Brokerage commissions, attorneys' fees, advertising costs or
other related expenses incurred by Landlord in connection with the leasing
of space to individual tenants in the Building;
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(b) Legal fees and other expenses incurred in connection with
disputes with tenants or other occupants of the Building or associated
with the enforcement of the terms of any leases with tenants;
(c) Any cost of capital improvements or other costs which are
capital costs under generally accepted accounting principles, except
as provided in Paragraph 14.A.(1)(viii);
(d) Depreciation and amortization allowance or expense, except
as otherwise provided Paragraph 14.A.(1)(vii);
(e) Legal and auditing fees, other than those legal and auditing
fees necessarily incurred in connection with the maintenance and
operation of the Project;
(f) Legal or accounting fees incurred in connection with any
debt or equity financing of the Project or in connection with any
reports, returns or other financial or tax reporting or accounting
performed for the benefit of investors, partners or affiliates of
Landlord;
(g) Marketing and advertising expenses incurred in connection
with the leasing of the Building;
(h) Interest, fines and penalties to the extent caused by the
negligence or willful misconduct of Landlord; and
(i) The cost of removing asbestos or hazardous substances from
the Project.
To the extent that any Operating Expenses are attributable to the
Project and other projects of Landlord, a fair and reasonable allocation of such
Operating Expenses shall be made between the Project and such other projects.
(2) The term "Operating Expenses" shall exclude the cost of
electrical energy supplied to the Project and to tenants of the Building.
(3) The term "Base Operating Expenses Rate" is stipulated to be the
rate specified in Paragraph 1.?. hereof per square foot or rentable area in
the Leased Premises.
(4) The term "Actual Operating Expenses" shall mean, with respect to
each calendar year during the Term of this Lease, the actual Operating
Expenses for such year. The term "Actual Operating Expenses Rate" shall
mean, with respect to each calendar year during the Term of this Lease, the
Actual Operating Expenses attributable to each square foot of rentable
area in the Building, and shall be calculated by dividing the Actual
Operating Expenses by the total number of square feet of rentable area in
the Building, as specified in Paragraph 1.I. hereof. The term "Tenant's
Proportionate Share of Actual Operating Expenses" shall mean, with respect
to each calendar year during the Term of this Lease, an amount equal to the
product of (i) the positive difference (if any) obtained by substracting
the Base Operating Expenses Rate from the Actual Operating Expenses Rate,
multiplied by (ii) the weighted average number of square feet of rentable
area in the Leased Premises in such year; provided, however, if the Actual
Operating Expenses Rate is determined on the basis of a partial calendar
year, then in making the foregoing calculation, the Base Operating Expenses
Rate shall be multiplied by a fraction, the numerator of which is the
number of days in such partial calendar year and the denominator of which
is 365, and the foregoing weighted average shall be calculated only on the
basis of the portion of such calendar year covered by the Term of this
Lease.
For example, if the Actual Operating Expenses Rate for a calendar
year is $3.20 and the Base Operating Expenses Rate is $3.00, and the Leased
Premises contains 19,000 square feet of rentable area during the entire
calendar year, Tenant's Proportionate Share of Actual Operating Expenses is
$3,800.00, calculated as follows: ($3.20 - $3.00) x 19,000 = $3,800.00.
B. If the Actual Operating Expenses Rate during any calendar year is
greater than the Base Operating Expenses Rate, Tenant shall be obligated to pay
to Landlord as additional rental an amount equal to Tenant's Proportionate Share
of Actual Operating Expenses. To implement the foregoing, Landlord shall provide
to Tenant within ninety (90) days (or as soon thereafter as reasonably possible)
after the end of the calendar year in which the Commencement Date occurs, a
statement of the Actual Operating Expenses for such calendar year, the Actual
Operating Expenses Rate for such calendar year, and Tenant's Proportionate Share
of Actual Operating Expenses. If the Actual Operating Expenses Rate for such
calendar year exceeds the Base Operating Expenses Rate, Tenant shall pay to
Landlord, within thirty (30) days after Tenant's receipt of such statement, an
amount equal to Tenant's Proportionate Share of Actual Operating Expenses for
such calendar year.
C. Beginning with the Commencement Date of this Lease (or as soon
thereafter as reasonably possible), Landlord shall provide to Tenant a statement
of the projected annual Operating Expenses per square foot of rentable area in
the Project (the "Projected Operating Expenses Rate"). Tenant shall pay to
Landlord on the first day of each month an amount (the "Projected Operating
Expenses Installment") equal to one-twelfth (1/12) of the product of (i) the
positive difference (if any) obtained by subtracting the Base Operating Expenses
Rate from the Projected Operating Expenses Rate for such calendar year,
multiplied by (ii) the number of square feet of rentable area in the Leased
Premises on the first day of the prior month. Until Tenant has received the
statement of the Projected Operating Expenses Rate from Landlord, Tenant shall
continue to pay Projected Operating Expenses Installments to Landlord in the
same amount (if any) as required for the last month of the prior calendar year.
Upon Tenant's receipt of such statement of the Projected Operating Expenses
Rate, Tenant shall pay to Landlord, or Landlord shall pay to Tenant (whichever
is appropriate), the difference between the amount paid by Tenant prior to
receiving such statement and the amount payable by Tenant as set forth in such
statement. Landlord shall provide Tenant a statement, prepared by a certified
public accountant (who may be an employee of Landlord), within ninety (90) days
(or as soon thereafter as reasonably possible) after the end of each calendar
year, showing the Actual Operating Expenses Rate as compared to the Projected
Operating Expenses Rate for such calendar year. If Tenant's Proportionate Share
of Actual Operating Expenses for such calendar year exceeds the aggregate of the
Projected Operating Expenses Installments collected by Landlord from Tenant,
Tenant shall pay to Landlord, within thirty (30) days following Tenant's receipt
of such statement, the amount of such excess. If Tenant's Proportionate Share of
Actual Operating Expenses for such calendar year is less than the aggregate of
the Projected Operating Expenses Installments collected by Landlord from Tenant,
Landlord shall pay to Tenant, within thirty (30) days following Tenant's receipt
of
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<PAGE>
such statement, the amount of such excess. Landlord shall have the right from
time to time during each calendar year to revise the Projected Operating
Expenses Rate and provide Tenant with a revised statement thereof, and
thereafter Tenant shall pay Projected Operating Expenses Installments on the
basis of the revised statement. If the Commencement Date of this Lease is not
the first day of a calendar year, or the expiration or termination date of this
Lease is not the last day of a calendar year, then Tenant's Proportionate Share
of Actual Operating Expenses shall be prorated. The foregoing adjustment
provisions shall survive the expiration or termination of the Term of this
Lease.
D. Notwithstanding any other provision herein to the contrary, it is
agreed that if the Project is not fully occupied during any calendar year an
adjustment shall be made in computing the Actual Operating Expenses for such
year so that the Actual Operating Expenses are computed as though the Project
had been fully occupied during such year.
E. Landlord agrees to keep books and records reflecting the Operating
Expenses of the Project in accordance with generally accepted accounting
principles. Tenant, at its expense, shall have the right, within six (6) months
after receiving Landlord's statement of Actual Operating Expenses for a
particular year, to audit Landlord's books and records relating to the Operating
Expenses for such year if the Actual Operating Expenses Rate exceeds the Base
Operating Expenses Rate; or, at Landlord's sole option, Landlord may provide
such audit prepared by a certified public accountant selected by Landlord. If
within such six (6) month period Tenant does not give Landlord written notice
stating in reasonable detail any objection to the statement of Actual Operating
Expenses, Tenant shall be deemed to have approved such statement in all
respects.
F. Notwithstanding any provision of the Lease to the contrary, for the
purpose of calculating Tenant's Proportionate Share of Actual Operating Expenses
each year during the first five (5) years of the Term of the Lease, the items
of Actual Operating Expenses which are reasonably subject to the control of
Landlord ("Controllable Expenses") shall be deemed not to increase more than
eight percent (8%) per calendar year (determined on a cumulative compounding
basis throughout the Term of the Lease) for each calendar year from and after
January 1, 1997; provided, however, that no item of Actual Operating Expenses
other than Controllable Expenses shall be subject to the foregoing limitation.
Controllable Expenses shall not include, without limitation, (i) insurance, (ii)
taxes, assessments and governmental charges, as specified in Paragraph 14.A.(1)
(vi) above, and (iii) utilities.
15. EMINENT DOMAIN. If there shall be taken by exercise of the power of
--------------
eminent domain during the Term of this Lease any part of the Leased Premises or
the Building, Landlord may elect to terminate this Lease or to continue same in
effect. If there shall be taken by exercise of the power of eminent domain any
part of the Leased Premises or the Building which materially interferes with
Tenant's ability to conduct its operations in the Leased Premises, then Tenant
shall have the right to terminate this Lease upon thirty (30) days' written
notice to Landlord following such taking. If this Lease continues, the rental
shall be reduced in proportion to the area of the Leased Premises so taken, and
Landlord shall repair any damage to the Leased Premises or the Building
resulting from such taking. All sums awarded or agreed upon between Landlord and
the condemning authority for the taking of the interest of Landlord, whether as
damages or as compensation, will be the property of Landlord. Tenant shall
present its own claim for damages against the condemning authority on account of
the unamortized cost of leasehold improvements paid for by Tenant taken by the
condemning authority and for damages to, or condemnation of, furniture, trade
fixtures and equipment and such other installations as Tenant shall be unable to
remove from the Leased Premises (but only to the extent that the terms and
provisions of this Lease provide that such items will remain the property of
Tenant upon the termination of this Lease), and the reimbursement of Tenant's
cost in moving and relocating such furniture, trade fixtures and equipment and
other installations to which Tenant shall be entitled and is able to remove
from the Leased Premises and such other claims Tenant may have against the
condemning authority, but only to the extent Tenant's claim does not diminish
Landlord's claim against the condemning authority. If this Lease should be
terminated under any provision of this Paragraph 15, rental shall be payable up
to the date that possession is taken by the condemning authority, and Landlord
will refund to Tenant any prepaid unaccrued rental less any sum then owing by
Tenant to Landlord.
16. ACCESS BY LANDLORD. Landlord, Landlord's agents and employees shall
------------------
have access to and the right to enter upon any and all parts of the Leased
Premises at any reasonable time after reasonable prior notice, which notice may
be oral or written (except in cases of emergency, defined to be any situation in
which Landlord perceives imminent danger of inquiry to person and/or damage to
or loss of property, in which case Landlord may enter upon any and all parts of
the Leased Premises at any time) to examine the condition thereof, to clean, to
make any repairs, alterations or additions required to be made by Landlord
hereunder, to show the Leased Premises to prospective purchasers or tenants or
mortgage lenders (prospective or current) and for any other purpose deemed
reasonable by Landlord, and Tenant shall not be entitled to any abatement or
reduction of rental by reason thereof.
17. LANDLORD'S LIEN. Landlord hereby expressly waives and releases any and
---------------
all contractual liens and security interests or constitutional and/or statutory
liens and security interests arising by operation of law to which Landlord might
now or hereafter be entitled on all the property of Tenant which Tenant now or
hereafter places in or upon the Leased Premises (except for judgment liens that
may arise in favor of Landlord). The waiver and release contained herein shall
not waive, release or otherwise affect any unsecured claim Landlord may have
against Tenant.
18. DEFAULTS.
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A. Each of the following acts or omissions of Tenant or occurrences
shall constitute an "Event of Default":
(1) Failure or refusal by Tenant to pay rental or other payments
hereunder upon the expiration of a period of ten (10) days following
written notice to Tenant of such failure; provided, however, that Landlord
shall not be required to send such written notice to Tenant more than twice
in any one calendar year and after such two (2) written notices, Landlord
shall have no obligation to give Tenant written notice of any subsequent
default during the remainder of such calendar year and Tenant's failure or
refusal to timely pay rental or other payments hereunder when due during
the remainder of such calendar year shall constitute an Event of Default.
(2) Failure to perform or observe any covenant or condition of this
Lease by Tenant to be performed or observed upon the expiration of a period
of ten (10) days following written notice to Tenant of such failure;
provided, however, that in the event Tenant's failure to perform a covenant
or condition of this Lease cannot reasonably be cured within ten (10) days
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<PAGE>
following written notice to Tenant, Tenant shall not be in default if
Tenant commences to cure same within the ten (10) day period and thereafter
diligently prosecutes the curing thereof, but in no event shall Tenant's
cure period exceed thirty (30) days following written notice to Tenant.
(3) The filing or execution or occurrence of any one of the
following: (i) a petition in bankruptcy or other insolvency proceeding by
or against Tenant, (ii) petition or answer seeking relief under any
provision of the Bankruptcy Act, (iii) an assignment for the benefit of
creditors or composition, (iv) a petition or other proceeding by or against
Tenant for the appointment of a trustee, receiver or liquidator of Tenant
or any of Tenant's property, or (v) a proceeding by any governmental
authority for the dissolution or liquidation of Tenant.
B. This Lease and the Term and estate hereby granted and the demise
hereby made are subject to the limitation that if and whenever any Event of
Default shall occur, Landlord may, at Landlord's option, in addition to all
other rights and remedies given hereunder or by law or equity, do any one (1) or
more of the following:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender possession of the Leased Premises to Landlord.
(2) Enter upon and take possession of the Leased Premises and expel
or remove Tenant and any other occupant therefrom, with or without having
terminated the Lease.
(3) Alter locks and other security devices at the Leased Premises.
C. Exercise by Landlord of any one (1) or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Leased Premises by Tenant, whether by agreement or by operation
of Law, it being understood that such surrender can be effected only by the
written agreement of Landlord and Tenant. No such alteration of security devices
and no removal or other exercise of dominion by Landlord over the property of
Tenant or others at the Leased Premises shall be deemed unauthorized or
constitute a conversion, Tenant hereby consenting, after any Event of Default,
to the aforesaid exercise of dominion over Tenant's property within the
Building. All claims for damages by reason of such re-entry and/or possession
and/or alteration of locks or other security devices are hereby waived, as are
all claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Tenant agrees
that any re-entry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
D. In the event that Landlord elects to terminate this Lease by
reason of an Event of Default, then, notwithstanding such termination, Tenant
shall be liable for and shall pay to Landlord, at the address specified in
Paragraph 1.C. hereof, the sum of all rental and other indebtedness accrued to
the date of such termination, plus, as damages, an amount equal to the then
present value of the rental reserved hereunder for the remaining portion of the
Term of this Lease (had such Term not been terminated by Landlord prior to the
expiration of the Term of this Lease), less the then present value of the fair
rental value of the Leased Premises for such period.
In the event that Landlord elects to terminate the Lease by reason of
an Event of Default, in lieu of exercising the rights of Landlord under the
preceding paragraph of this Paragraph 18.D., Landlord may instead hold Tenant
liable for all rental and other indebtedness accrued to the date of such
termination, plus such rental and other indebtedness as would otherwise have
been required to be paid by Tenant to Landlord during the period following
termination of the Term of this Lease measured from the date of such termination
by Landlord until the expiration of the Term of this Lease (had Landlord not
elected to terminate the Lease on account of such Event of Default) diminished
by any net sums thereafter received by Landlord through reletting the Leased
Premises during said period (after deducting expenses incurred by Landlord as
provided in Paragraph 18.F. hereof). Actions to collect amounts due by Tenant
provided for in this paragraph of this Paragraph 18.D. may be brought from time
to time by Landlord during the aforesaid period, on one (1) or more occasions,
without the necessity of Landlord's waiting until the expiration of such period,
and in no event shall Tenant be entitled to any excess of rental (or rental plus
other sums) obtained by reletting over and above the rental provided for in this
Lease.
E. In the event that Landlord elects to repossess the Leased
Premises without terminating this Lease, then Tenant shall be liable for and
shall pay to Landlord, at the address specified in Paragraph 1.C. hereof, all
rental and other indebtedness accrued to the date of such repossession, plus
rental required to be paid by Tenant to Landlord during the remainder of the
Term of this Lease until the expiration of the Term of this Lease, diminished
by any net sums thereafter received by Landlord through reletting the Leased
Premises during said period (after deducting expenses incurred by Landlord as
provided in Paragraph 18.F. hereof). In no event shall Tenant be entitled to any
excess of any rental obtained by reletting over and above the rental herein
reserved. Actions to collect amounts due by Tenant as provided in this Paragraph
18.E. may be brought from time to time, on one (1) or more occasions, without
the necessity of Landlord's waiting until the expiration of the Term of this
Lease.
F. In case of an Event of Default, Tenant shall also be liable for
and shall pay to Landlord, at the address specified in Paragraph 1.C. hereof, in
addition to any sum provided to be paid above: (i) broker's fees incurred by
Landlord in connection with reletting the whole or any part of the Leased
Premises, (ii) the cost of removing and storing Tenant's or other occupant's
property, (iii) the cost of reparing, altering, remodeling or otherwise putting
the Leased Premises into condition acceptable to a new tenant or tenants, and
(iv) all reasonable expenses incurred by Landlord in enforcing Landlord's
remedies, including reasonable attorneys' fees. Past due rental and other past
due payments shall bear interest from maturity at the highest lawful rate per
annum until paid.
G. In the event of termination or repossession of the Leased
Premises for an Event of Default, Landlord shall not have any obligation to
relet or attempt to relet the Leased Premises, or any portion thereof, or to
collect rental after reletting; but Landlord shall have the option to relet or
attempt to relet; and in the event of reletting, Landlord may relet the whole or
any portion of the Leased Premises for any period to any tenant and for any use
and purpose.
H. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under
any obligation to do so and without thereby
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<PAGE>
waiving such default, may make such payment and/or remedy such other default for
the account of Tenant (and enter the Leased Premises for such purpose), and
thereupon Tenant shall be obligated to, and hereby agrees to, pay Landlord, upon
demand, all costs, expenses and disbursements (including reasonable attorneys'
fees) incurred by Landlord in taking such remedial action.
I. In the event of any default by Landlord, except as expressly
provided in Paragraph 6.F. of this Lease, Tenant's exclusive remedy shall be an
action for damages (Tenant hereby waiving the benefit of any laws granting
Tenant a lien upon the property of Landlord and/or upon rental due Landlord),
but prior to any such action Tenant will give Landlord written notice specifying
such default with particularity, and Landlord shall thereupon have thirty (30)
days (plus such additional reasonable period as may be required in the exercise
by Landlord of due diligence) in which to cure any such default. Unless and
until Landlord fails to so cure any default after such notice, Tenant shall not
have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of Landlord's
possession of the Building and not thereafter.
The term "Landlord" shall mean only the owner, for the time being, of
the Building, and in the event of the transfer by such owner of its interest in
the Building, such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the Term of this Lease upon
each new owner for the duration of such owner's ownership.
19. NONWAIVER. Neither acceptance of rental or other payments by Landlord
---------
nor failure by Landlord to complain of any action, nonaction or default of
Tenant shall constitute a waiver of any of Landlord's rights hereunder. Waiver
by Landlord of any right for any default of Tenant shall not constitute a waiver
of any right for either a subsequent default of the same obligation or any other
default. Receipt by Landlord of Tenant's keys to the Leased Premises shall not
constitute an acceptance of surrender of the Leased Premises.
20. HOLDING OVER. If Tenant should remain in possession of the Leased
------------
Premises after the expiration of the Term of this Lease, without the execution
by Landlord and Tenant of a new lease or an extension of this Lease, then Tenant
shall be deemed to be occupying the Leased Premises as a tenant-at-sufferance,
subject to all the covenants and obligations of this Lease and at a daily rental
of 150% of the per day rental provided for the last month of the Term of this
Lease, computed on the basis of a thirty (30) day month. The inclusion of the
preceding sentence shall not be construed as Landlord's consent for Tenant to
hold over. If any property not belonging to Landlord remains at the Leased
Premises after the expiration of the Term of this Lease, Tenant hereby
authorizes Landlord, after ten (10) business days prior written notice to
Tenant, to make such disposition of such property as Landlord may desire without
liability for compensation or damages to Tenant in the event that such property
is the property of Tenant; and in the event that such property is the property
of someone other than Tenant, Tenant agrees to indemnify and hold Landlord
harmless from all suits, actions, liability, loss, damages and expenses in
connection with or incident to any removal, exercise or dominion over and/or
disposition of such property by Landlord.
21. COMMON AREA. The Common Area, as defined in Paragraph 1.P. hereof,
-----------
shall be subject to Landlord's sole management and control and shall be operated
and maintained in such manner as Landlord in Landlord's discretion shall
determine. Landlord reserves the right to change from time to time the
dimensions and location of the Common Area, to construct additional stories on
the Building and to place, construct or erect new structures or other
improvements on any part of the Land without the consent of Tenant. Tenant, and
Tenant's employees and invitees shall have the nonexclusive right to use the
Common Area as constituted from time to time, such use to be in common with
Landlord, other tenants of the Building and other persons entitled to use the
same, and subject to such reasonable rules and regulations governing use as
Landlord may from time to time prescribe. Tenant shall not solicit business or
display merchandise within the Common Area, or distribute handbills therein, or
take any action which would interfere with the rights of other persons to use
the Common Area. Landlord may temporarily close any part of the Common Area for
such periods of time as may be necessary to prevent the public from obtaining
prescriptive rights or to make repairs or alterations.
22. RULES AND REGULATIONS. Tenant, and Tenant's agents, employees and
---------------------
invitees shall comply fully with all requirements of the rules and regulations
of the Building which are attached hereto as Exhibit C and made a part hereof.
---------
Landlord shall at all times have the right to change such rules and regulations
or to amend or supplement them in such manner as may be deemed advisable for the
safety, care and cleanliness of the Leased Premises and the Building and for
preservation of good order therein, all of which rules and regulations, changes
and amendments shall be forwarded to Tenant and shall be carried out and
observed by Tenant. Tenant shall further be responsible for the compliance with
such rules and regulations by the employees, agents and invitees of Tenant. Such
rules and regulations shall be applied uniformly to all tenants of the Building.
23. TAXES. Tenant shall be liable for the timely payment of all taxes
-----
levied or assessed against personal property, furniture or fixtures or equipment
placed by Tenant in the Leased Premises. If any such taxes for which Tenant is
liable are levied or assessed against Landlord or Landlord's property and if
Landlord elects to pay the same, or if the assessed value of Landlord's property
is increased by inclusion of personal property, furniture or fixtures or
equipment placed by Tenant in the Leased Premises, and Landlord elects to pay
the taxes based on such increase, Tenant shall pay to Landlord upon demand that
part of such taxes for which Tenant is liable hereunder.
24. INSURANCE. Tenant shall, at Tenant's expense, procure and maintain
---------
throughout the Term of this Lease a policy or policies of comprehensive public
liability insurance, contractual liability insurance and property damage
insurance, issued by insurers of recognized responsibility, authorized to do
business in the State in which the Building is located, insuring Tenant and
Landlord against any and all liability for injury to or death of a person or
persons, occasioned by or arising out of or in connection with the use or
occupancy of the Leased Premises, the limits of such policy or policies to be in
an amount of not less than $1,000,000 combined single limit with respect to any
one (1) occurrence, and shall furnish evidence satisfactory to Landlord of the
maintenance of such insurance. Tenant shall obtain a written obligation on the
part of each insurer to notify Landlord at least fifteen (15) days prior to
modification or cancellation of such insurance. In the event Tenant shall not
have delivered to Landlord a policy or certificate evidencing such insurance at
least fifteen (15) days prior to the Commencement Date and at least fifteen (15)
days prior to the expiration dates of each expiring policy, Landlord may obtain
such insurance as Landlord may reasonably require to protect Landlord's
interest. The cost for such policies shall be paid by Tenant to Landlord as
additional rental upon demand plus an administrative charge as determined by
Landlord.
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<PAGE>
25. PARKING. Landlord hereby leases to Tenant and Tenant hereby leases
-------
from Landlord the number of parking spaces specified in Paragraph 1.S. hereof in
the parking facility from time to time associated with the Building at the
prevailing market rental established by Landlord from time to time for similar
parking spaces in such parking facility. Tenant shall pay to Landlord the
prevailing market rental from time to time established by Landlord for such
number of parking spaces as additional rental monthly together with and in
addition to Base Rental, whether or not such number of parking spaces are in
use. Tenant may not increase or decrease such number of parking spaces without
the prior written consent of Landlord. Tenant agrees to comply with such
reasonable rules and regulations as may be promulgated from time to time for the
use of such parking facility, including, without limitation, rules and
regulations requiring the parking of vehicles in designated spaces or areas to
the exclusion of other spaces or areas. Parking spaces will be unassigned,
provided that Landlord may at any time assign parking spaces. Tenant shall, if
requested by Landlord, furnish to Landlord a complete list of the license plate
numbers of all vehicles operated by Tenant, Tenant's employees and agents.
Landlord shall not be liable for any damage of any nature whatsoever to, or any
theft of, vehicles, or contents therein, in or about such parking facility.
During temporary periods of construction or repair, Landlord shall use
Landlord's best efforts to provide suitable substitute parking facilities in
reasonable proximity to the Building; provided, however, if for any reason
Landlord fails or is unable to provide suitable substitute parking facilities in
reasonable proximity to the Building, Landlord shall not be deemed to be in
default hereunder, but Tenant's obligation to pay the prevailing market rental
for any such parking spaces shall cease for so long as Tenant does not have the
use of such parking spaces and such abatement shall constitute full settlement
of all claims that Tenant might otherwise have against Landlord by reason of
such failure or inability to provide such parking spaces.
26. PERSONAL LIABILITY. The liability of Landlord to Tenant for any
------------------
default by Landlord under the terms of this Lease shall be limited to the
proceeds of sale on execution of the interest of Landlord in the Building and in
the Land, and neither Landlord, nor any party comprising Landlord, shall be
personally liable for any deficiency. This clause shall not be deemed to limit
or deny any remedies which Tenant may have in the event of default by Landlord
hereunder which do not involve the personal liability of Landlord.
27. NOTICE. Any notice which may or shall be given under the terms of this
------
Lease shall be in writing and shall be either delivered by hand (including
commercially recognized messenger and express mail service) or sent by United
States Mail, registered or certified, return receipt requested, postage prepaid,
if for Landlord, to the Building office and at the address specified in
Paragraph 1.C. hereof, or if for Tenant, to the Leased Premises or, if prior to
the Commencement Date, at the address specified in Paragraph 1.E. hereof, or at
such other addresses as either party may have theretofore specified by written
notice delivered in accordance herewith. Such address may be changed from time
to time by either party by giving notice as provided herein. Notice shall be
deemed given when delivered (if delivered by hand) or, whether actually received
or not, when postmarked (if sent by mail). If the term "Tenant" as used in this
Lease refers to more than one (1) person and/or entity, and notice given as
aforesaid to any one of such persons and/or entities shall be deemed to have
been duly given to Tenant.
28. LANDLORD'S MORTGAGEE. If the Building and/or Leased Premises are at
--------------------
any time subject to a ground lease, mortgage, deed of trust or other lien, then
in any instance in which Tenant gives notice to Landlord alleging default by
Landlord hereunder, Tenant will also simultaneously give a copy of such notice
to each Landlord's Mortgagee (provided Landlord or Landlord's Mortgagee shall
have advised Tenant of the name and address of Landlord's Mortgagee) and each
Landlord's Mortgagee shall have the right (but no obligation) to cure or remedy
such default during the period that is permitted to Landlord hereunder, plus an
additional period of thirty (30) days, and Tenant will accept such curative or
remedial action (if any) taken by Landlord's Mortgagee with the same effect as
if such action had been taken by Landlord.
29. BROKERAGE. Tenant represents and warrants that it has dealt with no
---------
broker, agent or other person in connection with this transaction, other than
Broker specified in Paragraph 1.R. hereof, and that no broker, agent or other
person brought about this transaction, other than Broker specified in Paragraph
1.R. hereof, and Tenant agrees to indemnify and hold Landlord harmless from and
against any claims by any other broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with Tenant
with regard to this leasing transaction. The provisions of this Paragraph 29
shall survive the termination of this Lease.
30. PREPAID RENTAL. Landlord hereby acknowledges receipt from Tenant of
--------------
the sum stated in Paragraph 1.M. hereof to be applied to the first accruing
monthly installments of rental.
31. SPRINKLERS. If there now is or shall be installed in the Building
----------
a sprinkler system, and such system or any of its components shall be damaged or
injured or not in proper working order by reason of any act or omission of
Tenant, Tenant's agents servants, employees, licensees or visitors, then Tenant
shall forthwith restore the same to good working condition at Tenant's own
expense; and if the Board of Fire Underwriters or any bureau, department or
official of the state or local government require or recommend that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business, or the location of partitions,
trade fixtures or other contents of the Leased Premises, or for any other
reason, or if any such changes, modifications alterations, additional sprinkler
heads or other equipment become necessary to prevent the imposition of a penalty
or charge against the full allowance for a sprinkler system in the fire
insurance rate as fixed by the Board of Fire Underwriters, or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make and supply
such changes, modifications, alterations, additional sprinkler heads or other
equipment.
32. LICENSE FOR MICROWAVE DISH ANTENNA.
----------------------------------
A. Effective as of the Commencement Date, and subject to the terms,
provisions, and obligations of this Lease, for so long as the Lease remains in
full force and effect and there is no uncured Event of Default thereunder,
Landlord grants to Tenant a non-exclusive license to install, at Tenant's sole
cost and expense, a microwave dish antenna, not to exceed three (3) feet in
diameter on the roof of the Building. Additionally, subject to Landlord's prior
written approval of plans and specifications relating thereto, Tenant shall have
the right to install such wire, conduits, cables and other materials as
necessary to connect the microwave dish antenna to Tenant's allied machinery and
equipment (the microwave dish antenna and connecting material being collectively
referred to as the "Installation"). The specific location of the Installation
shall be subject to Landlord's prior written approval, such approval not be
unreasonably withheld or delayed. The Installation shall be used solely for the
purpose of providing communication services.
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<PAGE>
B. Tenant shall construct and install the Installation, or have the
Installation constructed and installed, in a first class and workmanlike manner.
The Installation shall be constructed in accordance with plans and
specifications prepared or caused to be prepared by Tenant, at Tenant's sole
cost and expense, and approved in advance, in writing, by Landlord. The
Installation shall be constructed, installed, maintained and operated in
accordance with all applicable laws and ordinances and all covenants, conditions
and restrictions affecting the Project. Tenant shall, at Tenant's cost and
subject to reasonable security regulations of Landlord, repair and maintain the
Installation. Landlord agrees that Tenant and representatives designated by
Tenant and approved by Landlord shall have reasonable access to the Installation
in order to install, operate, maintain, inspect and remove as required, the
Installation, except when reasonable safety and security requirements of
Landlord preclude such access.
C. Tenant shall not commence the construction of any portion of the
Installation until (i) Landlord has approved, in writing, the contractors who
shall perform such work, and (ii) Tenant has delivered to Landlord releases or
waivers of mechanic's and materialmen's liens for such work by all parties who
shall furnish materials or services or perform labor of any kind in connection
with the Installation.
D. Landlord shall permit Tenant and Tenant's agents and contractors
to enter, at such times as are reasonably satisfactory to Landlord, applicable
portions of the Project in order that Tenant may perform, construct and install
the Installation. The foregoing license to enter the applicable portions of the
Project is conditioned upon Tenant's workmen and mechanics working in harmony
and not materially interfering with the labor employed by Landlord, Landlord's
mechanics or contractors, or with any other tenant or their contractors. Such
license is further conditioned upon workers' compensation and public liability
insurance and property damage insurance, all in amounts and with companies and
on forms reasonably satisfactory to Landlord, being provided and at all times
maintained by Tenant's contractors, and certificates of such insurance being
furnished to Landlord prior to proceeding with the work. If at any time such
entry shall cause material disharmony or interference to other tenants,
contractors or labor for any reason whatsoever including, without limitation,
strikes or other work stoppages, then this license may be immediately revoked by
Landlord unless such disharmony or interference is caused by the willful
misconduct or intentional acts by Landlord, Landlord's agents or contractors.
Such entry shall be deemed to be under all of the terms, covenants, provisions
and conditions of the Lease. Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of the Installation, the same
being solely at Tenant's risk.
E. Tenant shall indemnify and hold Landlord harmless from and
against any and all demands, liability, liens, claims, losses, costs and
expenses (including reasonable attorneys' fees) relating to or arising from the
design, construction, installation, operation and removal of the Installation.
Notwithstanding the fact that Landlord may, from time to time, review all
applicable plans and specifications and monitor the construction of the
Installation, Landlord shall have no obligation or liability to Tenant relating
to or arising from the workmanship or materials employed in the construction and
preparation of the Installation and the related planning and design services.
F. Landlord reserves the right to relocate the Installation at any
time and from time to time for a reasonable purpose to Landlord's operations or
utilization of the Project, and Tenant shall cause the Installation to be moved
to the new route at Tenant's cost within a reasonable time after notice from
Landlord containing the details of the new route, and the license granted in
this paragraph shall be deemed amended to the new route effective upon the
receipt of the notice. Landlord shall have the right, without liability to
Tenant, to remove the Installation from the previous location if Tenant has not
relocated the Installation to the new route within the permitted time period,
which removal may involve cutting any or all cables or otherwise interrupting
service through the Installation. In the event of such action, Tenant shall save
and hold Landlord harmless from and against any and all demands, liability,
liens, claims, losses, costs and expenses (including reasonable attorneys' fees)
relating to or arising from the removal of the Installation and any interruption
of service cause thereby.
G. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove the Installation and related improvements in a good
workmanlike manner, and Tenant will repair any damage occasioned by such
removal. If Tenant fails to remove the Installation within thirty (30) days
after the expiration or earlier termination of the Term of this Lease, Landlord
shall have the right, but not the obligation, to elect either (i) to remove the
Installation at Tenant's cost and expense, and Landlord shall have no liability
for the return of, or damage to, the Installation, or (ii) to treat the
Installation as abandoned by Tenant.
H. Landlord reserves the right to grant to other parties, as
Landlord may desire, the right to install telephone lines, conduit, cable, and
other telecommunications equipment and materials in, on, over, under and through
all or any portion of the Project. Tenant shall have no right to install
telephone lines, conduit, cable or telecommunications equipment or materials
other than as expressly defined and delineated in this Lease without the prior
written approval of Landlord, which approval may be withheld in Landlord's sole
and absolute discretion and/or conditioned upon such terms and conditions as
Landlord may, in its discretion, require.
33. INTERCONNECTION RIGHTS.
----------------------
A. Landlord acknowledges that the nature of Tenant's business may
require it to interconnect with other telecommunications companies which may
also be located in the Building. Landlord agrees that Tenant may, subject to
Landlord's prior written approval, which approval, subject to the following
provisions, shall not be unreasonably withheld:
i. install, maintain and use cable, conduits, wires, cable
ducts, telephone closets and ladder racks for the conduct of its business
between the Leased Premises and other parts of the Building; and
ii. directly connect to, interface with, or otherwise attach to,
the lines and facilities of the public utilities supplying electrical or
telephone services to the Building, for additional electric energy and
telephone connections to the Leased Premises.
B. In the event that Tenant desires to make any of the foregoing
modifications or improvements, Tenant shall provide written notice to Landlord
describing the type, size, location and manner of such desired modification or
improvement. Landlord shall, within three (3) business days of receipt of such
written notice, advise Tenant in writing of Landlord's approval or disapproval
of such requested modification or improvement, or of the requirement that Tenant
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<PAGE>
submit detailed drawings and specifications of such modification or improvement.
If Landlord notifies Tenant of the requirement that Tenant submit detailed
drawings and specifications, Tenant may then elect to withdraw its request or
submit detailed drawings and specifications, at Tenant's sole cost and expense,
regarding such modification or improvement. In the event Tenant elects to
provide detailed drawings and specifications, Landlord shall have three (3)
business days from the receipt of such detailed drawings and specifications to
notify Tenant of Landlord's approval or disapproval of such modification or
improvement. Tenant agrees that Landlord's disapproval of any of the foregoing
modifications and improvements shall be reasonable if any such modifications or
improvements have a material negative impact on any Building electrical,
mechanical, plumbing or other system or the structural or aesthetic integrity of
the Building or if space is not available for such installation after taking
into consideration the needs of Landlord and of other tenants in the Building.
Subject to Landlord's prior written approval, Tenant shall have access to and
use of all common areas, lines, chase ways and ways of passage in the Building
and the Leased Premises necessary to effectuate the rights set forth in this
paragraph, provided said access and use does not interfere with the operation of
the Building, the existing equipment of other tenants or Landlord's obligations
to other tenants in the Building. Any installation carried out by Tenant
pursuant to this paragraph shall be at Tenant's sole cost and expense, shall be
performed in accordance with the other provisions of this Lease, and shall
comply with all applicable federal, state and local laws and ordinances. Tenant
agrees to indemnify and hold Landlord harmless from and against any and all
loss, cost, claim and liability (including all attorneys' fees) for injuries to
all persons and for damage to or loss of all property arising or alleged to
arise from any act or omission of Tenant or Tenant's agents, employees, or
contractors relating to the installation, maintenance, operation and removal of
such improvements, installations and modifications. Notwithstanding any contrary
provision herein, Landlord shall have the right to relocate, at Landlord's
expense, any and all of the improvements described in this Paragraph 33 to
another location in the Project, as Landlord shall elect at any time and
from time to time for a reasonable purpose to Landlord's operations or
utilization of the Project; provided, however, that no such relocation may have
any detrimental effect on Tenant's use and operation of such improvements.
Tenant shall cause such improvements to be moved to the new location within a
reasonable time after notice from Landlord containing the details of the new
location, and the license granted in this paragraph shall be deemed amended to
the new location effective upon the receipt of the notice. Landlord shall have
the right, without liability to Tenant, to remove such improvements from the
previous location if Tenant has not relocated such improvements to the new
location within the permitted time period, which removal may involve cutting any
or all cables or otherwise interrupting service through such improvements. In
the event of such action, Tenant shall save and hold Landlord harmless from and
against any and all demands, liability, liens, claims, losses, costs and
expenses (including reasonable attorneys' fees) relating to or arising from the
removal of such improvements and any interruption of service caused thereby.
C. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove any and all of the improvements described in this
Paragraph 33 in a good and workmanlike manner, and Tenant will repair any damage
occasioned by such removal. If Tenant fails to remove such improvements within
thirty (30) days after the expiration or earlier termination of the Term of this
Lease, Landlord shall have the right, but not the obligation, to elect either
(i) to remove such improvements at Tenant's cost and expense, and Landlord shall
have no liability for the return of, or damage to, such improvements, or (ii) to
treat such improvements as abandoned by Tenant.
34. EMERGENCY GENERATOR.
-------------------
A. Tenant shall have the right, subject to Landlord's weight stress,
load bearing and ventilation requirements and at Tenant's sole cost and expense,
to install and maintain an emergency generator at the location set forth on
Exhibit D attached hereto and made a part hereof for all purposes. Tenant shall
- - ---------
maintain, at Tenant's sole cost and expense, a fence around such emergency
generator. Additionally, subject to Landlord's prior written approval of plans
and specifications relating thereto, Tenant shall have the right to install such
wire, conduits, cables and other materials as necessary to connect such
emergency generator to the Leased Premises (the emergency generator and
connecting material, being collectively referred to as the "Generator
Installation"). Tenant shall be responsible for all costs and expenses arising
from and relating to the Generator Installation. The Generator Installation
shall be in compliance with all applicable federal, state and local laws and
ordinances and Tenant shall indemnify and hold Landlord harmless from and
against any and all loss, cost, claim and liability arising from Tenant's
failure to satisfy such requirement. Landlord agrees that Tenant and
representatives designated by Tenant and approved by Landlord shall have
reasonable access to the Generator Installation in order to install, operate,
maintain, inspect and remove as required, the Generator Installation, except
when reasonable safety and security requirements of Landlord preclude such
access. Landlord shall not unreasonably interfere with or impair Tenant's use,
operation, maintenance or repair of the Generator Installation. Subject to
Landlord's obligation not to unreasonably interfere with or impair Tenant's use,
operation, maintenance or repair of the Generator Installation, Landlord
reserves the right to lease space in the Project to other tenants, as Landlord
may desire, for any purpose, including the installation and operation of a
separate emergency generator. Notwithstanding any contrary provision contained
herein, Landlord shall have the right to relocate, at Landlord's sole expense,
the Generator Installation to another location in the Project, as Landlord shall
elect; provided, however, that no such relocation may result in any additional
cost or expense to Tenant or have any detrimental effect on Tenant's use and
operation of the Generator Installation.
B. Tenant agrees to indemnify and hold Landlord harmless from and
against any and all loss, cost, claim and liability (including all attorneys'
fees) for injuries to all persons and for damage to or loss of all property
arising or alleged to arise from any act or omission of Tenant or Tenant's
agents, employees, or contractors relating to the installation, maintenance,
operation or removal of the Generator Installation.
C. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove the Generator Installation and related improvements
in a good and workmanlike manner, and Tenant will repair any damage occasioned
by such removal. If Tenant fails to remove the Generator Installation within
thirty (30) days after the expiration or earlier termination of the Term of this
Lease, Landlord shall have the right, but not the obligation, to elect either
(i) to remove the Generator Installation at Tenant's cost and expense, and
Landlord shall have no liability for the return of, or damage to, the Generator
Installation, or (ii) to treat the Generator Installation as abandoned by
Tenant.
35. SUPPLEMENTAL HVAC.
-----------------
A. Tenant shall have the right to install and maintain, at Tenant's
sole cost and expense, supplemental air-conditioning equipment at the location
set forth on Exhibit D attached
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<PAGE>
hereto. Tenant shall maintain, at Tenant's sole cost and expense, a fence
around such supplemental air conditioning equipment. Additionally, subject to
Landlord's prior written approval of plans and specifications relating thereto,
Tenant shall have the right to install such wire, conduits, cables and other
materials as necessary to connect such supplemental air conditioning equipment
to the Leased Premises (the supplemental air conditioning equipment and
connecting material being collectively referred to as the "HVAC Installation").
Landlord agrees not to unreasonably withhold or delay its approval regarding
matters involving the HVAC Installation on which Landlord's approval is
required. Tenant shall be responsible for all costs and expenses arising from
and relating to the HVAC Installation. The HVAC Installation shall be in
compliance with all applicable federal, state and local laws and ordinances and
Tenant shall indemnify and hold Landlord harmless from and against any all loss,
cost, claim and liability arising from Tenant's failure to satisfy such
requirement.
B. Tenant agrees to indemnify and hold Landlord harmless from and
against and all loss, cost, claim and liability (including all attorneys' fees)
for injuries to all persons and for damage to or loss of all property arising or
alleged to arise from any act or omission of Tenant or Tenant's agents,
employees, or contractors relating to the installation, maintenance, operation
or removal of the Installation, except to the extent such injury, damage or loss
of property is caused by Landlord's negligence or willful misconduct.
C. Landlord agrees that Tenant and representatives designated by
Tenant and approved by Landlord shall have reasonable access to the HVAC
Installation in order to install, operate, maintain, inspect and remove as
required, the HVAC Installation, except when reasonable safety and security
requirements of Landlord preclude such access. Landlord shall not unreasonably
interfere with or impair Tenant's use, operation, maintenance or repair of the
HVAC Installation.
D. Subject to Landlord's obligation not to unreasonably interfere with
or impair Tenant's use, operation, maintenance, or repair of the HVAC
Installation, Landlord reserves the right to lease space in the Project to other
tenants, as Landlord may desire, for any purpose, including the installation and
operation of supplemental air conditioning equipment.
E. Notwithstanding any contrary provision contained herein, Landlord
shall have the right to relocate, at Landlord's sole expense, the HVAC
Installation to another location in the Project, as Landlord shall elect;
provided, however, that no such relocation may result in any additional cost or
expense to Tenant or have any detrimental effect on Tenant's use and operation
of the HVAC Installation.
F. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove the HVAC Installation and related improvements in a
good workmanlike manner, and Tenant will repair any damage occasioned by such
removal. If Tenant fails to remove the HVAC Installation within thirty (30) days
after the expiration or earlier termination of the Term of this Lease, Landlord
shall have the right, but not the obligation, to elect either (i) to remove the
HVAC Installation at Tenant's costs and expense, and Landlord shall have no
liability for the return of, or damage to, the HVAC Installation, or (ii) to
treat the HVAC Installation as abandoned by Tenant.
36. TENANT FINISH.
-------------
A. Tenant shall construct or have constructed in a first class and
workmanlike manner the tenant finish improvements (the "Tenant Finish Work") to
be constructed and installed in the Leased Premises. The Tenant Finish Work
shall be constructed in accordance with plans and specifications (the "Plans")
prepared or caused to be prepared by Tenant, at Tenant's sole cost and expense,
and approved in advance, in writing, by Landlord, such approval not to be
unreasonably withheld or delayed; provided, however, that Landlord shall be
deemed to have reasonably withheld its consent if Landlord withholds its consent
because any proposed tenant finish improvements negatively impacts any system of
the Building including, without limitation, the Building's floor load-bearing
requirements or its mechanical, electrical, plumbing or HVAC systems. Landlord
agrees to review the Plans, to approve same or note any changes reasonably
required by Landlord, and return the Plans to Tenant within fifteen (15)
business days following Landlord's receipt of the Plans from Tenant ("Landlord's
Review Period"). In the event Landlord does not do so within Landlord's Review
Period, then the date of August 1, 1996 referenced in Paragraph 1.J. of this
Lease shall be delayed by one (1) day for each day in the period commencing on
the last day of Landlord's Review Period and ending on the day Landlord returns
the Plans to Tenant with Landlord's approval or requested changes. In the event
Landlord does not comply with the foregoing review process within thirty (30)
business days following receipt of the Plans from Tenant, Tenant may, as
Tenant's sole and exclusive remedy, terminate this Lease by delivering written
notice of such termination to Landlord prior to the date Landlord returns the
Plans to Tenant with Landlord's approval or Landlord's requested changes. The
Tenant Finish Work shall be constructed in accordance with all applicable
building laws and ordinances and all covenants, conditions and restrictions
affecting the Project. Tenant shall obtain Landlord's written approval of
Tenant's bid package prior to delivering the bid package to prospective
contractors, such approval not to be unreasonably withheld or delayed.
B. Tenant shall not commence the construction of any portion of the
Tenant Finish Work until Landlord has approved, in writing, the contractors who
shall perform the Tenant Finish Work, including, without limitation, the
mechanical, electrical, and plumbing contractors, such approval not to be
unreasonably withheld or delayed.
C. Landlord shall permit Tenant and Tenant's agents to enter the
Leased Premises as of May 1, 1996 in order that Tenant may perform the Tenant
Finish Work through Tenant's own contractors. The foregoing license to enter
prior to the Commencement Date is conditioned upon Tenant's workmen and
mechanics working in harmony and not materially interfering with the labor
employed by Landlord, Landlord's mechanics or contractors or with any other
tenant or their contractors. Such license is further conditioned upon workers'
compensation and public liability insurance and property damage insurance, all
in amounts and with companies and on forms reasonably satisfactory to Landlord,
being provided and at all times maintained by Tenant's contractors engaged in
the performance of the Tenant Finish Work, and certificates of such insurance
being furnished to Landlord prior to proceeding with the work. If at any time
such entry shall cause material disharmony or interference to other tenants,
contractors or labor for any reason whatsoever including, without limitation,
strikes or other work stoppages and if Tenant has not caused such disharmony or
interference to promptly cease following notice thereof to Tenant, then this
license may be immediately revoked by Landlord until such disharmony or
interference ceases. Such entry shall be deemed to be under all of terms,
covenants, provisions and conditions of the Lease. Landlord shall not be liable
in any way for any injury, loss or damage which may occur to any of the Tenant
Finish Work prior to or after the Commencement Date, the same being solely at
Tenant's risk.
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<PAGE>
D. Tenant shall indemnify and hold Landlord harmless from and
against any and all demands, liability, liens, claims, losses, costs and
expenses (including reasonable attorneys' fees) relating to or arising from the
design, construction and installation of the Tenant Finish Work. Such indemnity
shall not apply where such demands, liability, claims, losses, costs and
expenses arise in whole or in part from the negligence of Landlord.
Notwithstanding the fact that Landlord may, from time to time, review all
applicable plans and specifications and monitor the progress of the Tenant
Finish Work, Landlord shall have no obligation or liability to Tenant relating
to or arising from the workmanship or materials employed in the construction and
preparation of the Tenant Finish Work and the related space planning and
architectural services.
E. The costs and expenses of installing and constructing the Tenant
finish Work shall be borne solely by Tenant; provided, however that Landlord
shall provide to Tenant an allowance (the "Finish Allowance") with respect to
the construction of the Tenant Finish Work in an amount equal to the product of
Five and 25/100 Dollars ($5.25) multiplied by the number of rentable square
feet of area located in the Leased Premises. The Finish Allowance shall be
disbursed to Tenant as follows:
(i) One-half (1/2) of the Finish Allowance shall be paid to Tenant
within thirty (30) days following (a) the completion of one-half (1/2) of
the Tenant Finish Work, as reasonably determined by a representative of
Landlord, and (b) Tenant's delivery to Landlord of the paid bills or
invoices for such work and unconditional releases or waivers of mechanic's
and materialmen's liens from all parties who have furnished materials or
services or performed labor of any kind in connection with the Tenant
Finish Work; and
(ii) The remainder of the Finish Allowance shall be paid to Tenant
within thirty (30) days following (a) the final completion of the Tenant
Finish Work, as reasonably determined by a representative of Landlord, and
(b) Tenant's delivery to Landlord of the paid bills or invoices for such
work and final unconditional releases or waivers of mechanic's and
materialmen's liens from all parties who have furnished materials or
services or performed labor of any kind in connection with the Tenant
Finish Work.
Tenant shall be entitled only to that portion of the Finish Allowance which is
evidenced by paid bills or invoices for Tenant Finish Work actually performed by
third parties, and any unused portion of the Finish Allowance as of the
Commencement Date shall be the sole and exclusive property of Landlord.
37. RIGHT OF FIRST REFUSAL. Provided this Lease is then in full force and
----------------------
effect and there is no uncured Event of Default hereunder, Tenant shall have the
right of first refusal to Lease additional space in the Building (the "ROFR
Area") identified as such on Exhibit A to this Lease. Such right of first
----------
refusal shall be exercisable at the following times and upon the following
conditions.
(a) If during the term of this Lease, Landlord receives a bona fide
offer from a prospective tenant (the "Prospective Tenant") to Lease premises
(the "Offered Premises") in the Building containing all or any part of the ROFR
Area, and Landlord desires to accept such offer, Landlord shall notify Tenant of
such fact. Tenant shall have a period of five (5) business days from the date of
delivery of such notice to notify Landlord whether Tenant elects to exercise the
right granted hereby to Lease the Offered Premises. If Tenant fails to give any
notice to Landlord within the required five (5) business day period, Tenant
shall be deemed to have refused its right to lease all or any portion of the
Offered Premises.
(b) If Tenant refuses its right to lease the Offered Premises,
either by giving written notice thereof or by failing to give any notice,
Landlord shall thereafter have the right to lease the Offered Premises to the
Prospective Tenant on such terms and provisions as may be acceptable to
Landlord, provided such terms and provisions are not more favorable than the
terms and provisions set forth in the notice from Landlord to Tenant. If
Landlord and the Prospective Tenant fail to enter into a Lease, Tenant shall
have the right of first refusal described herein with respect to any subsequent
bona fide offers from other prospective tenants.
(c) If Tenant exercises its right to Lease the Offered Premises,
Landlord and Tenant shall, within ten (10) days after Tenant delivers to
Landlord notice of its election, enter into a Lease agreement with respect to
the Offered Premises on the same terms, covenants, and conditions as are
contained in this Lease, except as follows:
(i) The rentable area of the Offered Premises shall be equal to the
area offered to be leased by the Prospective Tenant.
(ii) The Base Rental rate to be paid for the Offered Premises shall
be equal to the base rental rate offered to be paid by the Prospective
Tenant, including any offered increases from time to time in such rental
rate; provided, however, that in the event the date on which the term of
the lease offered to the Prospective Tenant (the "Prospective Tenant's
Term") expires is a date earlier than the date on which the Term of this
Lease expires, then the Base Rental rate to be paid for the Offered
Premises for the period commencing on the day following the date the
Prospective Tenant's Term would have expired shall be the then prevailing
market base rental rate per rentable square foot per annum charged for
comparable office space in comparable buildings in the central business
district of Dallas, Texas.
(iii) The Base Operating Expenses Rate in effect for the Offered
Premises shall be equal to the base operating expenses rate offered to the
Prospective Tenant, including any offered increases from time to time in
such rate.
(iv) The payment of monthly installments of Base Rental with respect
to the Offered Premises shall commence on the effective date of the lease
of the Offered Premises as offered to the Prospective Tenant, or in the
event no specific effective date was so offered, on the date mutually
acceptable to Landlord and Tenant, and rent for any partial month shall be
prorated.
(v) Possession of such portion of the Offered Premises shall be
delivered to Tenant on the basis offered to the Prospective Tenant,
provided, however, that in the event the date on which the Prospective
Tenant's Term expires is a date later than the date on which the Term of
the Lease expires, then the tenant finish allowance offered to the
Prospective Tenant shall be multiplied by a fraction, the numerator of
which shall be the total number of months (as of the effective date of the
demise of the Offered Premises) remaining in the Lease, and the denominator
of which shall be the total number of months contained in the term of the
Lease.
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<PAGE>
offered to the Prospective Tenant, and if no specific basis was so offered,
on a basis mutually acceptable to Landlord and Tenant. Landlord will use
reasonable diligence to make the Offered Premises available to Tenant as
soon after the effective date stated above as it can. Landlord shall not be
liable for the failure to give possession of the Offered Premises on said
date by reason of the holding over or retention of possession of any
tenant, tenants, or occupants, nor shall such failure impair the validity
of this Lease, nor extend the term hereof, but the rent for the Offered
Premises shall be abated until possession is delivered to Tenant and such
abatement shall constitute full settlement of all claims that Tenant might
otherwise have against Landlord by reason of said failure to give
possession of the Offered Premises to Tenant on the scheduled effective
date.
(vi) The term of the Lease of the Offered Premises shall commence on
the date determined pursuant to subparagraph (c) (iv) above, and shall
continue thereafter until the date on which the Term of the Lease
terminates.
(vii) In the event the date on which the Prospective Tenant's Term
expires is a date later than the date on which the Term of the Lease
expires, then any and all allowances and credits offered to the Prospective
Tenant shall be multiplied by a fraction, the numerator of which shall be
the total number of months (as of the effective date of the demise of the
Offered Premises) remaining in the Term of the Lease, and the denominator
of which shall be the total number of months contained in the term of the
lease offered to the Prospective Tenant.
(d) Notwithstanding anything herein to the contrary, Tenant's right
of first refusal pursuant to this paragraph shall be subordinate to any and all
rights, including without limitation, renewal rights, expansion rights, rights
of first refusal and rights of first offer, under any existing lease demising
premises in the Building. Landlord represents that there are no such superior
rights with respect to the ROFR Area.
(e) The right of refusal hereby granted Tenant shall cease on, and be
ineffective after, the expiration of the first five (5) years of the Term of
this Lease, whether or not any option to renew and extend this Lease is
exercised by Tenant.
(f) Any assignment or subletting by Tenant of this Lease, or any
termination of this Lease, shall terminate the refusal right of Tenant hereby
granted.
38. RENEWAL OPTION. If there is no uncured Event of Default hereunder,
--------------
Tenant shall have the right to renew the term of this Lease for one (1)
additional period of five (5) years upon the same terms, conditions and
provisions applicable to the then current term of this Lease (unless otherwise
expressly provided herein), except that the annual Base Rental for the
additional term of five (5) years shall be the greater of either:
(a) the product of (i) the number of rentable square feet then
contained in the Leased Premises multiplied by (ii) an amount equal to the
then prevailing market base rental rate per rentable square foot per annum
charged for comparable office space in comparable buildings in the central
business district of Dallas, Texas (taking into consideration use, location
and floor level, size of space, definition of rentable area, quality, age
and location of the applicable building, financial status of Tenant, rental
concessions, tenant improvements and refurbishment allowances, expense
stop, moving allowances, architectural allowances, parking rental
concessions, brokerage commissions, other inducements, the time the
particular rate under consideration became effective and all other relevant
factors); or
(b) the product of (i) the number of square feet of rentable area
then contained in the Leased Premises multiplied by (ii) the Base Rental
rate in effect with respect to the Leased Premises during the last year of
the then existing term of this Lease.
Tenant shall evidence its intent to exercise its right of renewal by
delivering to Landlord written notice ("Tenant's Notice") of Tenant's desire to
renew the Term of this Lease as aforesaid at least six (6) months (but not more
than twelve (12) months) prior to the expiration of the then current Term of
this Lease. Tenant's failure to timely deliver Tenant's Notice shall
automatically extinguish Tenant's right to renew detailed herein. Within thirty
(30) days following delivery of Tenant's Notice, Landlord shall deliver to
Tenant a written notice ("Landlord's Notice") specifying the Base Rental rate
per rentable square foot per annum for the additional term of five (5) years.
Tenant shall have thirty (30) days following delivery of Landlord's Notice to
notify Landlord in writing ("Tenant's Renewal Notice") of (i) Tenant's exercise
of its right to renew the Lease at the Base Rental rate proposed by Landlord,
(ii) Tenant's exercise of its right to renew the Lease but Tenant's contest of
the Base Rental rate proposed by Landlord, or (iii) Tenant's election not to
exercise its right to renew the Lease. Tenant's failure to timely deliver
Tenant's Renewal Notice shall automatically extinguish Tenant's right to renew
detailed herein. If Tenant fails to contest Landlord's designated Base Rental
rate in Tenant's Renewal Notice, Tenant shall be deemed to have waived its right
to so contest. Tenant's election to contest Landlord's designated Base Rental
rate in Tenant's Renewal Notice shall be deemed an exercise of Tenant's right to
renew the Term of the Lease with the Base Rental rate being the rate determined
by the below-described appraisal process.
In the event Tenant timely contests Landlord's designated Base Rental rate,
Landlord and Tenant shall attempt to agree upon the market base rental rate. In
the event Landlord and Tenant cannot agree upon the market base rental rate on
or before three (3) months prior to the expiration of the then current Term of
the Lease, Landlord and Tenant within ten (10) days thereafter, shall each
appoint and employ, at its cost, a real estate appraiser (who shall be a member
of the American Institute of Real Estate Appraisers (MAI) with a minimum of ten
years' experience in the area of office building appraisals or leasing in Dallas
County, Texas, and neither of whom shall be employees or former employees of
either Landlord or Tenant or otherwise affiliated with either Landlord or
Tenant) to appraise and establish the prevailing market base rental rate. The
two appraisers, thus appointed, shall meet promptly and attempt to agree upon
and designate a third appraiser meeting the qualifications set forth above
within ten (10) days after the last of the two appraisers were appointed. If
they are unable to agree on the third appraiser, either of the parties, after
giving five (5) days notice to the other, may apply to the appropriate court of
the county in which the Building is located for the selection of a third
appraiser meeting the qualifications stated above. Each of the parties shall
bear one-half of the cost of the appointment of the third appraiser and of the
third appraiser's fee. Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall agree upon the prevailing market
base rental rate. If a majority of the appraisers are unable to agree within the
stipulated time, then each appraiser shall render his separate appraisal within
such time, and the three appraisals shall be averaged in order to establish such
rate; provided, however, if the low appraisal and/or the high appraisal are more
than ten percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be
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<PAGE>
disregarded. If only one appraisal is disregarded, the remaining two appraisals
shall be averaged in order to establish such rate. If both the low appraisal and
the high appraisal are disregarded, the middle appraisal shall establish such
rate. After the prevailing market base rental has been established, the
appraisers shall immediately notify the parties in writing. The decision of the
above-described appraisal process shall be binding upon the parties and
enforceable by a court of competent jurisdiction.
Tenant shall have no right to renew the Term of this Lease following the
expiration of the renewal term of five (5) years detailed herein.
39. MISCELLANEOUS.
-------------
A. Provided Tenant complies with Tenant's covenants, duties and
obligations hereunder, Tenant shall quietly have, hold and enjoy the Leased
Premises subject to the terms and provisions of this Lease without hinderance
from Landlord or any person or entity claiming by, through or under Landlord.
B. In any circumstance where Landlord is permitted to enter upon the
Leased Premises during the Term of this Lease, whether for the purpose of curing
any default of Tenant, repairing damage resulting from fire or other casualty or
an eminent domain taking or is otherwise permitted hereunder or by law to go
upon the Leased Premises, no such entry shall constitute an eviction or
disturbance of Tenant's use and possession of the Leased Premises or a breach by
Landlord of any of Landlord's obligations hereunder or render Landlord liable
for damages for loss of business or otherwise or entitle Tenant to be relieved
from any of Tenant's obligations hereunder or grant Tenant any right of setoff
or recoupment or other remedy; and in connection with any such entry incident to
performance of repairs, replacements, maintenance or construction, all of the
aforesaid provisions shall be applicable notwithstanding that Landlord may elect
to take building materials in, to or upon the Leased Premises that may be
required or utilized in connection with such entry by Landlord.
C. [Intentionally Deleted.]
D. Landlord may restain or enjoin any breach or threatened breach of
any covenant, duty or obligation of Tenant herein contained without the
necessity of providing the inadequacy of any legal remedy or irreparable harm.
The remedies of Landlord hereunder shall be deemed cumulative, and no remedy of
landlord, whether exercised by Landlord or not, shall be deemed to be in
exclusion of any other. Except as may be otherwise herein expressly provided, in
all circumstances under this Lease where prior consent or permission of one (1)
party ("first party") is required before the other party ("second party") is
authorized to take any particular type of action, the matter of whether to grant
such consent or permission shall be within the sole and exclusive judgment and
discretion of the first party; and it shall not constitute any nature of breach
by the first party hereunder or any defense to the performance of any covenant,
duty or obligation of the second party hereunder that the first party delayed or
withheld the granting of such consent or permission, whether or not the delay or
withholding of such consent or permission was prudent or reasonable or based on
good cause.
E. In all instances where Tenant is required to pay any sum or do
any act at a particular indicated time or within an indicated period, it is
understood that time is of the essence.
F. The obligation of Tenant to pay all rental and other sums
hereunder provided to be paid by Tenant and the obligation of the Tenant to
perform Tenant's other covenants and duties hereunder constitute independent,
unconditional obligations to be performed at all times provided for hereunder,
save and except only when an abatement thereof or reduction therein is
hereinabove expressly provided for and not otherwise. Tenant waives and
relinquishes all rights which Tenant might have to claim any nature of lien
against or withhold, or deduct from or offset against any rental and other sums
provided hereunder to be paid Landlord by Tenant. Tenant waives and relinquishes
any right to assert, either as a claim or as a defense, that Landlord is bound
to perform or is liable for the nonperformance of any implied covenant or
implied duty of Landlord not expressly herein set forth.
G. Under no circumstances whatsoever shall Landlord ever be liable
hereunder for consequential damages or special damages.
H. Landlord retains the exclusive right to create any additional
improvements to structural and/or mechanical systems, interior and exterior
walls and/or glass, which Landlord deems necessary without the prior consent of
Tenant.
I. All monetary obligations of Landlord and Tenant (including,
without limitation, any monetary obligation of Landlord or Tenant for damages
for any breach of the respective covenants, duties or obligations of Landlord
or Tenant hereunder) are performable exclusively in the county in which the
Building is located.
J. The laws of the State in which the Building is located shall
govern the interpretation, validity, performance and enforcement of this Lease.
K. If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule or
regulation of any governmental body or entity, effective during the Term of this
Lease, the intention of the parties hereto is that the remaining parts of this
Lease shall not be affected thereby unless such invalidity is, in the sole
determination of Landlord, essential to the rights of both parties, in which
event Landlord has the right to terminate this Lease on written notice to
Tenant.
L. Tenant waives the benefits of all existing and future rental
control legislation and statutes and similar governmental rules and regulations,
whether in time of war of not, to the extent permitted by law. In the event that
any law, decision, rule or regulation of any governmental body having
jurisdiction shall have the effect of limiting for any period of time the amount
of rental or other charges payable by Tenant to any amount less than that
otherwise provided pursuant to this Lease, the following amounts shall
nevertheless be payable to Tenant: (i) throughout such period of limitation,
Tenant shall remain liable for the maximum amount of rental and other charges
which are legally payable (without regard to any limitation to the amount
thereof expressed in this Lease except that all amount payable by reason of this
paragraph shall not in the aggregate exceed the total of all amounts which would
otherwise be payable by Tenant pursuant to the terms of this Lease for the
period of limitation), (ii) at the termination of such period of limitation,
Tenant shall pay to landlord, on demand but only to the extent legally
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<PAGE>
collectible by Landlord, any amounts which would have been due from Tenant
during the period of limitation but which were not paid because of such limiting
law, decision, rule or regulation, and (iii) for the remainder of the Term of
this Lease following the period of limitation, Tenant shall pay to Landlord all
amounts due for such portion of the Term of this Lease in accordance with the
terms hereof calculated as though there had been no intervening period of
limitation.
M. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and tenant, Tenant's
use or occupancy of the Leased Premises, and any emergency statutory or any
other statutory remedy.
N. [Intentionally Deleted.]
O. No receipt of money by Landlord from Tenant after the expiration
of the Term of this Lease, or after the service of any notice, or after the
commencement of any suit, or after final judgment for possession of the Leased
Premises, shall reinstate, continue or extend the Term of this Lease or affect
any such notice, demand or suit or imply consent for any action for which
Landlord's consent is required.
P. In the event of variation or discrepancy, Landlord's original
copy of the Lease shall control.
Q. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires. The headings
of the Paragraphs of this Lease have been inserted for convenience only and are
not to be considered in any way in the construction or interpretation of this
Lease.
R. Tenant agrees that Tenant shall from time to time upon request by
Landlord and/or Landlord's Mortgagee execute and deliver to Landlord a statement
in recordable form certifying (i) that the Lease is unmodified and in full force
and effect (or, if there have been modifications, that the same is in full force
and effect as so modified), (ii) the dates to which rental and other charges
payable under this Lease have been paid, and (iii) that Landlord is not in
default hereunder (or, if Landlord is in default, specifying the nature of such
default). Tenant further agrees that Tenant shall from time to time upon
request by Landlord execute and deliver to Landlord an instrument in recordable
form acknowledging Tenant's receipt of any notice of assignment of this Lease by
Landlord.
S. In no event shall Tenant have the right to create or permit there
to be established any lien or encumbrance of any nature against the Leased
Premises or the Building for any improvement or improvements by Tenant, and
Tenant shall fully pay the cost of any improvement or improvements made or
contracted for by Tenant. Any mechanic's lien filed against the Leased Premises
or the Building for work claimed to have been done, or materials claimed to have
been furnished to Tenant, shall be duly discharged by Tenant within ten (10)
days after the filing of the lien.
T. Whenever a period of time is herein prescribed for action to be
taken by Landlord, Landlord shall not be liable or responsible for, and there
shall be excluded from the computation for any such period of time, and delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, or any other causes of any kind
whatsoever which are beyond the reasonable control of Landlord.
U. This Lease shall not be recorded by either party without the
consent of the other.
V. Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent, or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither the method of the
computation of rental, nor any other provision contained herein, nor any acts of
the parties hereto, shall be deemed to create any relationship between the
parties hereto other than the relationship of Landlord and tenant.
W. Whenever it is provided herein that a monetary sum shall be due
to Landlord or Tenant together with interest at the highest lawful rate, if at
such time there shall be no highest rate prescribed by applicable law, interest
shall be due at the rate of two percent (2%) in excess of Prime Rate as defined
in Paragraph 1.Q. hereof.
X. Tenant acknowledges that Landlord's agents and employees have
made no representations or promises with respect to the Leased Premises or the
Building except as herein expressly set forth, and Tenant further acknowledges
that no rights, easement or licenses are acquired by Tenant by implication or
otherwise, except as herein expressly set forth.
Y. Tenant warrants that Tenant is, and shall remain throughout the
Term of this Lease, authorized to do business and in good standing in the State
in which the Building is located. Tenant agrees, upon request by Landlord, to
furnish Landlord satisfactory evidence of Tenant's authority for entering into
this Lease.
Z. If either party brings an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, on trial or
appeal, shall be entitled to his reasonable attorney's fees to be paid by the
losing party as fixed by the court.
AA. In the event Tenant requests from Landlord the written consent of
Landlord to any propose assignment of the Lease or subletting of the Leased
Premises, Landlord may require the payment of reasonable attorney's fees
incurred by Landlord in processing such request, regardless of whether such
consent is granted. Such fee shall be payable by Tenant within thirty (30) days
following receipt by Tenant or a request for payment from Landlord and on
invoice from Landlord's attorney setting forth in reasonable detail the services
rendered.
BB. Submission of this Lease for examination does not constitute an
offer, right of first refusal, reservation of, or option for, the Leased
Premises of any other premises in the Building. This Lease shall become
effective only upon execution and delivery by both Landlord and Tenant.
CC. If Tenant is composed of more that one (1) person or entity, each
person and/or entity comprising Tenant shall be jointly and severally liable
for the performance of the obligations of Tenant under this Lease, including
specifically, without limitation, the payment of rental and all other sums
payable hereunder.
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<PAGE>
DD. Landlord shall have the right at any time to change the name or
street address of the Building and to install and maintain a sign or signs on
the interior or exterior of the Building.
EE. Any charges against Tenant by Landlord for services or for work
done on the Leased Premises by order of Tenant, or otherwise accruing under this
Lease, shall be considered as rental due and shall be included in any lien for
rental.
FF. If at any time during the Term of this Lease a tax or excise on
rental, a sales tax or other tax however described (except any inheritance,
estate, gift, income or excess profit tax imposed upon Landlord) is levied or
assessed against Landlord by any taxing authority having jurisdiction on account
of Landlord's interest in this Lease, or the rentals or other charges payable
hereunder, as a substitute in whole or in part for, or in addition to, the taxes
described elsewhere in this paragraph. Tenant shall pay to Landlord as
additional rental upon demand the amount of such tax or excise. In the event
that any such tax or excise is levied or assessed directly against Tenant,
Tenant shall pay the same at such times and in such manner as such taxing
authority shall require.
GG. Tenant has no right to protest the real estate tax rate assessed
against the Project and/or the appraised value of the Project determined by any
appraisal review board or other taxing entity with authority to determine tax
rates and/or appraised values (each a "Taxing Authority"). Tenant hereby
knowingly, voluntarily and intentionally waives and releases any right, whether
created by law or otherwise, to (a) file or otherwise protest before any Taxing
Authority any such rate or value determination even though Landlord may elect
not to file any such protest; (b) receive, or otherwise require Landlord to
deliver, a copy of any reappraisal notice received by Landlord from any Taxing
Authority; and (c) appeal any order of a Taxing Authority which determines any
such protest. The foregoing waiver and release covers and includes any and all
rights, remedies and recourse of Tenant, now or at any time hereafter, under
Section 41.413 and Section 42.015 of the Texas Tax Code (as currently enacted or
hereafter modified) together with any other or further laws, rules or
regulations covering the subject matter thereof. Tenant acknowledges and agrees
that the foregoing waiver and release was bargained for by Landlord and Landlord
would not have agreed to enter into this Lease in the absence of this waiver and
release. If, notwithstanding any such waiver and release, Tenant files or
otherwise appeals any such protest, then Tenant will be in default under this
Lease and, in addition to Landlord's other rights and remedies, Tenant must pay
or otherwise reimburse Landlord for all costs, charges and expenses incurred by,
or otherwise asserted against, Landlord as a result of any tax protest or appeal
by Tenant, including, appraisal costs, tax consultant charges and attorneys'
fees (collectively, the "Tax Protest Costs"). If, as a result of Tenant's tax
protest or appeal, the appraised value for the Project is increased above that
previously determined by the Taxing Authority (such increase, the "Value
Increase") for the year covered by such tax protest or appeal (such year, the
"Protest Year"), then Tenant must pay Landlord, in addition to all Tax Protest
Costs, an amount (the "Additional Taxes") equal to the sum of the following: (1)
the product of the Value Increase multiplied by the tax rate in effect for the
Protest Year; plus (ii) the amount of additional taxes payable during the five
(5) year period following the Protest Year, such amount to be calculated based
upon the Value Increase multiplied by the tax rate estimated to be in effect for
each year during such five (5) year period. Tenant must pay all Additional
Taxes - even those in excess of Tenant's proportionate share and which may
relate to years beyond the term of this Lease. The Additional Taxes will be
conclusively determined by a tax consultant selected by Landlord, without regard
to whether and to what extent Landlord may be able in years following the
Protest Year to reduce or otherwise eliminate any Value Increase. All Tax
Protest Costs and Additional Taxes must be paid by Tenant within five (5) days
following written demand by Landlord.
40. ENTIRE AGREEMENT AND BINDING EFFECT. This Lease and any
-----------------------------------
contemporaneous workletter, addenda or exhibits signed by the parties constitute
the entire agreement between Landlord and Tenant; no prior written or prior
contemporaneous oral promises or representations shall be binding. This Lease
shall not be amended, changed or extended except by written instrument signed by
both parties hereto. The provisions of this Lease shall be binding upon and
inure to the benefit of the heirs, personal representatives, successors and
assigns of the parties, but this provision shall in no way alter the restriction
herein in connection with assignment, subletting and other transfer by Tenant.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, on the date specified in Paragraph 1.A. hereof.
LANDLORD:
---------
BEVERLY HILLS CENTER LLC,
a California limited liability company
By: /s/ Ted Akhavizadeh
---------------------------
Name: Ted Akhavizadeh
-------------------------
Title: Vice President
------------------------
TENANT:
------
PREMIERE COMMUNICATIONS, INC.,
a Florida corporation
By: /s/ Patrick G. Jones
---------------------------
Name: Patrick G. Jones
-------------------------
Title: Senior Vice President
------------------------
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FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
This FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and entered
into as of (but not necessarily on) the 1st day of August, 1996, by and between
BEVERLY HILLS CENTER, LLC, a California limited liability company ("Landlord")
and PREMIERE COMMUNICATIONS, INC., a Florida corporation ("Tenant");
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement (the
"Lease"), dated May 12, 1996 covering approximately 6,952 rentable square feet
on the eighth (8th) floor in the building commonly known as Allianz Financial
Centre (the "Building"), in Dallas, Texas; and
WHEREAS, Landlord and Tenant desire to modify the terms of the Lease in
accordance with the terms and conditions herein provided.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable consideration paid by each party hereto to the
other, the receipt and sufficiency of which is hereby acknowledged. Landlord
and Tenant hereby agree as follows:
1. Conduits. Effective as of August 1, 1996, the Lease shall be amended to
--------
reflect that Tenant shall be entitled to the following additional conduit or
equivalent cable runs (the "Additional Conduit") in the risen facilities of the
Building:
. One four-inch conduit or equivalent cable run
. One two-inch conduits or equivalent cable runs
. One one and one-fourth inch conduit or equivalent cable run
. Three one-inch conduits or equivalent cable runs
. Four two and one-half inch conduits or equivalent cable runs
2. Base Rental. Tenant's Base Rental obligations with respect to the
-----------
Additional Conduit shall commence on August 1, 1996 and shall be $26,050 per
year, payable in monthly installments of $2,337,50. Tenant shall pay an
additional Right Fee for any and all additional conduit or equivalent cable
runs, beyond the additional conduit specifically described herein, installed on
behalf of or used by Tenant, regardless of the use to which such conduit or
equivalent cable run is put, including, interconnection rights, emergency
generator, or supplementary HVAC.
3. Miscellaneous.
-------------
(a) Tenant hereby acknowledges that Landlord is not in default under the
Lease and no event or condition exists, which, with the giving of notice or the
passing of time or both, would constitute a default or event of default by
Landlord under the Lease, and that Tenant has no charge, lien, defense, or claim
of offset under the Lease against rent or other charges due or to become due
thereunder.
(b) This Amendment may be executed in multiple counterparts, each of which
shall constitute an original instrument, but all of which shall constitute one
and the same Amendment.
(c) Any capitalized term or phrase used in this Amendment shall have the
same meaning as the meaning ascribed to such term or phrase in the Lease unless
expressly otherwise defined in this Amendment.
(d) Except as amended by this Amendment, the terms of this Lease remain in
full force and effect. All obligations of Tenant under the Lease are hereby
satisfied and reaffirmed.
<PAGE>
(e) In the event that the terms of the Lease conflict or are inconsistent
with those of this Amendment, the terms of this Amendment shall govern.
(f) This Amendment shall become effective only upon execution and delivery
by both Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
on the day and year first written above.
LANDLORD:
BEVERLY HILLS CENTER, L.L.C., a California
Limited Liability Company
By: /s/ Ted Akhavizadeh
----------------------------
Name: Ted Akhavizadeh
Title: Vice President
TENANT:
PREMIERE COMMUNICATIONS, INC.
a Florida Corporation
By: /s/ Patrick G. Jones
----------------------------
Name: Patrick G. Jones
Title: Senior Vice President
<PAGE>
EXHIBIT 10.51
NATIONSBANK (R)
PROMISSORY
NationsBank, N.A. (South) E. Gilmer/3829 NOTE
- - --------------------------------------------------------------------------------
Date October 18, 1996
Amount $5,000,000.00
For Value Received, the undersigned ("Borrower") unconditionally (and jointly
and severally, if more than one) promise(s) to pay to the order of NationsBank,
N.A. (South)("Bank"), Financial Strategies (Banking Center) without setoff, at
its offices at 600 Peachtree St., N.E., Atlanta, Georgia, or at such other place
as may be designated by Bank, the principal amount of FIVE MILLION & 00/100'S
Dollars ($5,000,000.00), or so much thereof as may be advanced from time to time
in immediately available funds, together with interest computed daily on the
outstanding principal balance hereunder, as an annual interest rate, and in
accordance with the payment schedule, indicated below.
[This Note contains some provisions preceded by boxes. Mark only those boxes
beside provisions which will be applicable to this transaction. A box which is
not marked means that the provision beside it is not applicable to this
transaction.]
RATE
[_]PRIME RATE. The rate shall be the Prime Rate, plus______________ percent, per
annum. The "Prime Rate" is the fluctuating rate of interest established by Bank
from time to time, at its discretion, whether or not such rate shall be
otherwise published. The Prime Rate is established by Bank as an index or base
rate and may or may not at any time be the best or lowest rate charged by Bank
on any loan.
[_]FIXED RATE. The Rate shall be fixed at __________ percent per annum.
[_]TREASURY SECURITIES RATE. The Rate shall be the Treasury Securities Rate,
plus ______________ percent, per annum. The "Treasury Securities Rate" is a
fluctuating rate of interest applied by Bank from time to time, based on the
most recent monthly average of daily yields on all outstanding United States
Treasury Securities adjusted to a common maturity of ___________________years,
as made available by the Federal Reserve Board, rounded upwards to the nearest
one-eighth of one percentage poles (0.125%).
[x]Other.
Interest Rate Option Provisions are described in Exhibit A, attached hereto and
made a part hereof.
Notwithstanding any other provisions contained in this Note, Bank does not
intend to charge and Borrower shall not be required to pay any amount of
interest or other fees or charges that is in excess of the maximum permitted
by applicable law. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the expense of Bank.
Accrual Method
Interest at the Rate set forth above, unless otherwise indicated, will be
calculated on the basis of the 365/360 method, which compares daily amount of
interest for a hypothetical year of 360 days., then multiplies such amount by
the actual number of days elapsed this in an as interest calculation period. If
interest is not to be computed using the method, the method to be used shall be:
__________________________.
Rate Change Date
Any Rate based on a fluctuating index or base rate will charge, unless otherwise
provided, such time and as of the date that the index or base rate changes. If
the Rate is to change on any other date or at any other interval describe:
_______________________________________________________________________________.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
Payment Schedule
All payments received hereunder shall be applied first to the payment of any
expense or changes payable hereunder or under any other documents executed in
connection with the Note ("Loan Documents"), than to interest due and payable,
with the balance being applied to principal, or in such other order as Bank
shall determine at its option.
[_] PRINCIPAL Principal and interest shall be paid in _____________
(_______) equal: [_] monthly, [_] quarterly or [_]
PLUS installments of $_______________ each, commencing on
_____________________, 19__, together with accrued interest
INTEREST thereon and continuing on the same day of each successive
month/quarter or other period (as applicable) thereafter,
with a final payment of all unpaid principal and interest
thereon on ______________, 19__.
PRINCIPAL Principal and interest shall be paid in ______ (______)
equal: [_] monthly, [_] quarterly or [_] ____________
AND installments of $____________________ each, commencing on
_______________, 19___ and continuing on the same day of
INTEREST each successive month/quarter/or other period (as
applicable) therefor, with a final payment of all unpaid
principal and interest thereon on _____________________
19 ____; provided that, if accrued interest on any payment
date exceeds the amounts set forth above, Borrower will pay
an additional amount to such excess interest.
[X] SINGLE Principal shall be paid in full in a single payment on
September 30, 1997. Interest thereon shall be paid: [_] at
------------ ----
maturity, [x] monthly, [_] quarterly, or
PRINCIPAL [_] _________________commencing on November 30, 1996 and
----------- ----
continuing on the same say of each successive month/quarter,
or
PAYMENT period (as applicable) therefor, with a final payment of all
unpaid interest at the maturity of this Note.
[_] Demand Notwithstanding any provisions contained
herein which may be inconsistent with a
demand note, including but not limited to any
reference to installments, a maturity date,
acceleration or events of default, Borrower
acknowledges that Bank may demand payment at
any time in its sole discretion.
[_] OTHER ____________________________________________________________
Revolving Feature
[X] Borrower may borrow, repay and reborrow hereunder at any one time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note; provided, however, that Borrower is not in default under
any provision of this Note, any Loan Document, or any other obligation of
Borrower to Bank, and provided that the borrowings hereunder do not exceed any
borrowing base or other limitations on borrowings by Borrower. Bank shall have
no liability for its refusal to advance funds based upon its determination that
any conditions of such further advances have not been met. Bank records of the
amounts borrowed from time to time shall be conclusive proof thereof.
[_] Uncommitted Facility. Borrower acknowledges and agrees that
notwithstanding any provisions of this Note or the Loan Documents,
Bank has no obligations to make any advances, and that all advances
are at the sole discretion of Bank.
Automatic Payment
[_] Borrower has elected to authorize bank to affect payment of sums due under
this Note by means of debiting Borrowers account number
__________________________. This authorizations shall not affect the obligations
of Borrower to pay such sums when due, without notice. If there are insufficient
funds in such account to make such payment in full on the due date thereof, or
if Bank fails to debit the account.
Loan Fee
[_] Upon the maturity of this Note, whether by demand, acceleration, or
otherwise, as administrative fee in the amount of $____________ shall be due and
payable.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note, including the Additional Terms and Conditions set
forth on the reverse side of this Note, and hereby executes this Note under
Seal.
Borrower
Corporate Borrower or Partnership: Premiere Communications, Inc.
----------------------------------
(Name of Corporation, Partnership, etc.)
/s/ Patrick G. Jones, Secretary
__________________________________ /s/ Julianne F. Vaio
Attest (if applicable) By:_______________________________(Seal)
Julianne F. Vaio, Treasurer
__________________________________ __________________________________
Corporate Seal (if applicable) Print Name and Title
By:_______________________________(Seal)
__________________________________
Print Name and Title
<PAGE>
Additional Terms and Conditions
1. Waivers, consents and covenants. Borrower, any indorser, or guarantor
hereof or any other party hereto (collectively "Obligors") and each of them
jointly and severally: (a) waive presentment, demand, notice of demand, notice
of intent to accelerate, and notice of acceleration of maturity, protest, notice
of protest, notice of nonpayment, notice of dishonor, and any other notice
required to be given under the law to any of Obligors, in connection with the
delivery, acceptance, performance, default or enforcement of this Note, of any
indorsement or guaranty of this Note or of any Loan Documents; (b) consent to
any and all delays, extensions, renewals, or other modifications of this Note or
the Loan Documents, or waivers of any term hereof or of the Loan Documents, or
releases or discharge by Bank of any Obligors or release, substitution, or
exchange of any security for the payment hereof, or the failure to act on the
part of Bank or any indulgence shown by Bank, from time to time and in one or
more instances (without notice to or further assent from any of Obligors) and
agree that no such action, failure to act or failure to exercise any right or
remedy on the part of Bank shall in any way affect or impair the obligations of
any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of
Bank's rights under the Note, under any indorsement or guaranty of this Note or
under any of the Loan Documents; and (c) agree to pay, on demand, all costs and
expenses of collection of this Note or of any indorsement or guaranty hereof
and/or the enforcement of Bank's rights with respect to, or the administration,
supervision, preservation, protection of, or realizations upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any trial, arbitration, bankruptcy, appeal or
other proceeding, in the amount 15% of the principal amount of this Note, or
such greater amount as may be determined reasonable by any court.
2. Indemnification. Obligors agree to promptly pay, indemnify and hold Bank
harmless from all state and federal taxes of any kind and other liabilities with
respect to or resulting from advances made pursuant to this Note. If this Note
has a revolving feature and is secured by a mortgage, Obligors expressly
consent to the deduction of any applicable taxes from each taxable advance
extended by Bank.
3. Prepayments. Prepayments may be made in whole or in part at any time on
any loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayments of any
other loan shall be permitted without the prior written consent of the Bank.
Notwithstanding such prohibition, if there is a prepayment of any such loan,
whether by consent of Bank, or because of acceleration or otherwise, Borrower
shall, within 15 days of any request of Bank, pay to Bank any loss or expense
which Bank may incur or sustain as a result of such prepayment. For the purposes
of calculating the amounts owed only, it shall be assumed that Bank actually
funded or committed to fund the loan through the purchase of an underlying
deposit in an amount and for a term comparable to the loan, and such
determination by Bank shall be conclusive, absent a manifest error in
computation.
4. Events of defaults. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate of Bank, whether under this Note or any
other Agreement, note or instrument now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (b) the failure to pay or
perform any other obligation, liability or indebtedness of any of Obligors
whether to Bank or some other party, the security for which constitutes an
encumbrance on the security for this Note; (c) death of any Obligor (if an
individual), or a proceeding being filed or commenced against any Obligor for
dissolution or liquidation, or any Obligor voluntarily or involuntarily
terminating or dissolving or being terminated or dissolved; (d) insolvency of,
business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, or an assignment, for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtors relief law or for any adjustment of indebtedness, composition or
extension by or against any Obligor; (e) any lien or additional security
interest being placed upon any of the property which is security for this Note;
(f) acquisition at any time or from time to time of title to the whole of or any
part of the property which is security for this Note by any person, partnership,
corporation or other entity; (g) Bank determining that any representation or
warranty made by any Obligor in any Loan Documents or otherwise to Bank is, or
was, untrue or materially misleading; (h) failure of any Obligor to timely
deliver such financial statements, including tax returns, and other statements
of condition or other information as Bank shall request from time to time;
(i) any default under any Loan Documents; (j) entry of a judgment against any
Obligor which Bank deems to be of a material nature, in Bank's sole discretion;
(k) the seizure or forfeiture of, or the issuance of a writ of possession,
garnishment or attachment, or any turnover order for any property of any
Obligor; (l) Bank reasonably deeming itself insecure for any reason; (m) the
determination by Bank that a material adverse change has occurred in the
financial condition of any Obligor; or, (n) the failure to comply with any law
or regulation regulating the operation of Borrower's business.
5. Remedies upon default. Whenever there is a default under this Note (a)
the entire balance outstanding and all other obligations of Obligor to Bank
(however acquired or evidenced) shall, at the option of Bank, become immediately
due and payable, and/or (b) to the extent permitted by law, the Rate of interest
on the unpaid principal shall, at the option of the Bank, be increased at Bank's
discretion up to the maximum rate allowed by law, or if none, 25% per annum,
(the "Default Rate"): and or (c) to the extent permitted by law, a delinquency
charge may be imposed in an amount not to exceed five percent (5%) of any
payment in default for more than fifteen days. The provisions herein for a
Default Rate or a delinquency charge shall not be deemed to exceed the time for
any payment hereunder or to constitute a "grace period" giving the Obligors a
right to cure any default. At Bank's option, any accrued and unpaid interest,
fees or charges may, for purposes of computing and accruing interest on a daily
basis after the due date of the Note or any installment thereof, be deemed to be
a part of the principal balance, and interest shall accrue on a daily compounded
basis after such date at the rate provided in this Note until the entire
outstanding balance of principal and interest is paid in full. Bank is hereby
authorized at any time to set off and charge against any deposit accounts of any
Obligor, as well as any other property of such party at or under the control of
Bank, without notice or demand, any and all obligations due hereunder.
6. Non-waiver. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
notification or amendment of this Note, shall be deemed to be made by Bank
unless the name shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific issuance
involved, and shall in no way impair the rights of Bank or the obligations of
Obligor to Bank in any other respect at any other time.
7. Applicable law. This Note is delivered in and shall be construed under the
internal laws and judicial decisions of the State of Georgia, and the laws of
the United States as the same may be applicable.
8. Partial invalidity. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or the validity of any other
provision herein and the invalidity or unenforceability of any provision of the
Note or of the Loan Document to any person or circumstances shall not affect the
enforceability or validity of each provision as it may apply to other persons or
circumstances.
9. Jurisdiction and venue. In any litigation in connection with or to enforce
this Note or any indorsement or guaranty of this Note or any Loan Documents,
Obligors, and each of them, irrevocably consent to and confer personal
jurisdiction on the courts of the State of Georgia or the United States courts
located within the State of Georgia, and expressly waive any objections as to
venue in any such courts, and agree that service of process may be made as
Obligors by mailing a copy of the summons and complaint by registered or
certified mail, return receipt requested, to their respective addresses. Nothing
contained herein shall, however, prevent Bank from bringing any action or
exercising any rights within any other state or jurisdiction or from obtaining
personal jurisdiction by any other means available by applicable law.
10. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR
ANY RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM
AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW),
THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES
OR JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL, JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THE NOTE MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWER'S DOMICILE AT THE TIME OF THIS NOTE'S EXECUTION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR AN
ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A WAIVER BY THE BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. (S) 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) EXERCISE
SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSURE
AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE. NEITHER THE EXERCISE OR
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE
MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
11. Binding effect. This note shall be binding upon and inure to the benefit
of Borrower. Obligors and Bank and their respective successor, assigns, heirs
and personal representatives, provided, however, that no obligators of the
Borrower or the Obligor hereunder can be without prior written consent of Bank.
12. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
EXHIBIT A
---------
INTEREST RATE OPTION PROVISIONS
-------------------------------
THIS EXHIBIT A is attached to and forms a part of that certain PROMISSORY
NOTE (the "Note"), dated October 15 1996, executed by Premiere Communications
--------------- -----------------------
Inc. a Georgia corporation ("Borrower"), and made payable to the order of
- - --- -------------------
NationsBank, N.A. (South) ("Bank").
1. Borrower's Rates. On the terms and subject to the conditions set forth
----------------
below, Borrower will be able to select, from one of the following Rate Options,
an interest rate which will be applicable to a particular dollar increment of
amounts outstanding, or to be disbursed, under the Note: (check the available
options)
[X] The Prime Rate plus 0.00 (the "Prime Rate Option");
----
[_] The Treasury Securities Rate plus ________ (the "Treasury Securities
Rate Option"); or
[X] The LIBOR Funding Rate, plus 176 basis points (the "LIBOR Rate
Option"); ----------------
[_] The Eurodollar Rate, plus _______ (the "Eurodollar Rate Option");
[_] The CD Rate plus ________ (the "CD Rate Option"); or
[_] The Quoted Rate, plus ___________ (the "Quoted Rate Option"); or
[_] The Transaction Rate of __________ (the "Transaction Rate Option").
Interest based on the Prime Rate Option is a floating rate and will change on
and as of the date of a change in the Prime Rate. The period of time during
which the Prime Rate shall be applicable shall be a Prime Rate Interest Period.
Interest based on the Treasury Securities Rate Option will be fixed for periods
of __________ year(s) (each a "Treasury Securities Interest Period"). Interest
based on the LIBOR Rate Option will be fixed for periods of one, two or three
-----------------
months (each a "LIBOR Interest Period"). Interest based on the Eurodollar Rate
- - ------
Option will be fixed for periods of _________ (each a "Eurodollar Interest
Period"). Interest based on the CD Rate Option will be fixed for periods of
___________ (each a "CD Interest Period"). Interest based on the Quoted Rate
Option will be fixed for periods of ___________ (each a "Quoted Interest
Period"). Interest based on the Transaction Rate Option will be fixed for
periods of ____________ (each a "Transaction Interest Period"). The Treasury
Securities Rate, the LIBOR Rate, the Eurodollar Rate, the CD Rate, the Quoted
Rate, and the Transaction Rate each being hereafter from time to time referred
to as a "Fixed Rate Option"). (See note below)
2. Selection of Applicable Interest Rate.
-------------------------------------
(a) Request. Borrower may request (a "Rate Request") that a $1.00
------- ----
increment or any amount in excess thereof (an "Increment") of the outstanding
principal of, or amounts to be disbursed under, the Note bear interest at the
Prime Rate Option, and Borrower may request (a "Rate Request") that a
$500,000.00 increment or any amount in excess thereof (an "Increment") of the
----------
outstanding principal of, or amounts to be disbursed under, the Note bear
interest at the Treasury Securities Rate Option, the LIBOR Rate Option, the
Eurodollar Rate Option, the CD Rate Option, the Quoted Rate Option or the
Transaction Rate Option, as applicable, by telephonic notice no later than 10:00
a.m. (Eastern time) a sufficient (in Bank's sole discretion) number of Business
------------
Days prior to the effective date of the Rate Request to permit Bank to quote the
rate requested.
(b) Applicable Interest Rates. Borrower's Rate Request will become
-------------------------
effective, and Interest on the Increment designated will be calculated at the
rate (the "Effective Rate") requested by Borrower for the applicable Interest
Period, subject to the following:
(i) Notwithstanding any Rate Request, interest shall be calculated on
the basis of the Prime Rate Option if (a) Bank, in good faith is unable to
ascertain the requested Fixed Rate Option by reason of circumstances then
affecting the applicable money market or otherwise, (b) it becomes unlawful or
impracticable for the Bank to maintain loans based upon the requested Fixed Rate
Option, or (c) Bank, in good faith, determines that it is impracticable to
maintain loans based on the requested Fixed Rate Option because of increased
taxes, regulatory costs, reserve requirements, expenses or any other costs or
charges that affect such interest Rate Options. Upon the occurrence of any of
the above events, and increment to which a requested Fixed Rate Option applies,
shall be immediately (or at the option of Bank, at the end of the current Fixed
Rate Interest Period), without further action of Borrower or Bank, converted to
an increment to which the Prime Rate Option applies.
(ii) Borrower may have no more than a total of Two Effective Rates
---
applicable to amounts outstanding under the Note at any given time.
(iii) A Rate Request shall be effective as to amounts to be disbursed
under the Note only if, on the effective date of the Rate Requests, such amounts
are in fact disbursed to or for the account of the Borrower in accordance with
the provisions of the Note and any related loan documents.
(iv) Any amounts of outstanding principal for which a Rate Request has
not been made, or is otherwise not effective, shall bear interest until paid in
full at the Prime Rate Option.
(v) Any amounts of outstanding principal bearing interest based upon
a Fixed Rate Option shall bear interest at such rate until the end of the
Interest Period therefor, and thereafter shall bear interest based upon the
Prime Rate Option unless a new Rate Request for a Fixed Rate Option complying
with the terms hereof has been made and has become effective.
(vi) If Borrower shall be in default under the Note ("Default"), then
Bank shall no longer be obligated to honor any Rate Requests.
(vii) No Fixed Rate interest Period shall extend beyond the maturity
date of the Note.
(c) Repayment. Principal shall be payable on September 30, 1997 and
--------- ------------------
interest shall be payable as follows: (check all that apply)
[X] For any Interest Period during which the Prime Rate is applicable to any of
the outstanding principal, interest thereon shall be payable [X] monthly, [ ]
quarterly or [_] ________________ and continuing on the [_] same day, [X] last
day of each successive month, quarter or other period (as applicable thereafter,
with a final payment of all accrued and unpaid interest on the last day of such
Interest Period.
[_] For any Interest Period during which the Quoted Rate is applicable to any of
the outstanding principal, interest thereon shall be payable [_] monthly, [_]
quarterly or [_] and continuing on the [_] same day, [_] last day of each
successive month, quarter or other period (as applicable) thereafter, with a
final payment of all accrued and unpaid interest on the last day of such
Interest Period.
<PAGE>
[_] For any Interest Period during which the Transaction Rate is applicable to
any of the outstanding principal, interest thereon shall be payable [_] monthly,
[_] quarterly or [_] ________________________________ and continuing on the [_]
same day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all accrued and unpaid interest
on the last day of such Interest Period.
[X] For any Interest Period during which the LIBOR Funding Rate is applicable
to any of the outstanding principal, all accrued and unpaid interest thereon
shall be payable on the last day of each applicable Interest Period and, in the
case of an Interest Period greater than three months, at three month intervals
after the first day of such Interest Period.
[_] For any Interest Period during which the Eurodollar Rate is applicable to
any of the outstanding principal, all accrued and unpaid interest thereon shall
be payable on the last day of each applicable Interest Period and, in the case
of an Interest Period greater than three months, at three month intervals after
the first day of such Interest Period.
[_] For any Interest Period during which the CD Rate is applicable to any of
the outstanding principal, all accrued and unpaid interest thereon shall be
payable on the last day of each applicable Interest Period and, in the case of
an Interest Period greater than 90 days, at 90 day intervals after the first day
of such Interest Period.
[_] For any Interest Period during which the Treasuries Securities Rate is
applicable to any outstanding principal, interest thereon shall be payable [_]
monthly, [_] quarterly or [_] ________________________ and continuing on the [_]
same day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all accrued and unpaid interest
on the last day of such Interest Period.
3. Defined terms. The following terms as used in this Exhibit A shall
-------------
have the following meanings:
"Business day" shall mean a day on which Bank is open for business and
------------
dealing in deposits in Atlanta, Georgia.
"Treasury securities rate" shall mean the rate of Interest per annum
------------------------
determined by Bank, in accordance with its customary general practice from time
to time, to be the weekly average yield on all United States Treasury Securities
adjusted to a constant maturity for a term comparable to such Interest Period,
as most recently reported by the Federal Reserve System in the weekly FEDERAL
RESERVE STATISTICAL RELEASE NO. H-15(519), entitled "Selected Interest Rates"
(or any succeeding publication) (the "Treasury Securities Rate") adjusted from
time to time in Bank's sole discretion for then applicable reserve requirements,
deposit insurance assessment rates and other regulatory costs.
"CD rate" shall mean the rate of interest per annum (rounded upwards, if
-------
necessary, to the next higher 1/16 of 1%) determined by Bank. In accordance with
its customary general practice from time to time, paid from time to time by
major banks on negotiable certificates of deposit (secondary market) in amounts
of $100,000.00 or more for a term comparable to such Interest Period, as
most recently reported by the Federal Reserve System in the weekly FEDERAL
RESERVE STATISTICAL RELEASE NO H-15(519), entitled "Selected Interest Rates"
(or any succeeding publication) (the "CD Rate") adjusted from time to time in
Bank's sole discretion for then applicable reserve requirements, deposit
insurance assessment rates and other regulatory costs.
"LIBOR funding rate" shall mean the rate of interest set by Bank as the
------------------
LIBOR Funding Rate as of and at any time during the second Business Day
immediately preceding the first day of such Interest Period, for a term
comparable to such Interest Period, as adjusted from time to time in Bank's sole
discretion for then applicable reserve requirements, deposit insurance
assessment rates and other regulatory costs.
"Eurodollar rate" shall mean the rate of interest set by Bank as the
---------------
Eurodollar Rate, as of and at any time during the second Business Day
immediately preceding the first day of such Interest Period, for a term
comparable to such Interest Period, as adjusted from time to time in Bank's sole
discretion for then applicable reserve requirements, deposit insurance
assessment rates and other regulatory costs.
"Prime rate" is the fluctuating rate of interest established by Bank from
----------
time to time, at its discretion, whether or not such rate shall be otherwise
published. The Prime Rate is established by Bank as an index and may or may not
an any time be the best or lowest rate charged by Bank on any loan.
"Quoted rate" shall mean a fixed rate of interest per annum agreed upon by
-----------
the Bank and Borrower on or prior to the first day of the Interest Period for
which such rate shall be in effect.
"Transaction rate" shall mean the fixed rate of _____________% per annum.
----------------
4. NOTICES; AUTHORITY TO ACT. Borrower acknowledges and agrees that the
-------------------------
agreement of Bank herein to receive certain notices by telephone is solely for
the convenience of Borrower. Bank shall be entitled to rely on the authority of
the person purporting to be a person authorized by Borrower to give such notice,
and Bank shall have no liability to Borrower on account of any action taken by
Bank in reliance upon such telephonic notice. The obligation of Borrower to
repay all sums owing under the Note shall not be affected in any way or to any
extent by any failure by Bank to receive written confirmation of any telephonic
notice or the receipt by Bank of a confirmation which is at variance with the
terms understood by Bank to be contained in the telephonic notice.
IN WITNESS WHEREOF, the parties hereto have executed this Exhibit A to Note
as of the 18th day of October, 1996.
---- ------- ----
Borrower: Premiere Communications, Inc.
------------------------------------
By: /s/ Julianne F. Vaio
----------------------------
Its: Treasurer & Dir. of Finance
----------------------------
By:
----------------------------
Its:
----------------------------
Bank: NationsBank, N.A. (South)
By: /s/ Ellen Gilmer
-----------------------------
Ellen Gilmer - Sr. Vice Pres.
Note: LIBOR and Eurodollar should be quoted in terms of months (i.e. one, two
three or six months) and not days (i.e. 30, 60, 90 or 180 days). There is no
automatic way to accrue interest on Quoted rate or Transaction Rate,
calculations must be done manually.
<PAGE>
EXHIBIT 10.52
NATIONSBANK(R)
NationsBank, N.A. (South) E. Gilmer/3829 CONTINUING AND UNCONDITIONAL
- - ---------------------------------------------------------------------------
GUARANTY
- - --------
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank, N.A. (South)
Financial Strategies
- - ---------------------------
Banking Center
600 Peachtree Street, N.E. , Atlanta , GA , 30308
- - ----------------------------------- ------------- -------- -------------
Back Street Address City State Zip Code
(Attn: Financial Strategies ) (herein called "Bank"), to make loans or advances
--------------------
or to extend credit or other financial accommodations or benefits, with or
without security, to or for the account of Premiere Communications, Inc.
-------------------------------------
3399 Peachtree Road , Atlanta , GA , 30326
- - ------------------------------ ------------------ ---- ---------------.
Street Address City State Zip Code
(herein called "Borrower"), the undersigned (herein called the "Guarantor"), if
more than one, then each of them jointly and severally, hereby becomes a surety
for and irrevocably and unconditionally guarantees to Bank the full and prompt
payment when due, whether by acceleration or otherwise, of any and all
Liabilities (as hereinafter defined) of Borrower to Bank, together with
reasonable attorney's fees, costs and expenses incurred by Bank in enforcing any
and all of such indebtedness. This Guaranty is continuing and unlimited as to
the amount.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all terms, conditions, covenants, agreements, and
undertakings of Borrower (herein collectively referred to as the "Obligations")
under all notes and other documents evidencing the Liabilities, as hereinafter
defined, and under all deeds to secure debt, deeds of trust, mortgages, security
agreements and other documents securing payment of the Liabilities and all notes
and other agreements, documents, and instruments evidencing or relating to the
Liabilities and Obligations being herein collectively called the "Loan
Documents"). The undertakings of Guarantor hereunder are independent of the
Liabilities and Obligations of the Borrower and a separate action or actions for
payment, damages or performance may be brought or prosecuted against Guarantor,
whether or not an action is brought against the Borrower or to realize upon the
security for the Liabilities and/or Obligations and whether or not Borrower is
joined in any such action or actions, and whether or not notice is given or
demand is made upon the Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, firm or corporation, whether primarily or secondarily liable, or against
any Collateral held by it, before resorting to Guarantor for payment, and
Guarantor shall not be entitled to assert as a defense to the enforceability of
the Guaranty any defense of Borrower with respect to any Liabilities or
Obligations.
2. PARAGRAPH HEADINGS AND GOVERNING LAW. Guarantor agrees that the paragraph
headings in this Guaranty are for convenience only and that they will not limit
any of the provisions of this Guaranty. Guarantor further agrees that this
Guaranty shall be governed by and construed in accordance with the laws of the
State of Georgia and applicable United States federal law. Guarantor further
agrees that this Guaranty shall be deemed to have been made in the State of
Georgia at Bank's address indicated herein, and shall be governed by, and
construed in accordance with, the laws of the State of Georgia, or the United
States courts located within the State of Georgia, and is performable in the
State of Georgia.
3. DEFINITIONS.
A. "Liability" or "Liabilities" as used herein shall include without
limitation, all liabilities, overdrafts, indebtedness, and obligations of
Borrower to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by the Bank for its own account or as
agent for another or others, whether created directly, indirectly, or acquired
by assignment or otherwise, including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including attorney's fees and cost of collection as specified) incurred in the
collection thereof or the enforcement of rights thereunder or in enforcing this
Guaranty (including without limitation, any liability arising from failure to
comply with state or federal laws, rules and regulations concerning the control
of hazardous wastes or substances at or with respect to any real estate securing
any loan guaranteed hereby), whether arising in the ordinary courts of business
or otherwise, and whether held or to be held by Bank for its own account or as
agent for another or others. If Borrower is a partnership, corporation or other
entity the term "Liability" or "Liabilities" as used herein shall include all
Liabilities to Bank of any successor entity or entities.
B. "Guarantor" as used herein shall mean Guarantor or any one or more of
them. Anyone executing this Guaranty shall be bound by the terms hereof without
regard to execution by anyone else. This Guaranty is binding upon Guarantor,
his, their or its executors, administrators, successors or assigns, and shall
inure to the benefit of Bank, its successors, endorsees or assigns.
"Guarantor" as used in this instrument shall be construed as singular or plural
to correspond with the number of persons executing this instrument as Guarantor.
The pronouns used in this Agreement are in the masculine gender but shall be
construed as female or neuter as an occasion may require.
C. "Collateral" means the property subject to a security interest, and
includes accounts and chattel paper which have been sold, including but not
limited to all additions and accessions thereto, all replacements or substitutes
therefor, and all immediate and remote proceeds of the sale or other disposition
thereof.
4. WAIVERS BY GUARANTOR. Guarantor waives notice acceptance of this
Guaranty, notice of any Liability or Obligations to which it may apply, and
waives presentment, demand for payment, protest, notice of dishonor or
nonpayment of any Liabilities, waiver of notice of intent to accelerate, waiver
of notice of acceleration and notice of any suit or the taking of other action
by Bank against Borrower. Guarantor or any other person and any other notice to
any party liable thereon (including Guarantor) and any applicable statute of
limitations.
Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against the Borrower that arises
hereunder and/or from the performance by any Guarantor hereunder including,
without limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of the Bank against the Borrower or any security which the Bank now
has or hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
Guarantor hereby agrees to waive the benefits of any provision of law requiring
that the Bank exhaust any right or remedy, or take any action, against the
Borrower, any Guarantor, any other person and/or property including but not
limited to the provisions of the Official Code of Georgia (S)10-7-24 and
Official Code of Georgia (S)11-3-601, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing, or otherwise affecting the obligations of Guarantor, in whole or in
part, and without the endorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a) change the manner, place or terms of payment;
(b) change or extend the time of or renew or alter, any Liability or Obligation
or installment thereof, or any security therefor: (c) loan additional monies or
extend additional credit to Borrower, with or without security, thereby creating
new Liabilities or Obligations the payment or performance of which shall be
guaranteed hereunder, and the Guaranty herein made shall apply to the
Liabilities and Obligations as so changed, extended, surrendered, realized upon
or otherwise altered: (d) sell exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property at any time
pledged or mortgaged to secure the Liabilities or Obligations and any offset
there against; (e) exercise or refrain from exercising any rights against
Borrower or others (including Guarantor) or act of refrain from acting in any
other manner; (f) settle or compromise any Liability or Obligation or any
security therefor and subordinate the payment of all or any part thereof to the
payment of any Liability or Obligation of any other parties primarily or
secondarily liable on any of the Liabilities or Obligations; (g) release or
compromise any liability of Guarantor hereunder of any Liability or Obligation
of any other parties primarily or secondarily liable on any of the Liabilities
or Obligations; or (h) apply any sums from any sources to any Liability without
regard to any Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from the Borrower, by set-off or in any other manner,
payment of any liabilities and/or obligations, now and at any time or times
hereafter owing by the Borrower to Guarantor unless and until all the
Liabilities shall have been fully paid, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of the Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.
<PAGE>
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, or any partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank of the obligations of
Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall continue until written notice of revocation
signed by each respective Guarantor or until written notice of the death of such
Guarantor shall actually have been received by Bank, notwithstanding change in
name, location composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of Borrower, or
any one or more of Guarantors, provided, however, that no notice of
revocation or termination hereof shall affect in any manner rights arising under
this Guaranty with respect to Liabilities or Obligations that shall have been
created. Contracted, assumed or incurred prior to receipt of such written notice
pursuant to any agreement entered into by Bank prior to receipt of such notice,
and the sole effect of such notice of revocation or termination hereof shall be
to exclude from this Guaranty, Liabilities or Obligations thereafter arising
that are unconnected with Liabilities or Obligations theretofore arising or
transactions entered into theretofore.
In the event of the death of a Guarantor, the liabilities of the estates of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof and (ii) loans or advances made to or for the account of Borrower after
the date of death of the deceased Guarantor pursuant to the liabilities of Bank
under a commitment made to Borrower prior to the date of such death. As to all
surviving Guarantors, this Guaranty shall continue in full force and effect
after the death of a Guarantor, not only as to the Liabilities existing at that
time, but also as to Liabilities thereafter incurred by Borrower to Bank.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability or
invalidity of any provision of this Guaranty shall not affect the enforceability
or validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Documents as it may apply to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances:
In the event Bank is required to relinquish or return the payments, the
Collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for applications against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by the Bank.
9. OBLIGATIONS OF GUARANTOR. In the event that Borrower fails to perform any of
the Obligations or pay any of the Liabilities, Guarantor shall upon demand by
Bank, promptly and with due diligence pay all Liabilities and perform and
satisfy for the benefit of Bank all Obligations.
Guarantor will not become a party to a merger or consolidation with any other
company, except where Guarantor is the surviving corporation or entity, and all
covenants under this Guaranty Agreement are assumed by the surviving
corporation. Further, Guarantor may not change the status of or type of entity,
that Guarantor is, without the written consent of Bank and all covenants under
this Guaranty Agreement are assumed by the new or surviving entity. Guarantor
further agrees that this Guaranty Agreement shall be binding, legal and
enforceable against Guarantor in the event Borrower changes its name, status or
type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any and
all financial information and any other information regarding Guarantor and/or
Collateral requested in writing by Bank within ten (10) days of the date of the
request. The Guarantor has made an independent investigation of the financial
condition and affairs of the Borrower prior to entering into this Guaranty, and
the Guarantor has made and will continue to make an independent appraisal of the
creditworthiness of the Borrower: and in entering into this Guaranty the
Guarantor has not relied upon representation of the Bank as to the financial
conditions, operations or creditworthiness of the Borrower. The Guarantor
further agrees that the Bank shall have no duty or responsibility now or
hereafter to make any investigation or appraisal of the Borrower on behalf of
the Guarantor or to provide the Guarantor with any credit or other information
which may come to its alteration now or hereafter.
11. NOTICES. All notices required or permitted to be given to Bank herein shall
be sent by registered or certified mail, return receipt requested to the Bank at
the address shown in the preamble to this Agreement. Guarantor agrees that all
notices required or permitted to be given to Guarantor shall be sent by first
class mail, postage prepaid United States mail. The parties agree that the
notice shall be considered received by Guarantor five (5) days after being
placed in the United States mail.
12. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any Obligation. Liability or indebtedness of Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under this Guaranty
or any other agreement, note or instruments now or hereafter existing, as and
when due (whether upon demand, at maturity or by acceleration): (b) the failure
to pay or perform any other Obligation, Liability or indebtedness of Borrower
or Guarantor as and when due, whether to Bank or some other party, the
Collateral for which constitutes an encumbrance on the Collateral for this
Guaranty;(c) death of any Borrower or Guarantor (if any individual), or a
proceeding being filed or commenced against a Borrower or Guarantor for
dissolution or liquidation, or any Borrower or Guarantor voluntarily or
involuntarily termination or dissolving or being terminated or dissolved; (d)
the insolvency of, the business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, or the filling of a petition under
any bankruptcy, insolvency or debtor's relief law or for any adjustments of
indebtedness, composition or extensions by or against Borrower or Guarantor: (a)
any lien or additional security interest being placed upon any of the Collateral
which is security for this Guaranty; (f) acquisition at any time or from time to
time of title to the whole of or any part of the Collateral which is security
for this Guaranty by any person, partnership, corporation, or other entity; (g)
Bank determining that any representation of warranty made by Borrower or
Guarantor to Bank is, or was, untrue or materially misleading; (h) failure of
Borrower or Guarantor to timely deliver such financial statements, including tax
returns, and other statements of condition or other information as Bank shall
request from time to time; (i) any default under any Loan Documents; (j) entry
of a judgment against Borrower or Guarantor which Bank deems to be of a material
nature, in Bank's sole discretion; (k) the seizure or forfeiture of, or the
issuance of any wir of possession, garnishment or attachment, or any runover
order for any property of Borrowers or Guarantor; (l) Bank reasonably deeming
itself insecure of any reason; (m) the determination by Bank that a material
adverse change has occurred in the financial condition of Borrower or Guarantor;
(n) the failure to comply with any law regulating the operation of Borrower's
business; (o) termination of Guaranty by Guarantor, or (p) the inability of the
Borrower or Guarantor to pay debts as they mature whether owing to Bank or any
other party.
13. REMEDIES. Upon the occurrence of any event of default hereunder. Bank shall
have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality
of the foregoing, Bank may, at its option and without notice or demand: (a)
declare any Liability accelerated and due and payable at once: and (b) take
possession of any Collateral wherever located, and sell, resell, assign,
transfer and deliver all or any part of said Collateral of Borrower or Guarantor
at any public or private sale or otherwise dispose of any or all of the
Collateral in its then condition, for cash or on credit or for future delivery,
and in connection therewith Bank may impose reasonable conditions upon any such
sale. Bank, unless prohibited by law the provisions of which cannot be waived,
may purchase all or any part of said Collateral to be sold, free from and
discharged of all trusts, claims, rights or redemption and equities of the
Borrower or Guarantor whatsoever: Guarantor acknowledges and agrees that the
sale of any Collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall be
deemed a commercially reasonable sale under the Uniform Commercial Code or any
other equivalent status or federal law, and expressly waives notice thereof
except as provided herein: and (c) set-off against any or liabilities of
Guarantor all money owed by Bank in any capacity to Guarantor whether or not
due, and also set-off against all other Liabilities of Borrower or Guarantor to
Bank all money owed by Bank in any capacity to any Borrower or Guarantor, and if
exercised by Bank. Bank shall be deemed to have exercised such right of set-off
and to have made a charge against any such money immediately upon the occurrence
of such default although made or entered on the books subsequent thereto.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of
collection and attorney's fees equal to the greater of (a) fifteen percent (15%)
of the first $500.00 of any liability due and ten percent (10%) on the excess of
$500.00 Liability due and unpaid if Bank proceeds to collect such Liability
through the services of an attorney at law, whether through the initiation of
legal proceedings or otherwise, plus reasonable attorney's fees incurred in
appeilate proceedings, or (b) reasonable attorney's fees, including reasonable
attorney's fees, including reasonable attorney's fees in connection with any
suit,mediation or arbitration proceeding, out of court payment agreement, trial,
appeal, bankruptcy proceedings or otherwise, incurred or paid by Bank in
enforcing the payment of any Liability or enforcing or preserving any agreement,
trial, appeal bankruptcy proceedings or otherwise incurred or paid by Bank in
enforcing the payment of any Liability or enforcing or preserving any right or
interest of Bank hereunder, including the collection, preservation, sale or
delivery of any Collateral from time to time pledged to Bank, and after
deducting such fees, costs and expenses from the proceeds of sale or collection,
Bank may apply any residue to pay any of the Liabilities an Guarantor shall
continue to be liable for any deficiency with interest at the rate specified in
any instrument evidencing the Liability or, at the Bank's option, equal to the
highest lawful rate, which shall remain a liability.
<PAGE>
15. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Guarantor pledged to
Bank to secure Guarantor's obligations against prior parties who may be liable
in connection therewith, and Guarantor hereby agrees to take any such steps.
Bank, nevertheless, at any time, may (a) take any action it deems appropriate
for the care or preservation of such property or of any rights of Guarantor or
Bank therein, (b) demand, sue for, collect or receive any money or property at
any time due, payable or receivable on account of or in exchange for any
property of Guarantor, (c) compromise and settle with any person liable on such
property, or (d) extend the time of payment or otherwise change the terms of the
Loan Documents as to any part liable on the Loan Documents, all without notice
to, without incurring responsibility to, and without affecting any of the
obligations or liabilities of Guarantor.
16. COLLATERAL. The Bank at all times and from time to time shall have the
right to require Guarantor to deliver to Bank Collateral satisfactory to Bank to
secure Guarantor's undertakings hereunder and/or the liabilities of Guarantor
hereunder.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any liabilities and/or
obligations that Guarantor may now or in the future owe the Bank. Bank is
granted a contractual right of set-off and will not be liable for dishonoring
checks or withdrawals where the exercise of Bank's contractual right of set-off
or security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contactual right of set-off and
security interest in all property of Guarantor now or at anytime hereafter in
the possession of Bank, including but not limited to any joint account, special
account, account by the entireties, tenancy in common, and all dividends and
distributions now or hereafter in the possession or control of Bank.
[ ] CHECK IF APPLICABLE. In addition to the provisions stated above, Guarantor
hereby pledges, assigns and grants to Bank a security interest in and title to
the Collateral described in the security agreement, deed of trust, deed to
secure debt, mortgage or other Collateral instrument dated ______, 19__ which
Collateral, except for any margin stock (as defined in Regulation U of the Board
of Governors of the Federal Reserve System), shall secure this Guaranty, whether
currently existing or arising in the future. Guarantor agrees to execute such
security agreements, financing statements and other documents as Bank may
reasonably require or request to obtain and perfect its security interest in
said Collateral.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
-------------
BORROWER'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO AN ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
---------------------
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
18. Execution under seal. This Guaranty is being executed under seal by the
Guarantor.
19. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL
GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to to be executed
under seal on the 18th day of October 1996.
---- ------- --
Witnessed By: Guarantor:
/s/ Ellen Gilmer (Seal)
- - ------------------------------------ -----------------------------------
Ellen Gilmer - Senior Vice President
- - ------------------------------------- _________________________________________
Print Name (And Title, If Applicable) Print Individual's Name
Corporate Guarantor or Partnership:
Premiere Technologies, Inc.
-----------------------------------------
Name of Corporation, Partnership etc.
By: /s/ Julianne F. Vaio (Seal)
--------------------------------
Julianne F. Vaio - Treasurer
-----------------------------------------
Print Name and Title
Attest (If applicable) By: (Seal)
--------------------------------
/s/ Patrick G. Jones
- - ----------------------------------- -----------------------------------------
Secretary Print Name and Title
[Corporate Seal]
<PAGE>
INDIVIDUAL ACKNOWLEDGEMENT
State of _____________________________(S)
(S)
County of ____________________________(S)
This instrument was acknowledged before me on _____________________, 19__ by
_______________________________.
Guarantor
___________________________________
Notary Public
in and for the State of ___________
(Seal)
_______________________________ ___________________________________
My Commission Expires Print Name of Notary
CORPORATE ACKNOWLEDGMENT
State of _____________________________(S)
(S)
County of ____________________________(S)
This instrument was acknowledged before me on ____________________, 19__ by
____________________________________, ________________________, of
________________________, a __________________________ corporation, on behalf of
said corporation.
___________________________________
Notary Public
in and for the State of ___________
(Seal)
_______________________________ ___________________________________
My Commission Expires Print Name of Notary
<PAGE>
Exhibit 11.1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
----------------------------- ---------------------
December 31, December 31, December December
1995 1996 1995 1996
-------------- ------------ ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
PRIMARY (6)
- - -----------
Earnings applicable to common stock:
Net income (loss) $ 936 $ 2,667 $ 1,918 $ (956)
Preferred dividends (1) (77) 0 (308) (29)
Interest income (2) 53 91 197 0
-------------- ------------ --------- ----------
Net income (loss) applicable to common stock $ 912 $ 2,758 $ 1,807 $ (985)
============== ============ ========= ==========
Weighted average shares outstanding for primary:
Weighted average shares outstanding 5,968 23,936 5,968 20,170
Shares upon assumed exercise of stock options and warrants issued within
one year if initial public offering (3) 4,845 0 4,845 0
Other shares upon assumed exercise of stock options and warrants (4) 6,600 2,585 6,716 0
-------------- ------------ --------- ----------
Weighted average shares 17,413 26,521 17,529 20,170
============== ============ ========= ==========
Primary net income (loss) per share $ 0.05 $ 0.10 $ 0.10 $ (0.05)
============== ============ ========== ==========
</TABLE>
______________
(1) Dividends on cumulative convertible preferred stock are deducted to arrive
at net income applicable to common stock as the preferred stock is not a
common stock equivalent and is therefore not considered as if converted for
primary earnings per shares.
(2) Reflects adjustment to interest expense, net of related Income tax effect,
on excess proceeds due to 20% limitation on assumed acquisition of shares
under the modified treasury stock method. Assumed proceeds from stock
options include an income tax benefit as the options are not qualified
options under the Internal Revenue Code.
(3) Options and warrants issued within one year of the initial filing of the
accompanying registration statement are assumed to be outstanding for all
periods using the modified treasury stock method at the assumed Initial
public offering price, regardless of whether they are anti-dilutive.
(4) Options and warrants are assumed exercised using the modified treasury
stock method, except where the effect is anti-dilutive.
(5) Fully diluted net income per share is anti-dilutive. Accordingly, fully
diluted net income per share is not presented for all periods.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of Registration
Statement File Nos. 333-17593 and 333-11281.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 6,800 6,800
<SECURITIES> 67,334 67,334
<RECEIVABLES> 5,353 5,353
<ALLOWANCES> 610 610
<INVENTORY> 0 0
<CURRENT-ASSETS> 84,860 84,860
<PP&E> 19,775 19,775
<DEPRECIATION> 3,002 3,002
<TOTAL-ASSETS> 140,051 140,051
<CURRENT-LIABILITIES> 15,309 15,309
<BONDS> 0 0
0 0
0 0
<COMMON> 240 240
<OTHER-SE> 123,918 123,918
<TOTAL-LIABILITY-AND-EQUITY> 140,051 140,051
<SALES> 17,211 52,079
<TOTAL-REVENUES> 17,211 52,079
<CGS> 4,936 16,711
<TOTAL-COSTS> 4,936 16,711
<OTHER-EXPENSES> 8,869 40,301
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 59 188
<INCOME-PRETAX> 4,128 (2,523)
<INCOME-TAX> 1,461 (1,627)
<INCOME-CONTINUING> 2,667 (897)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 59
<CHANGES> 0 0
<NET-INCOME> 2,667 (956)
<EPS-PRIMARY> .10 (.05)
<EPS-DILUTED> .10 (.05)
</TABLE>
