<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 16, 1997
PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant
as specified in its charter)
Georgia 33-80547 59-3074176
- - --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
3399 Peachtree Road, N.E.
The Lenox Building, Suite 400
Atlanta, Georgia 30326
- - --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (404) 262-8400
N/A
-----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. EXHIBITS.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
On April 30, 1997, Premiere Technologies, Inc. (the "Company") completed
the acquisitions, in separate transactions, of: (i) Voice-Tel Enterprises, Inc.
("VTE"); (ii) VTN, Inc. ("VTN"), the general partner of Voice-Tel Network
Limited Partnership ("VTNLP"), an affiliate of VTE, and the limited partner
interest in VTNLP; and (iii) certain independently owned and operated
franchisees of VTE (referred to individually as a "Wave One Franchisee" and
collectively as the "Wave One Franchisees"). The Company filed the required
financial statements of VTE, VTN and certain of the Wave One Franchisees that
met the significance tests of Rule 3-05 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "Commission") (referred to collectively
as the "Other Significant Franchisees" and such acquisitions are referred to
collectively as "Other Significant Voice-Tel Acquisitions") and the required pro
forma information relating to the Company, TeleT and each of the Other
Significant Franchisees as part of a Current Report on Form 8-K dated April 30,
1997, as amended by the Company's Current Report on Form 8-K/A filed with the
Commission on July 16, 1997. On June 13, 1997, the Company completed the
acquisitions (the "Wave Two Acquisitions"), in separate transactions, of certain
additional independently owned and operated franchisees of VTE (referred to
individually as a "Wave Two Franchisee" and collectively as the "Wave Two
Franchisees").
Certain of the individually insignificant Wave Two Franchisees and certain
of the individually insignificant Wave One Franchisees when aggregated meet the
significance tests of Rule 3-05 of Regulation S-X as promulgated by the
Commission (referred to individually as a "Significant Franchisee" and
collectively as the "Significant Franchisees"). All but one of the Wave Two
Acquisitions of Significant Franchisees will be accounted for under the pooling-
of-interests method of accounting. The acquisition of the assets of Voice
Partners of Greater Mahoning Valley, Ltd. will be accounted for under the
purchase method accounting.
The Company hereby amends its Current Report on Form 8-K dated April 30,
1997, as amended by the Company's Current Report on Form 8-K/A filed with the
Commission on June 16, 1997, and its Current Report on Form 8-K dated May 16,
1997 filed with the Commission on June 2, 1997 to include the below-referenced
financial statements, pro forma financial information and certain additional
exhibits.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of TeleT Communications LLC ("TeleT"), which was
acquired by the Company in September 1996 and accounted for under the
purchase method of accounting, have previously been filed with the
Commission and are incorporated by reference herein from the Company's
Current Report on Form 8-K dated September 18, 1996, as amended by the
Company's Current Report on Form 8-K/A filed with the Commission on
December 2, 1996, and the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 filed with Commission on March 27, 1997. The
financial statements of the Other Significant Franchisees have previously
been filed with the Commission and are incorporated by reference herein
from the Company's Current Report on Form 8-K dated April 30, 1997, as
amended by the Company's Current Report on Form 8-K/A filed with the
Commission on June 16, 1997. The following financial statements of VTE
(including certain previously omitted financial statements for the year
ended December 31, 1994) and the Significant Franchisees are included
herein:
-1-
<PAGE>
Voice-Tel Enterprises, Inc. ("VTE")
Report of Independent Public Accountants...............................
Consolidated Balance Sheets as of December 31, 1996 and 1995...........
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994...................................
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1996, 1995 and 1994.......................
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994...................................
Notes to Consolidated Financial Statements.............................
Lar-Lin Enterprises, Inc. d.b.a. Voice-Tel of Kansas City, Lar-Lin
Investments, Inc. d.b.a. Voice-Tel of Wichita and Voice-Tel of Springfield
and Voice Mail Solutions, Inc. d.b.a. Voice-Tel of Kansas City Acquisition
("VMS")
Report of Independent Public Accountants..............................
Combined Balance Sheets as of December 31, 1996 and
March 31, 1997.....................................................
Combined Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Combined Statements of Shareholders' Equity for the year
ended December 31, 1996............................................
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the three-month
period ended March 31, 1997........................................
Notes to Combined Financial Statements................................
Voice-Tel of South Texas, Inc. ("VTST")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31, 1996
and the three-month period ended March 31, 1997...................
Statement of Shareholder's Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended December 31,
1996 and the three-month period ended March 31, 1997...............
Notes to Financial Statements.........................................
MMP Communications Inc. d.b.a. Voice-Tel of Southern California ("MMP")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Statement of Shareholders' Equity (Deficit) for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Notes to Financial Statements.........................................
-2-
<PAGE>
Communication Concepts, Inc. d.b.a. Voice-Tel of Boston ("VTB")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period
ended March 31, 1997...............................................
Notes to Financial Statements.........................................
Hi-Pak Systems, Inc. d.b.a. Voice-Tel of Michigan and Voice Messaging
Development Corporation of Michigan d.b.a. Voice-Tel of Central
Michigan ("Hi-Pak")
Report of Independent Public Accountants..............................
Combined Balance Sheets as of December 31, 1996 and
March 31, 1997.....................................................
Combined Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Combined Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Notes to Combined Financial Statements................................
Voice-Net Communications Systems, Inc. d.b.a. Voice-Tel of New York
("Voice-Net")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Notes to Financial Statements.........................................
-3-
<PAGE>
Dowd Enterprises, Inc. and Subsidiary ("Dowd")
Report of Independent Public Accountants..............................
Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997.................................................
Consolidated Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Consolidated Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Notes to Consolidated Financial Statements............................
D & K Communications Corporation d.b.a. Voice-Tel of Memphis and
Voice-Tel of Nashville ("D & K")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Notes to Financial Statements.........................................
AudioInfo, Inc. ("AudioInfo")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Statement of Shareholders' Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Notes to Financial Statements.........................................
-4-
<PAGE>
Voice Partners of Greater Mahoning Valley, Ltd. ("Voice Partners")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Statement of Partners' Capital for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended December 31, 1996
and the three-month period ended March 31, 1997....................
Notes to Financial Statements.........................................
DARP, Inc. d.b.a. Voice-Tel of New Jersey ("DARP")
Report of Independent Public Accountants..............................
Balance Sheets as of May 31, 1996 and February 28, 1997...............
Statements of Operations for the year ended May 31, 1996
and the nine-month period ended February 28, 1997..................
Statement of Shareholders' Equity for the year ended
May 31, 1996.......................................................
Statements of Cash Flows for the year ended May 31, 1996
and the nine-month period ended February 28, 1997..................
Notes to Financial Statements.........................................
Indiana Communicator, Inc. d.b.a. Voice-Tel of Indiana ("VTI")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended December 31,
1996 and the three-month period ended March 31, 1997...............
Statement of Shareholder's Equity for the year ended
December 31, 1996..................................................
Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
Notes to Financial Statements.........................................
In-Touch Technologies, Inc. d.b.a. Voice-Tel of California ("In-Touch")
Report of Independent Public Accountants..............................
Balance Sheets as of December 31, 1996 and March 31, 1997.............
Statements of Operations for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997
Statement of Shareholders' Deficit for the year ended
December 31, 1996.................................................
Statements of Cash Flows for the year ended
December 31, 1996 and the three-month period ended
March 31, 1997.....................................................
-5-
<PAGE>
Notes to Financial Statements
125976 Canada Ltd. d.b.a. Voice-Tel of Manitoba and Subsidiaries
("Manitoba")
Report of Independent Public Accountants..............................
Consolidated Balance Sheets as of April 30, 1996 and
January 31, 1997...................................................
Consolidated Statements of Operations for the year
ended April 30, 1996 and the nine-month period ended
January 31, 1997...................................................
Consolidated Statement of Shareholders' Deficit for the year
ended April 30, 1996...............................................
Consolidated Statements of Cash Flows for the year ended
April 30, 1996 and the nine-month period ended
January 31, 1997...................................................
Notes to Consolidated Financial Statements............................
L'Harbot, Inc. d.b.a. Voice-Tel Tri-State and Voice Systems of Greater
Dayton, Inc. ("L'Harbot")
Report of Independent Public Accountants..............................
Combined Balance Sheets as of December 31, 1996
and March 31, 1997.................................................
Combined Statements of Operations for the year ended
December 31, 1997 and the three-month period
ended March 31, 1997...............................................
Combined Statement of Shareholders' Equity for the
ended December 31, 1996............................................
Combined Statements of Cash Flows for the year
ended December 31, 1996 and the three-month
period ended March 31, 1997........................................
Notes to Combined Financial Statements................................
(B) PRO FORMA FINANCIAL INFORMATION.
Pro forma financial information relating to the Company and TeleT has
previously been filed with the Commission and is incorporated by
reference herein from the Company's Current Report on Form 8-K dated
September 18, 1996, as amended by the Company's Current Report on Form
8-K/A filed with the Commission on December 2, 1996, and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 filed
with the Commission on March 27, 1997. Pro forma financial information
relating to the Company and the Other Significant Franchisees has
previously been filed with the Commission and is incorporated by
reference herein from the Company's Current Report on Form 8-K dated
April 30, 1997, as amended by the Company's Current Report on Form 8-
K/A filed with the Commission on June 16, 1997. The following pro
forma financial information relating to the Company, TeleT, the Other
Significant Voice-Tel Acquisitions and the Significant Franchisees is
included herein:
Introduction to Unaudited Pro Forma Combined
Financial Information..............................................
Pro Forma Combined Balance Sheet as of
March 31, 1997 ....................................................
Pro Forma Combined Statement of Income
-6-
<PAGE>
for the three-month period ended March 31, 1997, the three-month
period ended March 31, 1996 and for the years ended December 31,
1996, 1995 and 1994................................................
Notes to Unaudited Pro Forma Combined
Financial Information..............................................
(C) EXHIBITS.
2.1 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice Messaging Development Corporation of
Michigan and the Owners of Voice Messaging Development Corporation of
Michigan. (1)
2.2 Transfer Agreement dated as of June 13, 1997 by and among Premiere
Technologies, Inc., Voice Partners of Greater Mahoning Valley, Ltd.
and the Owners of Voice Partners of Greater Mahoning Valley, Ltd.
2.3 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., In-Touch Technologies, Inc. and the Owners of In-
Touch Technologies, Inc. (1)
2.4 Transfer Agreement dated as of March 31, 1997 by and among Premiere
Technologies, Inc. and Owners of the Western Franchisees: 3325882
Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc., 3337821
Manitoba Inc. and 3266631 Manitoba Inc. (1)(2)
23.1 Consent of Arthur Andersen LLP.
____________________
(1) Waive One Franchisee(s).
(2) Certain of the Significant Franchisees operate through multiple, but
commonly owned, business entities.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PREMIERE TECHNOLOGIES, INC.
By: /s/ Patrick G. Jones
---------------------
Patrick G. Jones
Senior Vice President of Finance and Legal
Dated: June 24, 1997
-8-
<PAGE>
VOICE-TEL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Voice-Tel Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of VOICE-TEL
ENTERPRISES, INC. (a Delaware Corporation) AND SUBSIDIARY as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
consolidated financial statements and the supplementary consolidating
information referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and supplementary consolidating information 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Voice-Tel
Enterprises, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information is
presented for purposes of additional analysis of the consolidated financial
statements rather than to present the financial position and results of
operations of the individual companies. This information has been subjected to
the auditing procedures applied in our audit of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
March 7, 1997.
(Except with respect to the matter discussed in Note 8, as to
which the date is April 30, 1997).
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 354,063 $ 246,032
Accounts receivable, trade and
advances to affiliates, less
allowance for doubtful accounts of
approximately $196,000 and $300,000
in 1996 and 1995, respectively 7,194,057 8,173,383
Notes receivable, trade and affiliates 2,426,655 2,348,722
Refundable income taxes 45,000 -
Inventories 699,265 869,081
Deferred income taxes 425,000 320,000
Other assets 233,916 124,962
----------- -----------
Total current assets 11,377,956 12,082,180
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 729,972 542,175
Equipment 2,071,957 2,044,246
Capital leases and leasehold
improvements 6,328,865 5,905,011
----------- -----------
9,130,794 8,491,432
Less-Accumulated depreciation and
amortization (4,638,363) (2,981,528)
----------- -----------
4,492,431 5,509,904
----------- -----------
OTHER ASSETS:
Notes receivable, trade and affiliates 519,010 1,684,209
Intangible assets, less accumulated
amortization of $734,804 and $452,258
in 1996 and 1995, respectively 2,979,774 2,963,379
Deferred income taxes 250,000 1,627,033
Deposits and other assets 94,710 90,474
----------- -----------
$19,713,881 $23,957,179
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Notes payable and current portion of
long-term debt $ 3,411,474 $ 2,881,850
Capital lease obligations 1,376,715 931,341
Accounts payable 3,919,762 4,828,175
Accrued expenses 2,565,564 1,895,664
Customer deposits 1,710,962 1,605,034
Accrued taxes 161,180 203,201
----------- -----------
Total current liabilities 13,145,657 12,345,265
----------- -----------
LONG-TERM DEBT, net of current portion 1,086,432 3,783,732
above
CAPITAL LEASE OBLIGATIONS 2,324,115 3,438,265
NOTE PAYABLE TO SHAREHOLDER 5,000,000 5,000,000
DEFERRED INCOME TAXES 725,000 275,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, Class A, no par value,
2,500 shares authorized, 388 shares
issued at December 31, 1996 and 1995 3,205,500 3,205,500
Common stock, Class B, no par value,
500 shares authorized, 37.5 shares
issued and outstanding at December
31, 1996 and 1995 656,250 656,250
Retained deficit (4,922,318) (3,363,862)
Foreign currency translation adjustment (29,614) (29,371)
----------- -----------
(1,090,182) 468,517
Less- Treasury stock, 57.1992 and 54
shares of Class A common stock at
cost at December 31, 1996 and 1995,
respectively (1,477,141) (1,353,600)
----------- -----------
Total shareholders' deficit (2,567,323) (885,083)
$19,713,881 $23,957,179
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Equipment sales $ 5,684,398 $ 5,948,878 $ 6,227,817
Management and service fees 3,795,992 4,440,702 3,400,237
Franchise fees 154,475 12,750 560,759
Royalties 6,979,720 5,540,672 4,259,258
Service center sales 9,032,728 8,486,706 6,226,525
Gain on sale of assets 0 0 16,274
----------- ----------- -----------
Total revenues 25,647,313 24,429,708 20,690,870
----------- ----------- -----------
COST AND OPERATING EXPENSES:
Cost of goods and services 10,006,233 9,605,229 10,537,514
Selling and administrative expenses 14,215,335 13,977,554 14,471,812
----------- ----------- -----------
24,221,568 23,582,783 25,009,326
----------- ----------- -----------
Income (loss) from operations 1,425,745 846,925 (4,318,456)
INTEREST EXPENSE, net (886,025) (842,673) (574,367)
----------- ----------- -----------
Income (loss) before unusual item
and provision (benefit) for income
taxes 539,720 4,252 (4,892,823)
LOSS ON LITIGATION SETTLEMENT - (2,500,000) -
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 539,720 (2,495,748) (4,892,823)
PROVISION (BENEFIT) FOR INCOME TAXES 2,098,176 (724,007) (1,446,810)
----------- ----------- -----------
Net loss $(1,558,456) $(1,771,741) $(3,446,013)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
Class A Class B
----------------------- -----------------
Foreign
Currency
Retained Translation
Shares Amount Shares Amount Deficit Adjustment Total
-------- ---------- ------ -------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 354.5000 $2,715,750 37.5 $656,250 1,853,892 $ - $ 5,225,892
Issuance of stock 1 15,000 - - - - 15,000
Treasury stock transactions (33.0000) (1,022,600) - - - - (1,022,600)
Foreign currency translation
adjustment - - - - - (19,301) (19,301)
Net loss - - - - (3,446,013) - (3,446,013)
-------- ---------- ---- -------- ----------- -------- -----------
BALANCE AT DECEMBER 31, 1994 322.5000 1,708,150 37.5 $656,250 (1,592,121) (19,301) 752,978
Issuance of stock 11.5000 143,750 - - - - 143,750
Foreign currency translation
adjustment - - - - - (10,070) (10,070)
Net loss - - - - (1,771,741) - (1,771,741)
-------- ---------- ---- -------- ----------- -------- -----------
BALANCE AT DECEMBER 31, 1995 334.0000 1,851,900 37.5 656,250 (3,363,862) (29,371) (885,083)
Treasury stock transactions (3.1992) (123,541) - - - - (123,541)
Foreign currency translation
adjustment - - - - - (243) (243)
Net loss - - - - (1,558,456) - (1,558,456)
-------- ---------- ---- -------- ----------- -------- -----------
BALANCE AT DECEMBER 31, 1996 330.8008 $1,728,359 37.5 $656,250 $(4,922,318) $(29,614) $(2,567,323)
-------- ---------- ---- -------- ----------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,558,456) $(1,771,741) $(3,446,013)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities-
Depreciation and amortization 1,942,840 1,748,822 1,141,722
Loss (gain) on sale of assets 64,173 (33,590) 20,481
Deferred taxes 1,722,033 (915,089) (767,944)
Changes in operating assets and
liabilities-
Accounts receivable, net 263,531 (1,149,326) (542,526)
Refundable income taxes (45,000) 550,000 (550,000)
Inventories 169,816 (22,891) 1,215,262
Other assets (113,190) (149,512) 13,211
Accounts payable (908,413) 714,447 2,466,670
Accrued expenses 669,900 509,577 473,553
Customer deposits 105,928 296,017 299,444
Accrued taxes (42,021) 170,618 (245,138)
----------- ----------- -----------
Net cash provided by (used for)
operating activities 2,271,141 (52,668) 78,722
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 171,338 186,071 41,226
Decrease (increase) in advances to
affiliates 705,436 (1,885,855) (1,599,527)
Additions to property and equipment,
net (252,383) (42,935) (485,258)
Additions to intangibles (298,941) (175,998) (172,449)
Decrease in notes receivable, trade
and affiliate 1,087,266 957,194 (2,568,734)
----------- ----------- -----------
Net cash provided by (used for)
investing activities 1,412,716 (961,523) (4,784,742)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 395,000 4,150,942 7,869,865
Payments on notes payable and capital
leases (3,847,042) (3,466,297) (2,817,848)
Issuance of common stock - 143,750 15,000
Purchase of treasury stock (123,541) - (1,022,600)
----------- ----------- -----------
Net cash (used for) provided by
financing activities (3,575,583) 828,395 4,044,417
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Effect of exchange rate changes
on cash and cash equivalents $ (243) $ (10,070) $ (19,301)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 108,031 (195,866) (680,904)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 246,032 441,898 1,122,802
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 354,063 $ 246,032 $ 441,898
========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $1,664,346 $1,351,346 $1,097,519
Cash paid for income taxes $ 308,739 $ 60,735 $ 86,128
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996, 1995 and 1994
--------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Nature of the Business
- - ----------------------
Voice-Tel Enterprises, Inc. (the Company) is a franchisor and an operator of an
international network of voice messaging service centers. The Company provides
its franchisees, through metropolitan and local franchises, the right to use the
Voice-Tel name, the Voice-Tel system of operations, initial training programs
and continuing consultation and advisory services. The Company shares royalties
with metropolitan franchises for the support of metropolitan franchise regions.
The Company entered into its first franchise agreement in March 1987. Through
December 31, 1996, the Company had 144 franchise agreements outstanding (143 in
1995), including affiliates and company owned service centers.
During 1996 and 1995, the Company operated six voice messaging service centers
in the United States. Voice-Tel Pty. Ltd. (formally known as Voice-Tralia
Enterprises, Pty. Ltd.), a wholly owned subsidiary, operated 10 service centers
in Australia and New Zealand (11 in 1995). Revenues from direct sales to
service center customers are included in service center sales in the
accompanying consolidated statements of operations.
Principles of Consolidations
- - ----------------------------
The consolidated financial statements include the accounts of the Company and
Voice-Tel Pty. Ltd. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Inventories
- - -----------
Inventories consist of computer and communications equipment purchased for
resale to franchises. Inventory is stated at the lower of cost or market using
primarily the specific identification method.
Property and Equipment
- - ----------------------
Property and equipment are recorded at cost. Depreciation is computed
substantially by the straight-line method for financial accounting purposes to
amortize the cost of property and equipment over the estimated useful lives.
Assets under capital leases and leasehold improvements are amortized over the
lives of the respective leases. The following lives apply to these assets:
Furniture and fixtures 7 years
Equipment 5 years
Capital leases and leasehold
improvements 3 to 7 years
<PAGE>
In 1996, the Company adopted Statement of Financial Accounting Standards (FAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed of." FAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. Under provisions of FAS No. 121, impairment losses are
recognized when expected future cash flows are less than the assets' carrying
value. The adoption of FAS No. 121 did not impact the Company's financial
position.
The Company periodically reviews the values assigned to long-lived assets, such
as property and equipment 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.
Intangibles
- - -----------
Intangible assets are recorded at cost and primarily consist of goodwill
obtained as part of the acquisition of company service centers, start-up and
organizational costs incurred in developing Voice-Tel Pty Ltd. and software
development costs for administrative applications. Intangible assets are
amortized by the straight-line method from 5 to 20 years.
Currency Translation
- - --------------------
Assets and liabilities of the international subsidiary have been translated at
current exchange rates in effect as of the end of the year, and revenues and
expenses have been translated at average rates of exchange in effect during the
year. Resulting cumulative translation adjustments have been recorded as a
separate component of shareholders' deficit.
Management and Service Fees
- - ---------------------------
The Company receives management, sales and marketing and technical service fees
from affiliated companies (Note 2). The Company also earns service fee revenue
from its franchises, primarily through the National Accounts Program (NAP).
Franchise Fees and Royalties
- - ----------------------------
The Company recognizes initial franchise fees as revenue when substantially all
the initial services related to such fees have been performed. The costs of
providing initial services are accounted for as a cost of franchise sales.
Expenses associated with advertising for potential franchise owners, issuing
franchise agreements and providing ongoing services are charged to expense as
incurred.
Royalties are based on a percentage of franchise revenue and are recognized as
revenue during the period in which the related sales by the franchise occur.
Statements of Cash Flows
- - ------------------------
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of government backed securities which are not guaranteed.
The effect of noncash capital lease transactions have been omitted from the
statements of cash flows and are discussed below:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTMENT ACTIVITIES:
Leased asset additions and related
obligations $625,950 $1,575,420
======== ==========
</TABLE>
Accounting Estimates
- - --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
- - -----------------
Certain 1995 amounts in the accompanying financial statements have been
reclassified to conform with the current year's presentation.
2. RELATED PARTY TRANSACTIONS:
---------------------------
The Company is partially owned directly and indirectly by franchise owners who,
at December 31, 1996, are a party to or have entered into 25 franchise
agreements.
Transactions which have occurred through the ordinary course of franchise
operations between the Company, its shareholders, the National Accounts Program
and a company related by common ownership (discussed below) are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Royalties and equipment sales $1,004 $ 814 $1,175
Management and service fee revenue 3,550 4,227 3,247
Cost of goods and services (690) (566) (563)
Interest income 424 668 221
Receivable and payable balances with related parties at December 31 are as
follows (in thousands):
1996 1995
------ ------
Advances to affiliates $4,390 $4,946
Accounts receivable 83 92
------ ------
Total included in accounts
receivable $4,473 $5,038
====== ======
Notes receivable, current $2,365 $2,301
Notes receivable, noncurrent 444 1,569
------ ------
Total notes receivable $2,809 $3,870
====== ======
Accounts payable $ (76) $ (70)
</TABLE>
<PAGE>
Advances to affiliates and accounts receivable with related parties primarily
represent advances to Voice-Tel Network Limited Partnership (VTNLP) for the
development of a national voice messaging network. The general partnership
interest in VTNLP is owned by VTN, Inc., a company founded by certain
shareholders of the Company, and the limited partnership interest is owned by a
wholly owned subsidiary of a shareholder of the company.
In April 1994, the Company entered into a $3 million credit agreement with a
bank for the purpose of funding the purchase of equipment necessary to upgrade
VTNLP's national voice messaging network (Note 3). Concurrently, the Company
entered into a lease agreement with VTNLP to make payments to the Company equal
to the principal plus interest due to the bank. The balance outstanding on the
bank note at December 31, 1996 and 1995 of $928,588 and $1,785,724,
respectively, (Note 3) is due from the affiliate in monthly installments of
$71,428 and is included in the current and notes receivable balance
in the above table. Notes receivable also include advances which were due
November 30, 1996, bearing interest at 8% per annum.
The NAP, an association managed by the franchises and the Company, was developed
to increase market share of the Voice-Tel System by providing voice messaging
services to national accounts. Through 1993, the expenditures to develop and
expand this program were being funded by the Company. To offset these
expenditures, the Company received a percentage of national accounts billing and
other service fees from the franchises. The net cumulative funding deficiency at
December 31, 1993 was $1,081,659. Effective January 1, 1994, under agreement
between the Company and NAP, this balance was converted to a five-year note. The
note is being paid monthly and bears interest at the prime rate, adjusted
quarterly. The balance at December 31, 1996 and 1995 was $569,412 and $794,412,
respectively. During 1996 and 1995, the Company received a fee from the NAP of
$1,150,000 and $1,061,322, respectively, for management, accounting and billing
services.
During 1990, the Company entered into a "Service and Reseller Agreement" with
Amway Corporation (Amway) under which the Company will exclusively provide
certain products and services to Amway and its distributors for ultimate use and
resale to their customers under the Company's and Amway's owned tradenames and
trademarks. This agreement can be canceled with 6 months notice by mutual
agreement of the Company and Amway. Amway services represent approximately 52%
and 59% of the revenues derived by the Company's service centers and its
franchises for 1996 and 1995, respectively.
Franchises and company service centers contribute two percent of monthly sales
to a fund maintained by the Company for creation of advertising and promotional
material for the Voice-Tel System. Contributions generated from sales to
National Accounts are directed to the NAP.
<PAGE>
3. NOTES PAYABLE, LONG-TERM DEBT
AND CAPITAL LEASE OBLIGATIONS:
------------------------------
Notes payable and long-term debt consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to plaintiff for legal
settlement due in monthly installments
from September 1995 to April 1998, at
8% interest $1,434,082 $2,253,824
Notes payable to leasing companies, due
from March 1995 to April 2001, payable
in monthly installments, at interest
ranging from 9.5% to 18% 1,281,060 1,766,770
Note payable to bank due in monthly
installments from September 1994 to
March 1998, at prime plus a PR margin
(8.25% at December 31, 1996) 928,588 1,785,724
Note payable to bank due and payable on
demand, at prime plus 0.75% interest
(9% at December 31, 1996) 300,000 -
Note payable to supplier, due on demand
at 13% interest 226,323 226,323
Demand note payable to affiliate at 14%
interest 164,279 309,279
Note payable to shareholders for
partial stock redemptions, due in
monthly installments from April 1994
to August 1999, at 13% interest 143,043 185,742
Note payable to former owner of
acquired franchise operations, due in
monthly installments from March 1994 20,531 127,560
to February 1997, at 10% interest
Other - 10,360
---------- ----------
Total notes payable and debt 4,497,906 6,665,582
Less- Current portion 3,411,474 2,881,850
---------- ----------
Total long-term notes payable and
debt $1,086,432 $3,783,732
========== ==========
</TABLE>
<PAGE>
Capital lease obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Capital lease obligations $3,700,830 $4,369,606
Less- Current portion 1,376,715 931,341
---------- ----------
Total long-term capital lease
obligations $2,324,115 $3,438,265
========== ==========
Subordinated convertible note due to
shareholder in December 1999, at 6.25%
interest $5,000,000 $5,000,000
========== ==========
</TABLE>
In December 1994, the Company entered into a $5 million subordinated convertible
note with a shareholder which remains in effect until December 1999. The note
bears interest at 6.25% due on the first business day each quarter. If interest
payments are not made currently, the shareholder can demand full payment of the
note immediately or the interest rate is increased to prime plus 4%. The
shareholder has the right at any time to convert the outstanding loan balance
into equity of the Company and of VTN, Inc.
The Company has a $1.5 million demand note (Agreement) with a bank. Borrowings
outstanding under the Agreement are limited to 80% of eligible receivables plus
35% of eligible inventory not to exceed $500,000. At December 31, 1996, the
available credit under these terms was $1.2 million and $300,000 borrowings were
outstanding. The Agreement has various covenants which limit the Company's
ability to advance funds to affiliated entities, guaranty indebtedness of
others, dispose of properties and merge with another corporation. Borrowings
are secured by certain receivables, inventory, furniture and fixtures and
equipment. At December 31, 1996, the Company was in violation of certain
covenants.
In April 1994, the Company entered into a $3 million credit agreement with a
bank for the purpose of funding the upgrade for VTNLP's national voice messaging
network (Note 2). The affiliate assumes all principal and interest obligations
due under the note. The note is due March 1998 and bears interest at prime plus
a PR margin. The PR margin ranges from 0% to 1-1/2%. The rate at December 31,
1996 was 8.25%. The credit agreement has various covenants which limit the
Company's ability to advance funds to affiliated entities, guaranty indebtedness
of others, dispose of properties and merge with another corporation. The
Company is also required to maintain certain financial ratios as defined in the
credit agreement. The Company was in violation of these covenants at December
31, 1996. The bank has not requested acceleration of payment. However, the
entire amount outstanding on the note, $928,588, has been classified as current
in notes payable and current portion of long-term debt on the accompanying
consolidated balance sheets.
On September 1, 1995, the Company settled a lawsuit for monthly payments over
the next 33 months aggregating $2,500,000 plus interest at 8%. The Company
originally commenced this action to seek a declaratory judgment that no joint
venture agreement or other relationship existed with the defendant relative to
the development of any international markets. Without admitting liability, the
Company agreed to this settlement subsequent to a jury verdict against it for
breach of contract in the amount of $5,280,580. Should the Company default on
its obligation under the settlement agreement, it may be liable for the full
amount of the jury verdict. The settlement also provides for the acceleration
of payments if certain assets are sold during the settlement payment period.
The Company's lenders agreed to waive any violation or event of default that may
occur as a result of this settlement.
<PAGE>
Under certain notes payable and capital lease obligations specific receivables,
inventory, furniture and fixtures and equipment have been pledged as security.
The aggregate maturities of notes payable, long-term debt, capital leases, the
demand note and the subordinated convertible note at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Debt Leases Total
---------- ---------- -----------
<S> <C> <C> <C>
1997 $3,411,474 $1,376,715 $ 4,788,189
1998 814,273 1,213,326 2,027,599
1999 5,210,239 906,195 6,116,434
2000 47,938 200,843 248,781
2001 and thereafter 13,982 3,751 17,733
---------- ---------- -----------
Total $9,497,906 $3,700,830 $13,198,736
========== ========== ===========
</TABLE>
Approximately $1,470,000 and $1,620,000 of interest expense was incurred during
1996 and 1995, respectively, and is included in the accompanying consolidated
statements of operations.
4. COMMITMENTS AND CONTINGENCIES:
------------------------------
Lease Agreements
- - ----------------
The Company leases various equipment and office facilities under operating lease
arrangements expiring between 1997 and 2001. The future value of net minimum
annual rentals under these lease arrangements at December 31, 1996 are
approximately $884,000 for 1997; $775,000 for 1998; $677,000 for 1999; $283,000
for 2000 and $25,000 for 2001.
Rental expense under operating leases for 1996 and 1995 was approximately
$896,000 and $864,000, respectively.
The Company has agreed to remarket certain equipment acquired by leasing
companies in the event of default by certain franchisees. If the equipment is
not remarketed within ninety days, the Company will make monthly lease payments
until the equipment is remarketed. The total of contingent lease payments under
these agreements is approximately $627,000 in 1997; $466,000 in 1998; $281,000
in 1999; $184,000 in 2000 and $66,000 in 2001 and thereafter, of which $255,000
represents interest through the final maturity of each lease. At December 31,
1996, there were no franchises in default of their lease agreement.
Source of Supplies
- - ------------------
The Company does not own a transmission network and, accordingly, relies on both
facilities-based and nonfacilities-based local and long-distance carriers and
other companies to provide transmission of its voice messaging subscribers.
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.
<PAGE>
Factors Impacting Future Success
- - --------------------------------
The future success of the Company is dependent upon a number of factors,
including the effect of rapid technology changes affecting the markets for the
Company'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; effects of intense competition in information and telecommunication
services markets, including, among other things, the consequent effects on the
prices that the Company may charge for its products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
5. INCOME TAXES:
-------------
All income tax amounts and balances have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The income tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ------------
Current:
<S> <C> <C>
Federal $ 111,000 $ 68,000 $ (667,000)
State and local 129,000 25,000 35,000
International 42,354 25,000 0
---------- --------- -----------
282,354 118,000 (632,000)
---------- --------- -----------
Deferred:
Federal 475,000 (378,000) (53,000)
International 1,340,822 (464,007) (761,810)
---------- --------- -----------
1,815,822 (842,007) (814,810)
---------- --------- -----------
$2,098,176 $(724,007) $(1,446,810)
========== ========= ===========
</TABLE>
The 1995 tax benefit is lower than the amounts otherwise calculated using the
statutory income tax rates due primarily to certain expenses which are not
deductible in part or in full due to the tax regulations.
The 1996 and 1995 tax provision (benefit) and deferred income taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes. Significant components of the Company's deferred income tax assets
and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
Deferred tax assets (liabilities):
Current-
<S> <C> <C>
Vacation accruals $ 133,000 $ 105,000
Settlement accrual 383,000 279,000
Other assets 128,000 111,000
Other liabilities (219,000) (175,000)
--------- ---------
Total $ 425,000 $ 320,000
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Noncurrent-
Settlement accrual $ 105,000 $ 488,000
Other 145,000 (108,000)
Voice-Tel Pty. Ltd. deferred tax asset 1,723,463 1,247,033
Valuation allowance (1,723,463) -
----------- ----------
$ 250,000 $1,627,033
=========== ==========
Property and equipment depreciation $ (405,000) $ (237,000)
Intangible asset amortization (153,000) (30,000)
Other (167,000) (8,000)
----------- ----------
$ (725,000) $ (275,000)
=========== ==========
</TABLE>
In 1996 and 1995, Voice-Tel Pty. Ltd. incurred losses before benefit of income
taxes of approximately $1,459,000 and $1,356,000, respectively. Voice-Tel Pty
Ltd.'s operating results for 1996 were significantly lower than projections as
the expected growth in business volume has not materialized. A valuation
allowance against the total amount of Voice-Tel Pty. Ltd.'s net deferred tax
asset has been established due to management's uncertainty regarding the future
operations of Voice-Tel Pty. Ltd. and whether future operating income generated
by Voice-Tel Pty. Ltd. can be generated in order to realize the deferred tax
asset of $1,723,463. Accordingly, the Company recorded a provision of $1,340,822
for Voice-Tel Pty. Ltd. in 1996 to reflect the establishment of the valuation
allowance.
At December 31, 1996, the Company has tax net operating loss credit
carryforwards in Australia and in New Zealand of approximately $1,821,000 and
$945,000, respectively. Australian and New Zealand tax regulations do not limit
the carryforward period.
6. CAPITAL STOCK:
--------------
In October 1991, the shareholders of the Company approved a Non-Qualified and
Incentive Stock Option Plan (Plan) to encourage key employees and officers of
the Company to acquire or increase their ownership of common stock of the
Company. The Plan provides stock options for an aggregate of 36 shares of Class
A Common Stock. The Plan provides for various vesting periods up to fifty
months. In the event of a change in control, all options are immediately
vested. In November 1991, under the Plan, the Company granted options to
purchase 11.5 of its shares at $12,500 per share. These shares were exercised
during 1995. In January 1993 under the Plan, the Company granted options to
purchase 3.5 of its shares at $15,000 per share exercisable prior to January 11,
1998. In June 1994, under the Plan, the Company granted options to purchase
eight of its shares at $31,000 per share exercisable prior to June 28, 2004. In
July 1995, under the Plan, the Company granted options to purchase 2.5 of its
shares at $31,000 per share exercisable prior to July 11, 2005. In March 1996,
under the Plan, the Company granted options to purchase four of its shares at
$31,000 per share exercisable prior to March 29, 2006.
In 1996, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (FAS) No. 123, "Accounting for Stock Based
Compensation." FAS No. 123 requires that compensation expense in relation to
stock option plans be determined based on the fair value at the grant date.
Management's pricing model was used to determine that the pro forma impact of
compensation expense from options granted was immaterial.
<PAGE>
In March and August of 1994, the Company redeemed 13.5 and 19.5, respectively,
of the Company's common shares from certain shareholders in exchange for notes
payable of $418,000 and $604,500, respectively, (Note 3). The redemption
allowed the Company to repurchase its stock from certain shareholders that had
acquired the stock in connection with the repurchase of franchised service
centers owned by the shareholders. These shares are classified as treasury
stock in the accompanying consolidated financial statements. This transaction
has been accounted for on the cost method.
In September 1989, nonvoting Class B stock was issued and is subject to a stock
sale agreement which includes a provision granting the shareholder the right to
redeem three shares annually for a 10-year period (the redemption period); and
the Company the right to call any amount of the shares during the redemption
period. The initial redemption and call price was $17,500 per share, to be
adjusted each year based upon the change in the Consumer Price Index. No shares
have been called or redeemed as of December 31, 1996. In 1991, Class B shares
were issued in conjunction with an acquisition which are subject to a put and
call arrangement similar to above.
In April 1995, the Company entered into a separation agreement with an officer
which grants the officer the right beginning January 31, 1996 to redeem 16
shares. The officer, under the agreement, can put .2666 shares per month for 59
months and .2706 shares in the last month and the Company will pay $10,295.09
per month. As of December 31, 1996, 3.1992 shares were put to the Company. The
Company has the right any time to call all or any portion of the shares for a
purchase price of $31,000 per share, subject to adjustment in the event of a
reappraisal as a result of reorganization.
Certain stock transfer restriction agreements have limited the transfer of Class
A shares by allowing the Company and other shareholders the opportunity to
repurchase shares prior to their being offered to an outside person or entity.
The agreement also calls for mandatory repurchase of shares upon the death of
the shareholder. The purchase price to be paid for any redemptions is
determined annually by the shareholders.
7. EMPLOYEE BENEFIT PLAN:
----------------------
Effective May 1, 1993, the Company established an employee savings plan, which
was created under Section 401(k) of the Internal Revenue Code. All employees
who are twenty-one years of age, have completed 90 days of service and worked a
minimum of 500 hours annually are eligible to participate in the plan.
Participants may elect to defer 15% of compensation up to a maximum amount
determined annually pursuant to IRS regulations. For the year ended December
31, 1996, the Company made discretionary matching contributions to the plan
totaling approximately $41,000.
8. SUBSEQUENT EVENT:
-----------------
In April 1997, the Company entered into a definitive agreement to merge with
Premiere Technologies, Inc. (Premiere) in exchange for 729,734 shares of
Premiere common stock. On April 30, 1997, this merger transaction was
consummated. The merger will be accounted for under the pooling of interests
method. Immediately prior to closing the transaction, the Company called the
Class B shares pursuant to the Class B call provisions (Note 6); called the
remaining shares owned by a former officer of the Company pursuant to the
separation agreement (Note 6) reacquired 4.5 shares of treasury stock from a
shareholder; and paid in full the note payable to plaintiff for legal settlement
pursuant to the note agreement (Note 3).
<PAGE>
Additionally, the Company's shareholder converted its $5 million convertible
outstanding note into 95.75 shares of Class A common stock and 78.25 shares of
VTN, Inc. Class A common stock. Immediately following the transaction, Premiere
paid off the note payable to the bank (Note 3).
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATING BALANCE SHEET
---------------------------
DECEMBER 31, 1996
-----------------
ASSETS
------
<TABLE>
<CAPTION>
Voice-Tel
VTE Pty. Ltd. Eliminations Consolidated
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 354,063 $ - $ 354,063
Accounts receivable, trade and
advances to affiliates, less
allowance for doubtful accounts 12,075,473 212,082 (5,093,498) 7,194,057
Notes receivable, trade and affiliates 2,426,655 - - 2,426,655
Refundable income taxes 45,000 - - 45,000
Inventories 699,265 - - 699,265
Deferred income taxes 425,000 - - 425,000
Other assets 197,060 51,856 (15,000) 233,916
----------- ----------- ----------- -----------
Total current assets 15,868,453 618,001 (5,108,498) 11,377,956
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 704,559 25,413 - 729,972
Equipment 1,969,066 102,891 - 2,071,957
Capital leases and leasehold
improvements 2,713,317 3,615,548 - 6,328,865
----------- ----------- ----------- -----------
5,386,942 3,743,852 - 9,130,794
Less- Accumulated depreciation and
amortization (3,081,367) (1,556,996) - (4,638,363)
----------- ----------- ----------- -----------
2,305,575 2,186,856 - 4,492,431
----------- ----------- ----------- -----------
OTHER ASSETS:
Notes receivable, trade and affiliates 519,010 - - 519,010
Intangible assets, less accumulated
amortization 2,783,776 261,856 (65,858) 2,979,774
Deferred income taxes 250,000 - - 250,000
Deposits and other assets 22,982 71,728 - 94,710
----------- ----------- ----------- -----------
$21,749,796 $ 3,138,441 $(5,174,356) $19,713,881
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
VOICE-TEL ENTERPRISES, INC.
---------------------------
CONSOLIDATING BALANCE SHEET
---------------------------
DECEMBER 31, 1996
-----------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
VOICE-TEL
VTE PTY. LTD. ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 3,411,474 $ - $ - $ 3,411,474
Capital lease obligations 604,768 771,947 - 1,376,715
Accounts payable 3,632,025 5,381,235 (5,093,498) 3,919,762
Accrued expenses 1,735,604 829,960 - 2,565,564
Customer deposits 1,710,962 - - 1,710,962
Accrued taxes 161,180 - - 161,180
----------- ----------- ----------- -----------
Total current liabilities 11,256,013 6,983,142 (5,093,498) 13,145,657
----------- ----------- ----------- -----------
LONG-TERM DEBT, net of current portion
above 1,086,432 - - 1,086,432
CAPITAL LEASE OBLIGATIONS 710,092 1,614,023 - 2,324,115
NOTE PAYABLE TO SHAREHOLDER 5,000,000 - - 5,000,000
DEFERRED INCOME TAXES 725,000 - - 725,000
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, Class A 3,205,500 15,000 (15,000) 3,205,500
Common stock, Class B 656,250 - - 656,250
Retained earnings (deficit) 587,650 (5,444,110) (65,858) (4,922,318)
Foreign currency translation adjustment - (29,614) - (29,614)
----------- ----------- ----------- -----------
4,449,400 (5,458,724) (80,858) (1,090,182)
Less- Treasury stock, at cost (1,477,141) - - (1,477,141)
----------- ----------- ----------- -----------
Total shareholder's equity (deficit) 2,972,259 (5,458,724) (80,858) (2,567,323)
----------- ----------- ----------- -----------
$21,749,796 $ 3,138,441 $(5,174,356) $19,713,881
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
LAR-LIN Enterprises, Inc. d.b.a.
Voice-Tel of Kansas City,
LAR-LIN Investments, Inc. d.b.a.
Voice-Tel of Wichita and
Voice-Tel of Springfield, and
Voice Mail Solutions, Inc. d.b.a.
Voice-Tel of Kansas City Acquisition:
We have audited the accompanying combined balance sheet of LAR-LIN ENTERPRISES,
INC. d.b.a. VOICE-TEL OF KANSAS CITY (a Kansas S corporation), LAR-LIN
INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND VOICE-TEL OF SPRINGFIELD (a
Kansas C corporation), AND VOICE MAIL SOLUTIONS, INC. d.b.a. VOICE-TEL OF KANSAS
CITY ACQUISITION (a Kansas S corporation) as of December 31, 1996 and the
related combined statements of operations, shareholders' equity, and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of LAR-LIN
Enterprises, Inc., LAR-LIN Investments, Inc., and Voice Mail Solutions, Inc. as
of December 31, 1996 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The financial statements for the three-month period ended March 31, 1997 were
compiled by us. A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We did not
audit or review those financial statements, and accordingly, we do not express
an opinion or any other form of assurance on them.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 12, 1997
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
- - ------------------------------------------------------------------------------------------- ----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $183,732 $ 89,877
Accounts receivable, less allowance for uncollectible accounts of $0 in 1996
and 1997 125,929 114,355
Other current assets 10,408 9,611
---------- ----------
Total current assets 320,069 213,843
---------- ----------
PROPERTY AND EQUIPMENT (NOTE 5) 678,044 682,647
Less accumulated depreciation (332,794) (362,649)
---------- ----------
Net property and equipment 345,250 319,998
---------- ----------
OTHER ASSETS:
Franchise fee, net of accumulated amortization of $43,137 and $45,378 in 1996
and 1997, respectively 136,113 133,872
Other noncurrent assets 147,875 123,111
---------- ----------
Total other assets 283,988 256,983
---------- ----------
Total assets $949,307 $790,824
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1997
- - ------------------------------------------------------------------------------------------ ---------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,170 $ 24,884
Accrued liabilities 17,066 6,582
Deferred revenue 77,723 67,817
Notes payable (Note 6) 412,298 175,595
---------- ----------
Total current liabilities 514,257 274,878
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock:
LAR-LIN Enterprises, Inc. d.b.a. Voice-Tel of Kansas City, $1 par value;
2,000 shares authorized; 1,000 shares issued and outstanding in 1996 and
1997 1,000 1,000
LAR-LIN Investments, Inc. d.b.a. Voice-Tel of Wichita and Voice-Tel of
Springfield, $1 par value; 100 shares issued and outstanding in 1996 and
1997 100 100
Voice Mail Solutions, Inc. d.b.a. Voice-Tel of Kansas City Acquisition, $1
par value; 100 shares issued and outstanding in 1996 and 1997 100 100
Additional paid-in capital 171,462 171,462
Retained earnings 262,388 343,284
---------- ----------
Total shareholders' equity 435,050 515,946
---------- ----------
Total liabilities and shareholders' equity $949,307 $790,824
========= ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(Unaudited)
<S> <C> <C>
REVENUES $1,724,253 $421,358
COST OF SALES 341,730 68,285
----------- ---------
Gross margin 1,382,523 353,073
----------- ---------
OPERATING EXPENSES:
Selling and marketing 247,494 46,889
General and administrative 535,856 137,026
Depreciation and amortization 219,427 56,308
----------- ---------
Total operating expenses 1,002,777 240,223
----------- ---------
OPERATING INCOME 379,746 112,850
----------- ---------
OTHER (EXPENSE) INCOME:
Interest expense (43,111) (2,840)
Interest income 2,667 795
Other income 6,085 2,535
----------- ---------
Total other (expense) income (34,359) 490
----------- ---------
NET INCOME $ 345,387 $113,340
=========== =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LAR-LIN LAR-LIN INVESTMENTS, VOICE MAIL SOLUTIONS,
ENTERPRISES, INC. INC. d.b.a. VOICE-TEL OF INC. d.b.a. VOICE-TEL
d.b.a. VOICE-TEL OF WICHITA AND VOICE-TEL OF KANSAS CITY ADDITIONAL
KANSAS CITY OF SPRINGFIELD ACQUISITION PAID-IN RETAINED
------------------- ----------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- --------- ---------- ------------ ------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 1,000 $1,000 100 $100 100 $100 $171,462 $ 43,177 $215,839
Net income 0 0 0 0 0 0 0 345,387 345,387
Dividends to
shareholders 0 0 0 0 0 0 0 (126,176) (126,176)
-------- ---------- ---------- ------------ ------- ----------- ----------- ---------- -------
BALANCE, DECEMBER 31,
1996 1,000 $1,000 100 $100 100 $100 $171,462 $262,388 $435,050
-------- ---------- ---------- ------------ ------- ----------- ----------- ---------- -------
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $345,387 $113,340
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 219,427 56,308
Changes in operating assets and liabilities:
Decrease in accounts receivable 6,490 11,574
Increase in other current assets 19,593 1,349
Increase in accounts payable and accrued expenses 1,102 7,230
Deferred revenue (1,217) (9,906)
---------- ----------
Total adjustments 245,395 66,555
---------- ----------
Net cash provided by operating activities 590,782 179,895
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (74,082) (4,603)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (255,005) (236,703)
Dividends paid to shareholders (126,176) (32,444)
---------- ----------
Net cash used in financing activities (381,181) (269,147)
---------- ----------
NET INCREASE (DECREASE) IN CASH 135,519 (93,855)
CASH AT BEGINNING OF PERIOD 48,213 183,732
---------- ----------
CASH AT END OF PERIOD $183,732 $ 89,877
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 41,480 $ 2,840
========== ==========
Cash paid for taxes $ 0 $ 0
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
LAR-LIN ENTERPRISES, INC. d.b.a. VOICE-TEL OF KANSAS CITY,
LAR-LIN INVESTMENTS, INC. d.b.a. VOICE-TEL OF WICHITA AND
VOICE-TEL OF SPRINGFIELD, AND VOICE MAIL SOLUTIONS, INC. d.b.a.
VOICE-TEL OF KANSAS CITY ACQUISITION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
ORGANIZATION
LAR-LIN Enterprises, Inc. d.b.a. Voice-Tel of Kansas City ("LLE"), LAR-LIN
Investments, Inc. d.b.a. Voice-Tel of Wichita and Voice-Tel of Springfield
("LLI"), and Voice Mail Solutions, Inc. d.b.a. Voice-Tel of Kansas City
Acquisition ("VMS") are separate corporations which have common ownership and
are collectively referred to herein as the "Companies." LLE, LLI, and VMS
were incorporated in Kansas on June 5, 1990, March 2, 1995, and July 17,
1995, respectively.
NATURE OF BUSINESS
The Companies provide digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Companies' computer processing equipment using commercially available
telephone lines. Effective July 6, 1990, LLE acquired the franchise rights
to solicit and provide Voice-Tel services. Effective September 24, 1992, LLE
acquired the franchise rights of Voice-Tel of Wichita. On August 2, 1994,
LLE purchased the rights of Voice-Tel of Springfield from Voice-Tel of Little
Rock. In March 1995, Voice-Tel of Wichita and Voice-Tel of Springfield were
incorporated into a separate corporation, LLI. The Companies primarily
operate in the states of Kansas and Missouri.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of LLE, LLI, and VMS in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
management of the Companies, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included and the accompanying
financial statements present fairly the financial position and results of
operations for the interim period presented. The March 31, 1997 financial
<PAGE>
-2-
statements should be read in conjunction with the December 31, 1996 financial
statements and related notes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRESENTATION
The accompanying combined financial statements of the Companies are prepared
on the accrual basis of accounting and present their combined assets,
liabilities, revenues, expenses, and cash flows as if the Companies existed
as separate corporations during the periods presented.
The financial information included herein may not necessarily reflect the
financial position, results of operations, or cash flows of the Companies in
the future or what the financial position, results of operations, or cash
flows of the Companies would have been if they were combined as separate and
stand-alone companies during the periods presented.
PRINCIPLES OF COMBINATION
The financial statements include the accounts of LLE, LLI, and VMS. All
significant intercompany balances and transactions have been eliminated in
combination.
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 installed or placed in service. The estimated
useful lives are five years for furniture and fixtures, office equipment, and
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
terms of the related leases.
LONG-LIVED ASSETS
The Companies periodically review the values assigned to long-lived assets,
such as property and equipment, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
<PAGE>
-3-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt approximates its carrying value as of
December 31, 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Companies perform services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying combined balance sheets as deferred revenue. These revenues
are recognized when the related service is provided. The majority of the
Companies' customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all direct expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INTANGIBLE ASSETS
Purchased intangible assets, which include franchise agreements, are recorded
at cost. Intangible assets are amortized using the straight-line method over
the estimated useful lives of the related assets or terms of the related
agreements (ten years for franchise agreements).
INCOME TAXES
LLE and VMS have elected to be treated as S corporations for federal and
state income tax purposes. As such, in lieu of corporate income tax
consequences arising at the Companies' level, the individual shareholders are
allocated their proportionate shares of the Companies' taxable income or
loss.
LLI has elected to be treated as a C corporation for federal and state income
tax purposes. LLI utilizes the liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Using the liability method, deferred taxes
are determined based on the difference between the financial and tax bases of
assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. As of December 31, 1996, no
deferred taxes have been recorded due to immateriality.
REGULATION
The Companies are subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Companies do not own a transmission network and, accordingly, rely on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of their subscribers'
<PAGE>
-4-
voice messaging. Although management believes 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.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Companies is dependent upon a number of factors,
including the effect of rapid technological changes affecting the markets for
the Companies' 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; effects of intense competition in information and
telecommunications services markets, including, among other things, the
consequent effects on the prices that the Companies may charge for their
products and services; the effect of regulatory changes in the
telecommunications industry; and the risk of dependence on key managerial
personnel.
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Companies' risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts.
Approximately 48% of the Companies' sales were derived from a single national
account during 1996. Although this entity is a single national account that
is managed on a collective basis, it is actually comprised of a large number
of individual subscribers located throughout all franchise territories,
including those operated by other Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
Franchise rights were acquired pursuant to franchise agreements entered into
with VTE (Note 1) in July 1990 by LLE and in March 1995 and July 1995 by LLI.
Under the franchise agreements, the Companies have the exclusive rights to
solicit and provide Voice-Tel digital messaging services within the specified
areas. The terms of the franchise agreements are 20 years, with an option to
renew for an additional 10 years. In addition to the initial franchise fees,
which are being amortized over the terms of the agreements, the Companies are
required to pay a monthly royalty in an amount equal to 10% of gross sales,
less certain costs. A monthly marketing and promotion fee of 2% of gross
sales is also payable to VTE.
In return for the Companies' acting as VTE's exclusive service
representatives and supervising operations of the local franchises, VTE pays
the Companies a continuing fee equal to 40% to LLE and 20% to LLI of the
royalties received by VTE on gross sales, less certain costs, for the terms
of the franchise agreements. The Companies are periodically required to pay
other special franchise fees and assessments. During 1996, royalties,
franchise fees, and other assessments totaled approximately $180,000, net of
any service representative fees received. In addition, the franchise
<PAGE>
-5-
agreements contain a covenant not to compete for up to three years subsequent
to the termination of such agreement.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Telephone equipment $619,223
Furniture and fixtures 58,821
----------
Total property and equipment 678,044
Less accumulated depreciation (332,794)
----------
Property and equipment, net $345,250
==========
</TABLE>
6. NOTES PAYABLE
Notes payable at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Revolving credit facility with NationsBank West N.A. in
the amount of $250,000 with interest at the maximum
published Wall Street Journal prime rate (8.25% at
December 31, 1996); payable in full on June 30, 1997 $202,042
Demand note payable to Elachie, Inc. on demand with
interest at 6% 170,613
Line of credit with Linda C. Roaseau Revocable Living
Trust in the amount of $115,867 with interest at a rate
of 8%; the balance outstanding is payable on demand 39,443
Shareholder notes 200
----------
$412,298
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Companies lease certain facilities used in their operations under
noncancelable operating lease agreements. Future minimum annual rental
obligations under noncancelable operating leases as of December 31, 1996 are
as follows:
<PAGE>
-6-
<TABLE>
<S> <C>
1997 $56,846
1998 19,492
1999 15,000
2000 6,240
2001 2,100
Thereafter 0
---------
$99,678
=========
</TABLE>
Rental expense was approximately $64,000 during 1996.
8. RELATED-PARTY TRANSACTIONS
LLI and VMS pay management fees and equipment lease fees to LLE for providing
certain administrative services and equipment. All intercompany revenues and
expenses have been eliminated in the accompanying combined financial
statements.
9. SUBSEQUENT EVENT
On May 16, 1997, the Companies entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $4,300,000. The merger has been
accounted for using the pooling-of-interests method.
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Voice-Tel of South Texas:
We have audited the accompanying balance sheet of VOICE-TEL OF SOUTH TEXAS, INC.
(a Texas S corporation) as of December 31, 1996 and the related statements of
operations, shareholder's equity, and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Voice-Tel of South Texas, Inc.
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 6, 1997
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 71,754 $ 66,513
Accounts receivable, less allowance for
uncollectible accounts of $0 in 1996 and 1997 44,089 44,307
Prepaid expenses and other current
assets 2,900 3,050
---------- -----------
Total current assets 118,743 113,870
---------- -----------
PROPERTY AND EQUIPMENT (NOTE 5) 402,155 403,087
Less accumulated depreciation (272,388) (292,810)
---------- -----------
Net property and equipment 129,767 110,277
---------- -----------
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $29,362 AND $30,710 IN 1996
AND 1997, RESPECTIVELY 67,011 65,663
---------- -----------
Total assets $ 315,521 $ 289,810
========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 8,222 $ 7,325
Deferred revenue 2,576 2,576
---------- -----------
Total current liabilities 10,798 9,901
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDER'S EQUITY:
Common stock (Note 7) 225,000 225,000
Retained earnings 79,723 54,909
---------- -----------
Total shareholder's equity 304,723 279,909
---------- -----------
Total liabilities and shareholder's
equity $ 315,521 $ 289,810
========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
--------- -----------
(Unaudited)
<S> <C> <C>
REVENUES $531,702 $139,070
COST OF SALES 86,826 19,416
--------- -----------
Gross margin 444,876 119,654
--------- -----------
OPERATING EXPENSES:
Selling and marketing 83,022 24,362
General and administrative 115,950 28,371
Depreciation and amortization 87,110 21,735
--------- -----------
Total operating expenses 286,082 74,468
--------- -----------
NET INCOME $158,794 $ 45,186
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 1,000 $225,000 $ 100,929 $ 325,929
Shareholder's contributions 0 0 0 0
Dividends to shareholder 0 0 (180,000) (180,000)
Net income 0 0 158,794 158,794
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1996 1,000 $225,000 $ 79,723 $ 304,723
====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 158,794 $ 45,186
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 87,110 21,735
Changes in operating assets and liabilities:
Increase in accounts receivable (12,014) (218)
Increase in prepaid assets (457) (150)
Increase (decrease) in accrued expenses 6,971 (897)
Decrease in deferred revenue (1,001) 0
----------- -----------
Total adjustments 80,609 20,470
----------- -----------
Net cash provided by operating activities 239,403 65,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (83,457) (897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to shareholder (180,000) (70,000)
----------- -----------
NET DECREASE IN CASH (24,054) (5,241)
CASH AT BEGINNING OF PERIOD 95,808 71,754
----------- -----------
CASH AT END OF PERIOD $ 71,754 $ 66,513
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 0 $ 0
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-TEL OF SOUTH TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
Voice-Tel of South Texas, Inc. is an S corporation referred to
herein as the "Company." The Company was incorporated in Texas on July 20,
1992.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system
operates on the Company's computer processing equipment using commercially
available telephone lines. The Company provides digital messaging services
to the greater metropolitan San Antonio area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of Voice-Tel of South Texas, Inc. in accordance with the
rules and regulations of the Securities and Exchange Commission. In
the opinion of the management of the Company, all adjustments (consisting
only of normal recurring adjustments) considered necessary for fair
presentation of the March 31, 1997 financial statements have been included,
and the accompanying financial statements present fairly the financial
position and the results of operations for the interim period presented. The
March 31, 1997 financial statements should be read in conjunction with the
December 31, 1996 audited financial statements and related footnotes
contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
-2-
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 installed or placed in service. The estimated
useful lives are seven years for furniture and fixtures, five years for
office and computer equipment, and three years for computer software. The
cost of installed equipment includes expenditures for installation. Assets
recorded under leasehold improvements are depreciated over the shorter of
their useful lives or the term of the related lease.
INTANGIBLE ASSETS
Purchased intangible assets, which include a franchise agreement, are
recorded at cost. Intangible assets are amortized using the straight-line
method over the estimated useful lives of the related assets or term of the
agreement (20 years for the franchise agreement).
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreement $ 85,000
Start-up costs 10,263
Organization cost 1,110
Less accumulated amortization (29,362)
---------
Intangibles, net $ 67,011
=========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment and
intangible assets, for impairment at each balance sheet date or whenever
events or changes in circumstances indicate that the carrying amount of an
asset should be assessed. An impairment is recognized when the undiscounted
estimated future cash flows are insufficient to recover the current carrying
amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheets as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice messaging
services, including long-distance carrier costs and applicable taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholder is
allocated the Company's taxable income.
<PAGE>
-3-
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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
the Company'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; effects of intense competition in information and
telecommunications services markets, including, among other things, the
consequent effects on the prices that the Company may charge for its products
and services; the effect of regulatory changes in the telecommunications
industry; and the risk of dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist only of accounts receivable, as collateral is not
required. The Company's risk of loss is limited due to advance billings to
customers and the ability to terminate access on delinquent accounts.
Approximately 82% of the Company's sales were derived through one single
entity during 1996. Although this entity is a single national account that
is managed on a collective basis, it is actually comprised of a large number
of individual subscribers located throughout all franchise territories,
including those operated by other Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement entered
into with VTE (Note 1). The term of the franchise agreement is 20 years with
an option to renew the agreement for an additional 10 years. The Company is
required to pay a monthly royalty in an amount equal to 10% of gross sales,
less certain costs. In addition, the Company is required to pay a monthly
marketing and promotion fee of 2% of gross sales. The Company is
periodically required to pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreement, the Company has
agreed to act as the service representative of VTE within its franchise area.
As consideration for this,
<PAGE>
-4-
the Company receives a monthly fee equal to 20% of the royalties it pays to
VTE. During 1996, royalties, franchise fees, and other assessments totaled
$63,474, net of any service representative fees received.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Computer software $ 209,126
Messaging computer systems 180,903
Office furniture, fixtures, and equipment 6,091
Leasehold improvements 6,035
----------
402,155
Less accumulated depreciation (272,388)
----------
Property and equipment, net $ 129,767
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into an operating lease for the facility used in its
operations. Aggregate future minimum rental commitments under this
noncancelable operating lease which expires on October 1, 1997 are $7,056 as
of December 31, 1996. Rental expense under operating leases amounted to
$12,835 for the year ended December 31, 1996.
7. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996 for
the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
PAR CONTRIBUTED
SHARES VALUE FOR
SHARES ISSUED AND PER COMMON
AUTHORIZED OUTSTANDING SHARE STOCK
---------- ----------- ----- -----------
<S> <C> <C> <C>
1,000,000 1,000 $0.01 $225,000
</TABLE>
<PAGE>
-5-
8. SUBSEQUENT EVENT
On May 21, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares
of Premiere stock with a value of approximately $1,337,000. The acquisition
has been accounted for using the pooling-of-interests method.
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
MMP Communications, Inc. d.b.a. Voice-Tel of Southern California:
We have audited the accompanying balance sheet of MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA (a California S corporation) as of
December 31, 1996 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 MMP Communications, Inc. d.b.a.
Voice-Tel of Southern California as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 6, 1997
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 74,699 $ 38,564
Accounts receivable, less allowance for uncollectible accounts of $2,223
in 1996 and 1997 100,882 98,961
Other current assets 1,459 1,459
---------- -----------
Total current assets 177,040 138,984
---------- -----------
PROPERTY AND EQUIPMENT (NOTE 5) 312,857 312,857
Less accumulated depreciation (186,833) (201,463)
---------- -----------
Net property and equipment 126,024 111,394
---------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of $74,148 and $78,808
in 1996 and 1997, respectively 96,252 91,952
---------- -----------
Total assets $ 399,316 $ 341,970
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 69,193 $ 67,834
Accrued liabilities 39,828 37,566
Deferred revenue 57,428 59,338
Current portion of long-term debt and capital leases 111,114 27,667
Due to shareholder 21,660 21,660
---------- -----------
Total current liabilities 299,223 214,065
---------- -----------
LONG-TERM LIABILITIES:
Capital lease obligations (Note 7) 81,034 136,222
Long-term debt (Note 6) 18,478 18,478
---------- -----------
Total long-term liabilities 99,512 154,700
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock (Note 8) 88,900 88,900
Retained deficit (88,319) (115,695)
---------- -----------
Total shareholders' equity (deficit) 581 (26,795)
---------- -----------
Total liabilities and shareholders' equity (deficit) $399,316 $341,970
========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S>
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
REVENUES
$1,374,806 $314,185
COST OF SERVICES 448,913 84,924
------------ ------------
Gross margin 925,893 229,261
------------ ------------
OPERATING EXPENSES:
Selling and marketing 256,984 36,338
General and administrative 501,446 134,127
Depreciation and amortization 77,958 19,291
------------ ------------
Total operating expenses 836,388 189,756
------------ ------------
OPERATING INCOME 89,505 39,505
OTHER EXPENSE:
Interest expense 38,404 6,882
------------ ------------
NET INCOME $ 51,101 $ 32,623
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------
SHARES AMOUNT DEFICIT TOTAL
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 8,000 $88,900 $(99,420) $(10,520)
Dividends to shareholders 0 0 (40,000) (40,000)
Net income 0 0 51,101 51,101
--------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1996 8,000 $88,900 $(88,319) $ 581
========= ======== ========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,101 $ 32,623
---------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 77,958 19,291
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (8,615) 1,921
Increase in other current assets (245) 0
Increase (decrease) in accounts payable and accrued expenses 29,495 (3,621)
Increase in due to shareholder 21,660 0
Deferred revenue 16,728 1,910
---------- -----------
Total adjustments 136,981 19,501
---------- -----------
Net cash provided by operating activities 188,082 52,124
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (40,858) 0
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (33,321) (15,889)
Payments on capital leases (43,035) (12,370)
Principal payments on subordinated debt to shareholder (5,775) 0
Dividends paid to shareholders (40,000) (60,000)
---------- -----------
Net cash used in financing activities (122,131) (88,259)
---------- -----------
NET INCREASE (DECREASE) IN CASH 25,093 (36,135)
CASH AT BEGINNING OF PERIOD 49,606 74,699
---------- -----------
CASH AT END OF PERIOD $ 74,699 $ 38,564
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 51,145 $ 6,882
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MMP COMMUNICATIONS, INC.
d.b.a. VOICE-TEL OF SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
MMP Communications, Inc. d.b.a. Voice-Tel of Southern California is an S
corporation referred to herein as the "Company." The Company was in
corporated in Ventura, California, on September 7, 1992.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment, using commercially
available telephone lines. The Company provides digital messaging services
to Southern California.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of the Company in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included and the accompanying
financial statements present fairly the financial position and results of
operations for the interim period. The March 31, 1997 financial statements
should be read in conjunction with the December 31, 1996 financial
statements and related notes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt and capital leases approximates its
carrying value as of December 31, 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 installed or placed in service. The
estimated useful lives are five years for furniture and fixtures and
computer equipment. The cost of installed equipment includes
<PAGE>
-2-
expenditures for installation. The Company periodically reviews the values
assigned to long-lived assets, such as property and equipment, to
determine whether any impairments are other than temporary. Management
believes that the long-lived assets in the accompanying balance sheet are
appropriately valued.
INTANGIBLE ASSETS
Purchased intangible assets, which include franchise agreements, customer
lists, and organizational costs, are recorded at cost. Intangible assets
are amortized using the straight-line method over the estimated useful
lives of the related assets or term of the agreements (20 years for the
franchise agreements).
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreements $103,000
Customer lists 62,832
Organizational costs 4,568
Less accumulated amortization (74,148)
---------
Intangibles, net $ 96,252
=========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when
the undiscounted estimated future cash flows are insufficient to recover
the current carrying amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheets as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholders
are allocated the Company's taxable income.
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other
<PAGE>
-3-
companies to provide transmission of its subscribers' voice messaging.
Although management believes 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.
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 the Company'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; effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that
the Company may charge for its products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 60% of the Company's sales were derived
through two entities during 1996. Although these entities are national
accounts that are managed on a collective basis, they are actually
comprised of a large number of individual subscribers located throughout
all franchise territories, including those operated by other Voice-Tel
franchises.
4. FRANCHISE AGREEMENTS
The franchise rights to four territories were acquired pursuant to
franchise agreements entered into with VTE (Note 1). The terms of the
franchise agreements are 20 years, with options to renew each agreement for
an additional 10 years. The Company is required to pay a monthly royalty
for each territory in an amount equal to 10% of gross sales, less certain
costs. In addition, the Company is required to pay a monthly marketing and
promotion fee of 2% of gross sales. The Company is periodically required to
pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreement, the Company
has agreed to act as the service representative of VTE within its
franchise area. As consideration for this, the Company receives a monthly
fee equal to a range of 20% to 60% of the royalties it pays to VTE. During
1996, royalties, franchise fees, and other assessments totaled $93,143,
net of any service representative fees received.
<PAGE>
-4-
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Messaging computer systems $ 296,149
Office furniture, fixtures, and equipment 16,708
----------
312,857
Less accumulated depreciation (186,833)
----------
Property and equipment, net $ 126,024
==========
</TABLE>
6. LONG-TERM DEBT
Long-term debt as of December 31, 1996 consisted of notes payable
to the parents of each of the two owners of the franchise. Each note
has a principal amount of $10,000 and bears interest at a rate equal to
that of 9% per annum. The notes are due on demand; accordingly, they have
been classified as current liabilities in the accompanying balance sheet.
In addition, long-term debt includes a $100,000 principal amount note
payable which bears interest at a rate equal to that of prime plus 3% per
annum. The note is due in July 2000.
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $43,556
1998 18,478
1999 --
2000 --
2001 --
Thereafter --
-------
Total $62,034
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The present value of future minimum lease payments for assets under capital
leases at December 31, 1996 is as follows:
<TABLE>
<S> <C>
1997 $ 67,558
1998 39,965
1999 23,794
2000 23,794
2001 23,794
Thereafter 11,721
---------
Total minimum lease payments 190,626
Less interest 42,034
---------
Present value of lease payments $ 148,592
=========
</TABLE>
<PAGE>
-5-
The Company maintains a noncancelable operating lease for office space with
maturity in 1998. The following is a schedule of future minimum rental
payments required under the leases at December 31, 1996:
<TABLE>
<S> <C>
1997 $ 5,736
1998 1,912
1999 --
2000 --
2001 --
Thereafter --
-------
Total $ 7,648
=======
</TABLE>
In addition to this noncancelable capital lease, the Company also leases
certain assets on a month-to-month basis. Rent expense totaled $37,389 for
the year ended December 31, 1996.
8. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996
for the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
SHARES CONTRIBUTED
SHARES ISSUED AND PAR VALUE FOR COMMON
AUTHORIZED OUTSTANDING PER SHARE STOCK
------------ ------------- ----------- -------------
<S> <C> <C> <C>
8,000 8,000 None $88,900
</TABLE>
9. RELATED-PARTY TRANSACTIONS
Subsequent to year-end, in April 1997, the parents of the shareholders
demanded payment on their obligations. The Company paid all outstanding
principal due on these notes on April 24, 1997.
<PAGE>
-6-
10. SUBSEQUENT EVENT
On March 30, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $2,609,000. The acquisition
was consummated on May 29, 1997. The acquisition has been accounted for
using the pooling-of-interests method.
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a VOICE-TEL OF BOSTON
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Communication Concepts, Inc.:
We have audited the accompanying balance sheet of COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON (a Massachusetts corporation) as of December 31, 1996
and the related statements of operations, shareholders' equity, and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Communication Concepts, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 168,570 $ 245,087
Accounts receivable, less allowance for uncollectible
accounts of $29,606 and $26,846 in 1996 and 1997,
respectively 359,980 389,447
---------- -----------
Total current assets 528,550 634,534
---------- -----------
PROPERTY AND EQUIPMENT (NOTE 5) 992,342 1,013,510
Less accumulated depreciation (616,836) (643,933)
---------- -----------
Net property and equipment 375,506 369,577
---------- -----------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$26,250 AND $27,187 IN 1996 AND 1997, RESPECTIVELY 48,750 47,813
---------- -----------
Total assets $ 952,806 $1,051,924
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 559,260 $ 631,452
Deferred revenue 333,916 310,676
Current portion of capital lease obligations 18,726 9,279
---------- -----------
Total current liabilities 911,902 951,407
---------- -----------
LONG-TERM OBLIGATIONS (NOTE 6):
Capital lease obligations 798 0
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock (Note 8) 50,000 50,000
Retained (deficit) equity (9,894) 50,517
---------- -----------
Total shareholders' equity 40,106 100,517
---------- -----------
Total liabilities and shareholders' equity $ 952,806 $1,051,924
========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
REVENUES 2,684,708 683,164
COST OF SALES 763,043 196,736
----------- -----------
Gross margin 1,921,665 486,428
----------- -----------
OPERATING EXPENSES:
Selling and marketing 496,149 134,096
General and administrative 921,013 243,690
Depreciation and amortization 151,308 28,034
----------- -----------
Total operating expenses 1,568,470 405,820
----------- -----------
OPERATING INCOME 353,195 80,608
OTHER INCOME (EXPENSE):
Interest expense (5,392) (363)
Other, net 593 166
----------- -----------
NET INCOME $ 348,396 $ 80,411
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------
SHARES AMOUNT DEFICIT TOTAL
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 16,000 $50,000 $(172,382) $(122,382)
Dividends to shareholders 0 0 (185,908) (185,908)
Net income 0 0 348,396 348,396
-------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1996 16,000 $50,000 $ (9,894) $ 40,106
======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 348,396 $ 80,411
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 151,308 28,034
Changes in operating assets and liabilities:
Increase in accounts receivable, net (46,890) (29,467)
Increase in accounts payable and accrued expenses 95,325 72,192
Increase (decrease) deferred revenue 78,710 (23,240)
----------- -----------
Total adjustments 278,453 47,519
----------- -----------
Net cash provided by operating activities 626,849 127,930
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (261,369) (21,168)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (96,447) (10,245)
Dividends paid to shareholders (185,908) (20,000)
----------- -----------
Net cash used in financing activities (282,355) (30,245)
----------- -----------
NET INCREASE IN CASH 83,125 76,517
CASH AT BEGINNING OF PERIOD 85,445 168,570
----------- -----------
CASH AT END OF PERIOD $ 168,570 $245,087
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,392 $ 363
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMMUNICATION CONCEPTS, INC.
d.b.a. VOICE-TEL OF BOSTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
ORGANIZATION
Communication Concepts, Inc. d.b.a. Voice-Tel of Boston ("VTB") is an S
corporation referred to herein as the "Company." The Company was
incorporated in Boston, Massachusetts, on January 10, 1990.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially
available telephone lines. The Company provides digital messaging services
to the greater metropolitan Boston area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of VTB in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included, and the
accompanying financial statements present fairly the financial position and
the results of operations for the interim period presented. The March 31,
1997 financial statements should be read in conjunction with the
December 31, 1996 audited financial statements and related footnotes
contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
-2-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the capital lease obligations approximates their carrying
value as of December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is provided
using the straight-line method over the estimated useful lives of the
assets, commencing when the assets are installed or placed in service. The
estimated useful lives are five years for furniture and fixtures, and
computer equipment, and three years for computer software. The cost of
installed equipment includes expenditures for installation. Assets recorded
under leasehold improvements are depreciated over the shorter of their
useful lives or the term of the related leases.
INTANGIBLE ASSETS
Purchased intangible assets, which include a franchise agreement, are
recorded at cost. Intangible assets are amortized using the straight-line
method over the estimated useful lives of the related assets or term of the
agreement (20 years for the franchise agreement).
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreement $ 75,000
Less accumulated amortization (26,250)
---------
Intangibles, net $ 48,750
=========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheet as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly, semiannual, or annual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholders
are allocated the Company's taxable income.
<PAGE>
-3-
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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 the Company'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 effect of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effect on the prices that the
Company may charge for its products and services; the effect of regulatory
changes in the telecommunications industry; and the risk of dependence on
key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 13% of the Company's sales were derived
through one single entity during 1996. Although this entity is a single
national account that is managed on a collective basis, it is actually
comprised of a large number of individual subscribers located throughout
all franchise territories, including those operated by other Voice-Tel
franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE (Note 1). The term of the franchise agreement is 20
years with an option to renew the agreement for an additional 10 years. The
Company is required to pay a monthly royalty in an amount equal to 10% of
gross sales, less certain costs. In addition, the Company is required to
pay a monthly marketing and promotion fee of 2% of gross sales. The
<PAGE>
-4-
Company is periodically required to pay other special franchise fees and
assessments. During 1996, royalties, franchise fees, and other assessments
totaled $247,000.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Computer software $ 1,454
Messaging computer systems 958,356
Office furniture, fixtures, and equipment 25,825
Leasehold improvements 6,707
----------
992,342
Less accumulated depreciation (616,836)
----------
Property and equipment, net $ 375,506
==========
</TABLE>
6. LONG-TERM OBLIGATIONS
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under agreements which are classified
as capital leases. Most of these equipment leases have purchase options at
the end of the original lease term. Aggregate future minimum payments as of
December 31, 1996 consist of the following:
<TABLE>
<S> <C>
1997 $19,429
1998 804
--------
Total minimum lease payments 20,233
Amounts representing interest (709)
--------
Present value of net minimum payments $19,524
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities and
equipment used in its operations. Aggregate future minimum rental
commitments under noncancelable operating leases with original or remaining
periods in excess of one year as of December 31, 1996 are as follows:
<PAGE>
-5-
<TABLE>
<S> <C>
1997 $ 92,492
1998 52,921
1999 45,746
2000 0
2001 0
Thereafter 0
---------
$191,159
---------
</TABLE>
Rental expense under operating leases amounted to $113,091 for the year
ended December 31, 1996.
8. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996
for the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
SHARES CONTRIBUTED
SHARES ISSUED AND PAR VALUE FOR COMMON
AUTHORIZED OUTSTANDING PER SHARE STOCK
--------------- --------------- ------------- ---------------
<S> <C> <C> <C>
20,000 16,000 None $50,000
</TABLE>
9. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $5,148,000. The acquisition is
intended to be accounted for using the pooling-of-interests method.
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Hi-Pak Systems, Inc. d.b.a. Voice-Tel of Michigan
and Voice Messaging Development Corporation of Michigan
d.b.a. Voice-Tel of Central Michigan:
We have audited the accompanying combined balance sheet of HI-PAK SYSTEMS, INC.
d.b.a. VOICE-TEL OF MICHIGAN AND VOICE MESSAGING DEVELOPMENT CORPORATION OF
MICHIGAN d.b.a. VOICE-TEL OF CENTRAL MICHIGAN as of December 31, 1996 and the
related combined statements of operations, shareholders' equity, and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of December 31, 1996 and the combined results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 20, 1997
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 147,305 $ 81,436
Accounts receivable, net of allowance for
uncollectible accounts of $17,000 in 1996 and 1997 138,264 133,358
Prepaids and other current assets 6,821 4,068
------------ -------------
Total current assets 292,390 218,862
------------ -------------
PROPERTY AND EQUIPMENT 1,204,214 1,201,018
Less accumulated depreciation (702,006) (754,698)
------------ -------------
Net property and equipment 502,208 446,320
------------ -------------
OTHER ASSETS:
Franchise fees, net of accumulated amortization of
$40,500 and $42,812 in 1996 and 1997, respectively 109,500 107,188
Organizational costs, net of accumulated
amortization of $4,932 and $5,162 in 1996 and
1997, respectively 1,843 1,613
Other 1,270 1,270
------------ -------------
Total other assets 112,613 110,071
------------ -------------
Total assets $ 907,211 $ 775,253
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,527 $ 20,655
Accrued expenses 65,578 31,219
Deferred revenue 58,987 58,987
Current portion of long-term debt 92,291 84,136
------------ -------------
Total current liabilities 245,383 194,997
------------ -------------
LONG-TERM LIABILITIES (NOTE 6):
Long-term debt 64,060 50,363
------------ -------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock:
Voice Messaging Development Corporation of Michigan,
no par value; 60,000 shares authorized, 1,075
shares issued and outstanding in 1996 and 1997 28,000 28,000
Hi-Pak Systems, Inc., no par value; 50,000 shares
authorized, 45,000 shares issued and
outstanding in 1996 and 1997 $ 45,000 $ 45,000
Additional paid-in capital 149,860 149,860
Retained earnings 374,908 307,033
------------ -------------
Total shareholders' equity 597,768 529,893
------------ -------------
Total liabilities and shareholders' equity $ 907,211 $ 775,253
============ =============
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
REVENUES $ 1,695,447 $ 442,283
COST OF SALES 277,142 72,510
------------- -------------
Gross margin 1,418,305 369,773
------------- -------------
OPERATING EXPENSES:
Selling and marketing 328,500 112,984
General and administrative 751,589 149,042
Depreciation and amortization 234,596 59,379
------------- -------------
Total operating expenses 1,314,685 321,405
------------- -------------
OPERATING INCOME 103,620 48,368
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 4,927 352
Rental income 9,400 0
Interest expense (40,623) (6,529)
Loss on sale of asset 0 (5,066)
------------- -------------
Total other expenses (26,296) (11,243)
------------- -------------
NET INCOME $ 77,324 $ 37,125
============= =============
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
VOICE MESSAGING
DEVELOPMENT CORPORATION HI-PAK
OF MICHIGAN SYSTEMS, INC.
COMMON STOCK COMMON STOCK ADDITIONAL
------------------------- ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------------ ---------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 1,042 $24,000 5,000 $ 45,000 $ 150,060 $ 297,584 $ 516,644
Issuance of common stock 33 4,000 0 0 0 0 4,000
Net income 0 0 0 0 0 77,324 77,324
Distributions to shareholders 0 0 0 0 (200) 0 (200)
----------- ------------ ---------- ----------- ------------ ------------- ------------
BALANCE, DECEMBER 31, 1996 1,075 $28,000 5,000 $ 45,000 $ 149,860 $ 374,908 $ 597,768
=========== ============ ========== =========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION> 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ----------------- --------------
(Unaudited)
<S> <C> <C>
Net income $ 77,324 $ 37,125
----------------- --------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Bad debt expense 2,000 --
Loss on sale of asset -- 5,066
Depreciation and amortization 234,596 59,379
Changes in assets and liabilities:
Accounts receivable 8,813 4,906
Prepaid and other current assets 5,319 2,753
Other assets 10,528 --
Accounts payable (7,568) (7,872)
Accrued expenses 5,938 (34,359)
Deferred revenue 9,838 --
----------------- --------------
Total adjustments 269,464 29,873
----------------- --------------
Net cash provided by operating activities 346,788 66,998
----------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (170,169) (6,015)
----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 27,172 --
Principal repayments on long-term debt (135,670) (21,852)
Proceeds from common stock issuance 4,000 --
Distributions to shareholders (200) (105,000)
----------------- --------------
Net cash used in financing activities (104,698) (126,852)
----------------- --------------
NET INCREASE (DECREASE) IN CASH 71,921 (65,869)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,384 147,305
----------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 147,305 $ 81,436
----------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 40,623 $ 6,529
================= ==============
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
HI-PAK SYSTEMS, INC. d.b.a. VOICE-TEL OF MICHIGAN
AND
VOICE MESSAGING DEVELOPMENT CORPORATION OF MICHIGAN
d.b.a. VOICE-TEL OF CENTRAL MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
Hi-Pak Systems, Inc. d.b.a. Voice-Tel of Michigan and Voice Messaging
Development Corporation of Michigan d.b.a. Voice-Tel of Central Michigan
are separate corporations which have common ownership and are collectively
referred to herein as the "Companies." Hi-Pak Systems, Inc. d.b.a. Voice-
Tel of Michigan and Voice Messaging Development Corporation of Michigan
d.b.a. Voice-Tel of Central Michigan were incorporated in Michigan on
May 1, 1988 and April 1, 1994, respectively.
NATURE OF BUSINESS
The Companies provide digital voice messaging services under exclusive
franchise agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is
conducted using the proprietary trade name "Voice-Tel." The Voice-Tel
system operates on the Companies' computer processing equipment using
commercially available telephone lines. The Companies provide digital
messaging service in the state of Michigan.
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of Hi-
Pak Systems, Inc. d.b.a. Voice-Tel of Michigan and Voice Messaging
Development Corporation of Michigan d.b.a. Voice-Tel of Central Michigan.
Both are related through common ownership and management. All significant
intercompany transactions have been eliminated.
The accompanying combined financial statements of the Companies are
prepared on the accrual basis of accounting and present their combined
assets, liabilities, revenues, expenses, and cash flows as if the Companies
existed as a single corporation during the period presented.
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of the Companies, in accordance with the rules
and regulations of the Securities and Exchange Commission. In the opinion
of the management of the Companies, all adjustments (consisting only of
normal, recurring adjustments) considered necessary for fair presentation
of the March 31, 1997 financial statements have been included, and the
accompanying financial statements present fairly the financial position and
the results of operations for the interim period presented. The March 31,
1997 financial statements should be read in conjunction with the December
31, 1996 audited financial statements and related footnotes contained
within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
-2-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt approximates its carrying value as of
December 31, 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 installed or placed in service. The
estimated useful lives are seven years for furniture and fixtures and five
years for office equipment and computer equipment. The cost of installed
equipment includes expenditures for installation. Leasehold improvements
are depreciated over the shorter of their useful lives or the terms of the
related leases.
INTANGIBLE ASSETS
Purchased intangible assets, which include a franchise agreement and
organization costs, are recorded at cost. Intangible assets are amortized
using the straight-line method over the estimated useful lives of the
related assets or term of the agreement (15 years for franchise agreement).
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Companies perform services in accordance
with contract terms. Billings in advance for messaging services are
recorded on the accompanying balance sheets as deferred revenue. These
revenues are recognized when the related service is provided. The majority
of the Companies' customers are billed monthly; however, some customers
have quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
<PAGE>
-3-
INCOME TAXES
The Companies have elected to be treated as small business S Corporations
for federal and state income tax purposes. As such, in lieu of corporate
income tax consequences arising at the Companies' level, the individual
shareholders are allocated their proportionate shares of the Companies'
taxable income or loss.
REGULATION
The Companies are subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Companies do not own a transmission network and, accordingly, rely on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of their subscribers'
voice messaging. Although management believes 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.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Companies is dependent upon a number of factors,
including the effect of rapid technological changes affecting the markets
for the Companies' 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 effect of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effect on the prices that the
Companies may charge for their products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Companies' risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 47% of the Companies' sales were derived
through a single national account during 1996. Although this entity is a
single national account that is managed on a collective basis, it is
actually comprised of a large number of individual subscribers located
throughout all franchise territories, including those operated by other
Voice-Tel franchises.
4. FRANCHISE AGREEMENT
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE (Note 1) in 1988 by Hi-Pak Systems, Inc. d.b.a.
Voice-Tel of Michigan and 1994 by Voice Messaging Development Corporation
of Michigan d.b.a. Voice-Tel of Central Michigan. The terms of the
franchise agreements are 15 years, with an option to renew for an
additional 10 years. The Companies are required to pay a monthly royalty in
an amount equal
<PAGE>
-4-
to 10% of gross sales. In addition, the Companies are required to pay a
monthly marketing and promotion fee of 2% of gross sales. The Companies are
periodically required to pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreement, the Companies
have agreed to act as the service representative of VTE within their
franchise areas. As consideration for this, the Companies receive a monthly
fee equal to a range of 20% to 60% of the royalties they pay to VTE. During
1996, royalties, franchise fees, and other assessments totaled $141,828,
net of any service representative fees received and are included in selling
and marketing expenses on the accompanying statements of operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Telephone equipment $ 1,140,690
Furniture and fixtures 54,313
Vehicles 9,211
------------
1,204,214
Less accumulated depreciation and amortization (702,006)
------------
Property and equipment, net $ 502,208
============
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable to bank; secured by all assets of the
Companies and the personal guarantees of the
majority shareholders of the Companies; monthly
principal installments of $1,608, plus interest at
9.9% per annum, through June 1998 $32,856
Notes payable to other; secured by various
equipment, monthly installments of $1,610, plus
interest at 10% to 15.25% per annum, through July
1997 3,438
Note payable to bank; secured by various
equipment; monthly installments of $937, including
interest at 8.08% per annum, through January 2000 29,976
Note payable to bank secured by all assets of the
Companies and the personal guarantees of the
shareholders of the Companies; monthly
installments of $5,098 including interest at 7.75%
per annum, through June 1998 86,919
</TABLE>
<PAGE>
-5-
<TABLE>
<S> <C>
Note payable to bank secured by a vehicle; monthly
installments of $278 including interest at 9.5%
per annum, through January 1998 $ 3,162
---------
Total long-term debt 156,351
Less current portion (92,291)
---------
$ 64,060
=========
</TABLE>
FUTURE MATURITIES
Long-term debt maturities for the years subsequent to December 31, 1996 are
as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997 $ 92,291
1998 53,153
1999 10,754
2000 153
----------
$ 156,351
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Companies lease certain facilities used in their operations under
noncancelable operating lease agreements. Aggregate future minimum rental
commitments under noncancelable operating leases as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 $ 12,208
1998 3,420
1999 1,140
---------
$ 16,768
==========
</TABLE>
Rental expense under operating leases amounted to $21,114 for the year
ended December 31, 1996.
8. DEFERRED COMPENSATION PLAN
PROFIT-SHARING PLAN
The Companies participate in a noncontributory profit-sharing plan covering
all full-time employees. Contributions to the plan are discretionary. The
contribution by the Companies to the plan for the year ended December 31,
1996 was $35,000.
<PAGE>
-6-
9. SUBSEQUENT EVENT
On May 2, 1997, the Companies entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere with a value of approximately $3,453,000. The merger has been
accounted for under the pooling-of-interests method.
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Voice-Net Communications Systems, Inc.:
We have audited the accompanying balance sheet of VOICE-NET COMMUNICATIONS
SYSTEMS, INC. d.b.a. VOICE-TEL OF NEW YORK (a New York S corporation) as of
December 31, 1996 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Voice Net Communications
Systems, Inc. as of December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 182,054 $ 190,446
Accounts receivable, less allowance for
uncollectible accounts of $3,000 in
1996 and 1997 158,079 173,653
Due from affiliated company 47,958 20,412
Prepaid expenses and other current
assets 8,194 6,063
----------- -----------
Total current assets 396,285 390,574
----------- -----------
PROPERTY AND EQUIPMENT (NOTE 5) 1,028,293 1,028,753
Less accumulated depreciation (617,245) (655,055)
----------- -----------
Net property and equipment 411,048 373,698
----------- -----------
INTANGIBLE AND OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $21,000 AND $21,625 IN
1996 AND 1997, RESPECTIVELY 36,671 36,046
----------- -----------
Total assets $ 844,004 $ 800,318
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 150,138 $ 159,397
Deferred revenue 75,081 74,991
Current portion of long-term debt and
capital lease obligations 107,532 103,883
----------- -----------
Total current liabilities 332,751 338,271
----------- -----------
LONG-TERM LIABILITIES (NOTE 6):
Long-term debt and capital lease obligations 96,471 74,365
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock (Note 8) 400,000 400,000
Retained earnings 144,782 117,682
Treasury stock, at cost (130,000) (130,000)
----------- -----------
Total shareholders' equity 414,782 387,682
----------- -----------
Total liabilities and shareholders' equity $ 844,004 $ 800,318
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
REVENUES 1,561,865 433,973
COST OF SALES 221,790 80,021
----------- -----------
Gross margin 1,340,075 353,952
----------- -----------
OPERATING EXPENSES:
Selling and marketing 328,461 109,638
General and administrative 542,808 101,869
Depreciation and amortization 152,354 38,435
----------- -----------
Total operating expenses 1,023,623 249,942
----------- -----------
OPERATING INCOME 316,452 104,010
OTHER INCOME (EXPENSE):
Interest expense (24,062) (6,029)
Other, net 7,428 591
----------- -----------
INCOME BEFORE LOCAL INCOME TAXES 299,818 98,572
LOCAL INCOME TAX PROVISION 26,190 12,962
----------- -----------
NET INCOME $ 273,628 $ 85,610
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK (ACCUMULATED
--------------- ---------------- DEFICIT)/RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 220.44 $400,000 89.56 $(130,000) $(81,388) $188,612
Dividends to shareholders 0.00 0 0.00 0 (47,458) (47,458)
Net income 0.00 0 0.00 0 273,628 273,628
------ -------- ----- ---------- -------- ---------
BALANCE, DECEMBER 31, 1996 220.44 $400,000 89.56 $(130,000) $144,782 $414,782
====== ======== ===== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 273,628 $ 85,610
---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 152,354 38,435
Changes in operating assets and liabilities:
Increase in accounts receivable, net (11,818) (15,574)
Decrease in prepaids and other current assets 571 2,131
(Increase) decrease in due from affiliate (15,287) 27,546
Increase in accounts payable and accrued
liabilities 51,823 9,260
Increase (decrease) in deferred revenue 3,248 (90)
---------- ----------
Total adjustments 180,891 61,708
---------- ----------
Net cash provided by operating activities 454,519 147,318
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (239,908) (461)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (103,357) (25,755)
Dividends paid to shareholders (47,458) (112,710)
---------- ----------
Net cash used in financing activities (150,815) (138,465)
---------- ----------
NET INCREASE IN CASH 63,796 8,392
CASH AT BEGINNING OF PERIOD 118,258 182,054
---------- ----------
CASH AT END OF PERIOD $ 182,054 $ 190,446
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 25,076 $ 4,612
========== ==========
Cash paid for local income taxes $ 14,222 $ 12,637
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE-NET COMMUNICATIONS SYSTEMS, INC.
d.b.a. VOICE-TEL OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
ORGANIZATION
Voice Net Communications Systems, Inc. d.b.a. Voice-Tel of New York is an
S corporation referred to herein as the "Company." The Company was
incorporated in New York on December 31, 1988.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging services to the
greater metropolitan New York area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of the Company in accordance with the rules and regulations
of the Securities and Exchange Commission. In the opinion of the management
of the Company, all adjustments (consisting only of normal, recurring
adjustments) considered necessary for fair presentation of the March 31, 1997
financial statements have been included, and the accompanying financial
statements present fairly the financial position and the results of
operations for the interim period presented. The March 31, 1997 financial
statements should be read in conjunction with the December 31, 1996 audited
financial statements and related footnotes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
-2-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt approximates its carrying value as of
December 31, 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 installed or placed in service. The estimated
useful lives are five years for furniture and fixtures, five to seven years
for office equipment, and five years for computer equipment. The cost of
installed equipment includes expenditures for installation. Assets recorded
under leasehold improvements are depreciated over the shorter of their useful
lives or the term of the related leases.
INTANGIBLE ASSETS
Purchased intangible assets, which include a franchise agreement, goodwill,
and noncompete covenants, are recorded at cost. Intangible assets are
amortized using the straight-line method over the estimated useful lives of
the related assets or term of the agreement (20 years for the franchise
agreement and goodwill).
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreement $ 45,000
Goodwill 10,000
Less accumulated amortization (21,000)
---------
Intangible assets, net $ 34,000
=========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment and
intangible assets, for impairment at each balance sheet date or whenever
events or changes in circumstances indicate that the carrying amount of an
asset should be assessed. An impairment is recognized when the undiscounted
estimated future cash flows are insufficient to recover the current carrying
amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheets as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice messaging
services, including long-distance carrier costs and applicable taxes.
<PAGE>
-3-
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholder is
allocated the Company's taxable income. New York City does not recognize an S
corporation for income tax purposes. As a result, provisions for New York
City general corporation taxes have been recorded in the accompanying
statements of operations.
REGULATION
The Company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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
the Company'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 effect of intense competition in information
and telecommunications services markets, including, among other things, the
consequent effect on the prices that the Company may charge for its products
and services; the effect of regulatory changes in the telecommunications
industry; and the risk of dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist only of accounts receivable, as collateral is not
required. The Company's risk of loss is limited due to advance billings to
customers and the ability to terminate access on delinquent accounts.
Approximately 50% of the Company's sales were derived through one single
entity during 1996. Although this entity is a single national account that
is managed on a collective basis, it is actually comprised of a large number
of individual subscribers located throughout all franchise territories,
including those operated by other Voice-Tel franchises.
<PAGE>
-4-
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement entered
into with VTE (Note 1). The term of the franchise agreement is 20 years with
an option in 2010 to renew the agreement for an additional 10 years. The
Company is required to pay a monthly royalty fee in an amount equal to 10% of
gross sales, less certain costs. In addition, the Company is required to pay
a monthly marketing and promotion fee of 2% of gross sales. The Company is
periodically required to pay other special franchise fees and assessments.
As an original master franchisee of VTE, the Company is entitled to a monthly
fee equal to 60% of the royalties its pays to VTE. During 1996, royalties,
franchise fees, and other assessments totaled $78,666, net of any service
representative fees received and are included in selling and marketing
expenses on the accompanying Statements of Operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Messaging computer systems and software $ 920,970
Office furniture, fixtures, and equipment 106,823
Leasehold improvements 500
-----------
1,028,293
Less accumulated depreciation (617,245)
-----------
Property and equipment, net $ 411,048
===========
</TABLE>
6. LONG-TERM OBLIGATIONS
LONG-TERM DEBT
Long-term debt as of December 31, 1996 consisted of a note payable to former
shareholders of the franchise due in 60 monthly installments of $3,750 plus
interest at a rate of prime, not to exceed 7% (7% at December 31, 1996) with
the balance due January 31, 1999 and collateralized by 303 shares of the
Company as well as personal guarantees of the principal shareholders of the
Company.
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 54,242
1998 58,169
1999 5,030
--------
$117,441
========
</TABLE>
<PAGE>
-5-
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under agreements which are classified as
capital leases. Most of these equipment leases have purchase options at the
end of the original lease term. Aggregate future minimum payments at December
31, 1996 in the aggregate consist of the following:
<TABLE>
<S> <C>
1997 $ 60,992
1998 24,483
1999 11,446
2000 954
2001 0
---------
Total minimum lease payments 97,875
Amounts representing interest (11,312)
---------
Present value of net minimum payments $ 86,563
=========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities used in
its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in excess
of one year as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $142,043
1998 137,796
1999 115,582
2000 115,582
2001 89,530
Thereafter 46,494
--------
$647,027
========
</TABLE>
Rental expense under operating leases amounted to $148,879 for the year ended
December 31, 1996.
<PAGE>
-6-
8. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996 for
the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
PAR CONTRIBUTED
SHARES VALUE FOR
SHARES ISSUED AND TREASURY PER COMMON
AUTHORIZED OUTSTANDING STOCK SHARE STOCK
---------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C>
310 220.44 89.56 None $400,000
</TABLE>
9. RELATED-PARTY TRANSACTIONS
TRANSACTIONS WITH AFFILIATED COMPANY
The Company's majority shareholders also own a 75% interest in Voice-Tel of
Long Island. The Company provides various management and administrative
services for Voice-Tel of Long Island and also provides technical services on
behalf of VTE. As consideration for the technical services provided, the
Company receives a monthly fee equal to 60% of the royalties that Voice-Tel
Long Island pays to VTE. During 1996, total revenues recorded by the Company
for affiliated company transactions totaled $22,988. At December 31, 1996,
the Company had a receivable of $47,958 from Voice-Tel of Long Island related
to the above services provided and other payments made on behalf of Voice-Tel
of Long Island.
10. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $3,710,000. The acquisition is
intended to be accounted for using the pooling-of-interests method.
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Dowd Enterprises, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of DOWD ENTERPRISES,
INC. (an Ohio S corporation) AND SUBSIDIARY as of December 31, 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Dowd Enterprises, Inc. and
subsidiary as of December 31, 1996 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 6, 1997
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $234,201 $ 301,365
Accounts receivable, less allowance for
uncollectible accounts of $0 in 1996 and 1997 78,572 87,696
Prepaid expenses and other current assets 1,867 575
------------ -----------
Total current assets 314,640 389,636
------------ -----------
PROPERTY AND EQUIPMENT 625,540 625,540
Less accumulated depreciation (379,211) (403,723)
------------ -----------
Net property and equipment 246,329 221,817
------------ -----------
OTHER ASSETS:
Franchise agreement, net of accumulated amortization
of $20,361 and $27,924 in 1996 and 1997, respectively 34,849 27,286
Other 2,824 2,824
------------ -----------
Total other assets 37,673 30,110
------------ -----------
Total assets $598,642 $ 641,563
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 37,741 $ 21,904
Deferred revenue 64,795 61,284
Current portion of debt and leases 61,032 46,266
Other 350 300
------------ -----------
Total current liabilities 163,918 129,754
------------ -----------
CAPITAL LEASES (NOTE 7) 23,643 15,818
------------ -----------
MINORITY INTEREST 172,696 194,198
------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Common stock 500 500
Retained earnings 237,885 301,293
------------ -----------
Total shareholders' equity 238,385 301,793
------------ -----------
Total liabilities and shareholders' equity $598,642 $ 641,563
============ ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
------------ -----------
(Unaudited)
<S> <C> <C>
REVENUES $872,252 $228,864
COST OF SALES 126,998 24,382
------------ -----------
Gross margin 745,254 204,482
------------ -----------
OPERATING EXPENSES:
Selling and marketing 177,456 31,275
General and administrative 247,721 54,889
Depreciation and amortization 127,003 31,509
------------ -----------
Total operating expenses 552,180 117,673
------------ -----------
OPERATING INCOME 193,074 86,809
OTHER (EXPENSE) INCOME:
Interest expense (13,710) (2,683)
Other, net 63,406 784
------------ -----------
NET INCOME BEFORE MINORITY INTEREST 242,770 84,910
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARY 56,259 21,502
------------ -----------
NET INCOME $186,511 $ 63,408
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------
SHARES AMOUNT EARNINGS TOTAL
------- ------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 500 $500 $ 201,774 $ 202,274
Dividends to shareholders 0 0 (150,400) (150,400)
Net income 0 0 186,511 186,511
------- ------ ---------- ----------
BALANCE, DECEMBER 31, 1996 500 $500 $ 237,885 $ 238,385
======= ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
------------ ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 186,511 $ 63,408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 127,003 31,509
Minority interest in net income of subsidiary 56,259 21,502
Changes in operating assets and liabilities:
Accounts receivable (5,378) (9,124)
Other current assets (884) 1,292
Accounts payable and accrued liabilities 6,770 (15,837)
Deferred revenue 6,521 (3,511)
Other current liabilities (150) (50)
------------ ----------
Total adjustments 190,141 25,781
------------ ----------
Net cash provided by operating activities 376,652 89,189
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (174,264) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under line of credit 30,000 0
Principal payments on debt and line of credit (53,145) (22,025)
Distributions paid to shareholders (150,400) 0
------------ ----------
Net cash used in financing activities (173,545) (22,025)
------------ ----------
NET INCREASE IN CASH 28,843 67,164
------------ ----------
CASH AT BEGINNING OF PERIOD 205,358 234,201
------------ ----------
CASH AT END OF PERIOD $ 234,201 $ 301,365
============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 13,268 $ 9,729
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
DOWD ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
Dowd Enterprises, Inc. and subsidiary ("DEI" or the "Company") is an Ohio S
corporation incorporated on January 1, 1990 in Columbus, Ohio. The Company,
along with Voice-Tel of Ohio ("VTO"), an Ohio partnership, owns 60% and
40%, respectively, of Columbus Voice Partners d.b.a. Voice-Tel ("CVP").
NATURE OF BUSINESS
The Company provides digital voice messaging services under exclusive
franchise agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is
conducted using the proprietary trade name "Voice-Tel." The Voice-Tel
system operates on the Company's computer processing equipment using
commercially available telephone lines. DEI provides digital voice
messaging services in the greater Columbus, Ohio metropolitan area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of DEI in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included, and the
accompanying financial statements present fairly the financial position and
the results of operations for the interim period presented. The March 31,
1997 financial statements should be read in conjunction with the December
31, 1996 audited financial statements and related footnotes contained
within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<PAGE>
-2-
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONSOLIDATION AND MINORITY INTEREST
The accounts of DEI and its 60%-owned subsidiary, CVP, were combined in the
accompanying consolidated financial statements and all material
intercompany accounts were eliminated in consolidation. The minority
interest in the net assets of CVP represents VTO's 40% direct ownership
interest in the net book value and net income of CVP.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, cash and cash equivalents include cash on
hand and highly liquid money market investments.
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 installed or placed in service. The
estimated useful lives are five years for messaging computer systems, three
years for computer software and ten years for office furniture and
equipment. The cost of installed equipment includes expenditures for
installation. Assets recorded under capital leases are depreciated over the
shorter of their useful lives or the terms of the related leases.
FRANCHISE AGREEMENT
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE. The franchise agreement is recorded at cost in the
accompanying consolidated balance sheet. Intangible assets are amortized
using the straight-line method over the estimated useful life of the
agreement. The franchise agreement is amortized over 20 years.
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's current assets and current liabilities
approximates fair value due to the short term in which these instruments
mature. The carrying value of the Company's long-term debt approximates
fair value because the interest rates on the term notes and equipment loans
approximate prevailing interest rates for similar debt instruments.
<PAGE>
-3-
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheet as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all direct expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company and its shareholders have elected to be taxed as an S
corporation under the provisions of the Internal Revenue Code. As such, the
taxable income of the Company is included in the individual tax returns of
the shareholders for federal and state income tax purposes.
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. 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.
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 the Company'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; effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effect on the prices that the
Company may charge for its products and services; the effect of regulatory
changes in the telecommunications industry; and the risk of dependence on
key managerial personnel.
<PAGE>
-4-
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 43% of the Company's sales were derived
through a single national account during 1996. Although this entity is a
single national account that is managed on a collective basis, it is
actually comprised of a large number of individual subscribers located
throughout all franchise territories, including those operated by other
Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE. The term of the franchise agreement is 20 years,
with an option in 2009 to renew the agreement for an additional 10 years.
CVP is required to pay a monthly royalty in an amount equal to a specified
percentage of gross sales. The royalty rates are 6% of gross revenues in
the first year of the franchise agreement, 8% of gross revenues in the
second year, and 10% thereafter. In addition, CVP is required to pay a
monthly marketing and promotion fee of 2% of gross sales. CVP is
periodically required to pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreement, the
subsidiary has agreed to act as the service representative of VTE within
each of VTE's franchise areas. As consideration for this, CVP receives a
monthly fee equal to 40% of the royalties it pays to VTE. During 1996,
royalties, franchise fees, and other assessments totaled approximately
$52,000, net of any service representative fees received.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Messaging computer systems $ 466,643
Computer software 71,252
Office furniture and equipment 83,144
Leasehold improvements 4,501
--------------
625,540
Less accumulated depreciation (379,211)
--------------
Property and equipment, net $ 246,329
==============
</TABLE>
6. LINE OF CREDIT
The Company maintains a $30,000 line of credit with Huntington National
Bank in Columbus, Ohio. The facility is for an indefinite period, as long
as the maximum is not exceeded. Interest is compounded monthly at prime
(8.25% at December 31, 1996) plus 2%.
<PAGE>
-5-
The line of credit is collateralized by accounts receivable. At
December 31, 1996, outstanding draws totaled approximately $16,000. At
December 31, 1996 the line of credit is included in current portion of
debt and leases in the accompanying balance sheet.
7. LONG-TERM OBLIGATIONS
CAPITAL LEASE OBLIGATIONS
The present values of future minimum lease payments as of December 31, 1996
are:
<TABLE>
<CAPTION>
<S> <C>
1997 $52,236
1998 16,109
1999 5,154
-----------
Total minimum lease obligation 73,499
Less interest 8,045
-----------
Present value of lease obligation $65,454
===========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities used
in its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in excess
of one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 48,816
1998 48,914
1999 34,197
2000 1,650
----------
$133,577
==========
</TABLE>
Rent expense under operating leases amounted to $48,887 for the year ended
December 31, 1996.
<PAGE>
-6-
9. EQUITY INTEREST
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996
for the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
CONTRIBUTED
SHARES AUTHORIZED, PAR VALUE FOR
ISSUED, AND OUTSTANDING PER SHARE COMMON STOCK
-------------------------------------------- -------------- -----------------------
<S> <C> <C>
500 $1 $500
</TABLE>
10. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,369,000. The acquisition
was subject to certain conditions and was consummated on May 2, 1997. The
merger has been accounted for under the pooling-of-interests method.
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
D&K Communications Corporation
d.b.a. Voice-Tel of Memphis and
Voice-Tel of Nashville:
We have audited the accompanying balance sheet of D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND VOICE-TEL OF NASHVILLE (a Tennessee S
corporation) as of December 31, 1996 and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 D&K Communications Corporation
d.b.a. Voice-Tel of Memphis and Voice-Tel of Nashville as of December 31, 1996
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 17, 1997
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $178,786 $207,389
Accounts receivable, less allowance for
uncollectible accounts of $0 in 1996
and 1997 81,954 59,180
Note receivable from a related party (Note 9) 6,871 6,620
--------- ---------
Total current assets 267,611 273,189
--------- ---------
PROPERTY AND EQUIPMENT (NOTE 5) 320,087 343,026
Less accumulated depreciation (113,632) (139,617)
--------- ---------
Net property and equipment 206,455 203,409
--------- ---------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $40,355 AND $41,980 IN 1996 AND 1997,
RESPECTIVELY 89,645 88,020
--------- ---------
OTHER ASSETS 985 985
--------- ---------
Total assets $564,696 $565,603
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 67,891 $ 52,160
Deferred revenue 62,250 52,554
Note payable to a related party 50,000 50,000
Current portion of capital lease obligation 17,670 18,411
--------- ---------
Total current liabilities 197,811 173,125
--------- ---------
LONG-TERM LIABILITIES:
Capital lease obligations 18,942 14,052
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock (Note 8) 30,000 30,000
Additional paid-in capital 195,900 195,900
Retained earnings 122,043 152,526
--------- ---------
Total shareholders' equity 347,943 378,426
--------- ---------
Total liabilities and shareholders' equity $564,696 $565,603
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
(Unaudited)
<S> <C> <C>
REVENUES $1,510,065 $302,605
COST OF SALES 506,315 82,901
----------- ----------
Gross margin 1,003,750 219,704
----------- ----------
OPERATING EXPENSES:
Selling and marketing 344,104 75,879
General and administrative 364,496 83,389
Depreciation and amortization 63,468 27,610
----------- ----------
Total operating expenses 772,068 186,878
----------- ----------
OPERATING INCOME 231,682 32,826
INTEREST EXPENSE 11,250 2,343
----------- ----------
NET INCOME $ 220,432 $ 30,483
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT)/
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 1,000 $30,000 $195,900 $ (68,389) $157,511
Dividends to shareholders 0 0 0 (30,000) (30,000)
Net income 0 0 0 220,432 220,432
----- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1996 1,000 $30,000 $195,900 $122,043 $347,943
===== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $220,432 $ 30,483
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 63,468 27,610
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (44,398) 22,774
Increase in other current assets (300) 0
Decrease in accounts payable and accrued expenses (54,927) (15,731)
Decrease in deferred revenue (19,244) (9,696)
---------- ----------
Total adjustments (55,401) 24,957
---------- ----------
Net cash provided by operating activities 165,031 55,440
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (72,446) (22,939)
Payment received on note receivable from related party 1,106 251
---------- ----------
Net cash used in investing activities (71,340) (22,688)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (33,017) 0
Principal payments on capital lease obligation (14,990) (4,149)
Dividends paid to shareholders (30,000) 0
---------- ----------
Net cash used in financing activities (78,007) (4,149)
---------- ----------
NET INCREASE IN CASH 15,684 28,603
CASH AT BEGINNING OF PERIOD 163,102 178,786
---------- ----------
CASH AT END OF PERIOD $178,786 $207,389
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 10,606 $ 2,194
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
D&K COMMUNICATIONS CORPORATION
d.b.a. VOICE-TEL OF MEMPHIS AND
VOICE-TEL OF NASHVILLE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
D&K Communications Corporation d.b.a. Voice-Tel of Memphis and Voice-Tel of
Nashville is an S corporation referred to herein as the "Company." The
Company was incorporated in Germantown, Tennessee, on August 20, 1990.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging services to the
greater metropolitan Memphis and Nashville, Tennessee, areas.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of Voice-Tel of South Texas, Inc., in accordance with the
rules and regulations of the Securities and Exchange Commission ("SEC"). In
the opinion of the management of the Company, all adjustments (consisting
only of normal recurring adjustments) considered necessary for fair
presentation of the March 31, 1997 financial statements have been included,
and the accompanying financial statements present fairly the financial
position and the results of operations for the interim period presented. The
March 31, 1997 financial statements should be read in conjunction with the
December 31, 1996 audited financial statements and related footnotes
contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 installed or 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 and automobiles. The cost
of installed equipment includes expenditures for installation.
<PAGE>
-2-
INTANGIBLE ASSETS
Purchased intangible assets consist of a franchise agreement which is
recorded at cost. This franchise agreement is amortized using the straight-
line method over the term of the agreement, which is 20 years.
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment and
intangible assets, for impairment at each balance sheet date or whenever
events or changes in circumstances indicate that the carrying amount of an
asset should be assessed. An impairment is recognized when the undiscounted
estimated future cash flows are insufficient to recover the current carrying
amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheet as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or annual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice messaging
services, including long-distance carrier costs and applicable taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholders
are allocated the Company's taxable income.
REGULATION
The Company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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
the Company's products and services and management's ability to effectively
respond to those changes, including the
<PAGE>
-3-
development, implementation, marketing, and support of new or improved
products and services to respond to the changing environment; the effect of
intense competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that the
Company may charge for its products and services; the effect of regulatory
changes in the telecommunications industry; and the risk of dependence on key
managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist only of accounts receivable, as collateral is not
required. The Company's risk of loss is limited due to advance billings to
customers and the ability to terminate access on delinquent accounts.
Approximately 75% of the Company's sales were derived through two entities
during 1996. Sales from one entity represented approximately 40% of total
sales, while sales from the other entity represented approximately 35% of
total sales. Although these entities are national accounts that are managed
on a collective basis, they are actually comprised of a large number of
individual subscribers located throughout all franchise territories,
including those operated by other Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement entered
into with VTE (Note 1). The term of the franchise agreement is 20 years with
an option to renew the agreement for an additional 10 years. The Company is
required to pay a monthly royalty in an amount equal to 10% of gross sales,
less certain costs. In addition, the Company is required to pay a monthly
marketing and promotion fee of 2% of gross sales. The Company is
periodically required to pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreements, the Company
has agreed to act as the service representative of VTE within its franchise
areas. As consideration for this, the Company receives a monthly fee equal
to a range of 20% to 60% of the royalties it pays to VTE. During 1996,
royalties, franchise fees, and other assessments totaled $558,578, net of any
service representative fees received.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Messaging computer systems $259,468
Office furniture, fixtures, and equipment 25,885
Computers 18,704
Automobiles 16,030
---------
320,087
Less accumulated depreciation (113,632)
---------
Property and equipment, net $206,455
=========
</TABLE>
<PAGE>
-4-
6. DEBT
Debt as of December 31, 1996 consisted of an unsecured note payable of
$50,000 to a relative of the majority shareholder. This note is payable upon
demand for the principal amount plus any accrued interest. It has a stated
interest rate of prime (8.25% at December 31, 1996).
In addition, the Company had a line of credit of $250,000 guaranteed by the
shareholders of the Company. It was secured by property owned by the
shareholders and had a stated interest rate of prime plus 150 basis points.
This line of credit had no balance outstanding on December 31, 1996 and
matured on March 5, 1997.
7. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under agreements which are classified as
capital leases. Most of these equipment leases have purchase options at the
end of the original lease term. Aggregate future minimum payments at
December 31, 1996 consist of the following:
<TABLE>
<S> <C>
1997 $22,431
1998 20,562
--------
Total minimum lease payments 42,993
Amounts representing interest (6,381)
--------
Present value of net minimum payments $36,612
========
</TABLE>
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities used in
its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in excess
of one year as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $29,848
1998 19,464
-------
$49,312
=======
</TABLE>
The amounts above include $19,464 in 1997 and 1998, which will be paid to the
shareholders for the Memphis office lease (Note 9). Rental expense under
operating leases amounted to $43,336 for the year ended December 31, 1996.
This included $18,897 paid to related parties (Note 9).
<PAGE>
-5-
8. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996 for
the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
CONTRIBUTED
SHARES FOR
SHARES ISSUED AND PAR VALUE COMMON
AUTHORIZED OUTSTANDING PER SHARE STOCK
---------- ----------- --------- -------------
<S> <C> <C> <C> <C>
2,000,000 30,000 None $30,000
</TABLE>
The shareholders made additional contributions of $195,900 prior to 1996.
9. RELATED-PARTY TRANSACTIONS
At December 31, 1996, the Company had a note payable of $50,000 due to the
relative of the majority shareholder. In addition, the shareholders had
guaranteed a line of credit on which there was no outstanding balance at
December 31, 1996. See Note 6 for the terms of these debt instruments.
During 1996, the Company leased its Memphis office from the shareholders.
Rent expense paid to shareholders in 1996 was $18,897. This lease expired
December 31, 1996 but was renewed through December 31, 1998. Payments for
the remaining lease term are included in the future obligations in Note 7.
At December 31, 1996, the Company had a note receivable of $6,871 from an
officer, who is also related to the shareholders. This note is unsecured,
has a related interest rate of 8.75%, and is payable upon demand. It was
repaid in full on May 8, 1997.
10. SUBSEQUENT EVENT
On April 30, 1997, the Company merged with Premiere Technologies, Inc.
("Premiere") in exchange for shares of Premiere stock with a value of
approximately $2,664,000. The merger was accounted for using the
pooling-of-interests method.
<PAGE>
AUDIOINFO, INC.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
AudioInfo, Inc.:
We have audited the accompanying balance sheet of AUDIOINFO, INC. (a Texas
corporation) as of December 31, 1996 and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 AudioInfo, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
AUDIOINFO, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
1996 1997
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 917 $ 2,511
Accounts receivable, net of allowance for
uncollectible accounts of $0 in 1996 and 1997 34,885 31,027
Advance to shareholder 30,000 30,000
Prepaids and other 863 863
---------- ----------
Total current assets 66,665 64,401
---------- ----------
PROPERTY AND EQUIPMENT (NOTE 5) 338,234 338,234
Less accumulated depreciation (302,905) (321,025)
---------- ----------
Net property and equipment 35,329 17,209
---------- ----------
OTHER ASSETS:
Franchise agreement, net of accumulated
amortization of $15,437 and $24,000 in
1996 and 1997, respectively 49,563 48,750
Deferred tax asset 5,698 5,698
---------- ----------
Total other assets 55,261 54,448
---------- ----------
Total assets $ 157,255 $ 136,058
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Income taxes payable $ 19,642 $ 4,081
Current portion of long-term debt and
capital leases (Note 6) 48,311 33,825
---------- ----------
Total current liabilities 67,953 37,906
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock, $10 par value; unlimited 1,000 1,000
shares authorized; 100 shares issued
and outstanding in 1996 and 1997
Additional paid-in capital 4,000 4,000
Retained earnings 84,302 93,152
---------- ----------
Total shareholders' equity 89,302 98,152
---------- ----------
Total liabilities and shareholders' equity $ 157,255 $ 136,058
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
AUDIOINFO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
--------- -----------
(Unaudited)
<S> <C> <C>
REVENUES $396,230 $ 99,321
COST OF SALES 68,328 17,575
--------- -----------
Gross margin 327,902 81,746
--------- -----------
OPERATING EXPENSES:
Selling and marketing 68,956 7,682
General and administrative 135,622 56,082
Depreciation and amortization 70,915 18,933
--------- -----------
Total operating expenses 275,493 82,697
--------- -----------
OPERATING INCOME 52,409 (951)
OTHER (EXPENSE) INCOME:
Interest expense (11,763) (1,829)
Other, net 0 13,227
--------- -----------
(11,763) 11,398
--------- -----------
INCOME BEFORE INCOME TAXES 40,646 10,447
INCOME TAX PROVISION 6,096 1,567
--------- -----------
NET INCOME $ 34,550 $ 8,880
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AUDIOINFO, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
--------------
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 100 $1,000 $4,000 $49,752 $54,752
Net income 0 0 0 34,550 34,550
------ ------ ---------- -------- -------
BALANCE, DECEMBER 31, 1996 100 $1,000 $4,000 $84,302 $89,302
====== ====== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
AUDIOINFO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $34,550 $ 8,880
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 70,915 18,933
Changes in operating assets and liabilities:
Decrease in accounts receivable--trade 0 3,828
Increase in accounts receivable--shareholder (29,303) 0
Increase (Decrease) in income taxes payable (3,893) (15,561)
Deferred income taxes 0 0
---------- ----------
Total adjustments 37,719 7,200
---------- ----------
Net cash provided by operating
activities 72,269 16,080
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment (20,720) 0
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on long-term debt (43,192) (11,841)
Principal payments on capital lease (9,554) (2,645)
---------- ----------
Net cash used in financing activities (52,746) (14,486)
---------- ----------
NET (DECREASE) INCREASE IN CASH (1,197) 1,594
CASH AT BEGINNING OF PERIOD 2,114 917
---------- ----------
CASH AT END OF PERIOD $ 917 $ 2,511
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $11,763 $ 1,829
========== ==========
Cash paid for income taxes $ 3,000 $21,425
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AUDIOINFO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
AudioInfo, Inc. (the "Company") is a Texas C corporation incorporated on
April 6, 1992.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging service to the
Austin, Texas Area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of AudioInfo, Inc. in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included, and the accompanying
financial statements present fairly the financial position and the results of
operations for the interim period. The March 31, 1997 financial statements
should be read in conjunction with the December 31, 1996 audited financial
statements and related notes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 installed or placed in service. The estimated
useful lives are five years for furniture and fixtures and office equipment
and three years for computer equipment. The cost of installed equipment
includes expenditures for installation. Assets recorded under capital leases
are depreciated over the shorter of their useful lives or the terms of the
related leases.
FRANCHISE FEE
The cost of the franchise acquired is being amortized using the straight-line
method over 20 years. Amortization expense charged to operations was $3,250
in 1996.
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment and
intangible assets, for impairment at each balance sheet date or whenever
events or changes in circumstances indicate that the carrying amount of an
asset should be assessed. An impairment is recognized when the undiscounted
estimated future cash flows are insufficient to recover the current carrying
amount of the asset. There was no impairment in 1996.
<PAGE>
-2-
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms.
These revenues are recognized when the related service is provided. The
majority of the Company's customers are billed monthly; however, some
customers have quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all direct expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Using the liability method, deferred taxes are determined
based on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
REGULATION
The Company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide subscribers' voice messaging.
Although management believes 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.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Company is dependent upon a number of factors,
including the effects of rapid technological changes affecting the markets
for the Company'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 effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that the
Company may charge for its products and services; the effects of regulatory
changes in the telecommunications industry; and the risk of dependence on key
managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist only of accounts receivable, as collateral is not
required. The Company's risk of loss is limited due to advance billings to
customers and the ability to terminate access on delinquent accounts.
Approximately 75% of the Company's sales were derived through a single entity
during 1996. Although this entity is a national account that is managed on a
collective basis, it is actually comprised of a large number of individual
subscribers located throughout all franchise territories, including those
operated by other Voice-Tel franchises.
<PAGE>
-3-
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement entered
into with VTE (Note 1). The term of the franchise agreement is 20 years, with
an option to renew the agreement in 2012 for an additional 10 years. The
Company is required to pay a monthly royalty in an amount equal to a
specified percentage of gross sales, less certain costs. The royalty rates
are 6% in the first year of operation under the franchise agreements, 8% in
the second year, and 10% thereafter. In addition, the Company is required to
pay a monthly marketing and promotion fee of 2% of gross sales, less certain
costs. The Company is periodically required to pay other special franchise
fees and assessments.
In conjunction with the execution of the franchise agreement, the Company has
agreed to act as the service representative of VTE within its franchise area.
As consideration for this, the Company receives a monthly fee equal to 20% of
the royalties it pays to VTE. During 1996, royalties, franchise fees, and
other assessments totaled $23,659, net of any service representative fees
received and are included in selling and marketing expenses in the
accompanying statement of operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Voice messaging hardware $ 319,554
Computer equipment 17,881
Furniture and fixture 799
---------
338,234
Less accumulated depreciation (302,905)
---------
Property and equipment, net $ 35,329
=========
</TABLE>
<PAGE>
-4-
6. FINANCING ARRANGEMENTS
Financing arrangements consisted of the following at December 31, 1996:
Capital lease, collateralized by certain equipment,
payable in monthly installments. Final payment due
April 1997 $ 2,645
Note payable, collateralized by all accounts receivable,
equipment and office furnishings, guaranteed by
shareholders, monthly payments of principal and
interest of $4,469,interest at 15%, final payment
due November 1997 45,666
-------
$48,311
=======
Maturities of debt and capital lease at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $48,311
Thereafter 0
-------
$48,311
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into an operating lease for facilities used in its
operations. Aggregate future minimum rental commitments under noncancelable
operating leases with original or remaining periods in excess of one year as
of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $12,451
1998 5,290
Thereafter 0
---------
$17,741
=========
</TABLE>
Rental expense under operating leases amounted to $11,900 for the year ended
December 31, 1996.
<PAGE>
-5-
8. INCOME TAXES
Details of the income tax provision for the year ended December 31, 1996 are
as follows:
<TABLE>
<S> <C>
Current:
Federal $ 6,151
Deferred:
Federal (55)
-------
Total provision $ 6,096
=======
</TABLE>
The tax effect of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases which gives rise to deferred tax assets and liabilities as of
December 31, 1996 is as follows:
<TABLE>
<S> <C>
Noncurrent deferred tax assets:
Property, plant, and equipment bases
differences $ 2,411
Service and franchise fees 3,287
--------
Deferred tax asset $ 5,698
========
</TABLE>
The federal statutory income tax rate approximates the effective
income tax rate for the year ended December 31, 1996.
9. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,039,000. The acquisition has
been accounted for using the pooling-of-interests method.
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
Financial Statements as of
December 31, 1996 and March 31, 1997
Together With
Auditors' Report
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Voice Partners of Greater Mahoning Valley, Ltd.:
We have audited the accompanying balance sheet of VOICE PARTNERS OF GREATER
MAHONING VALLEY, LTD. (an Ohio limited partnership) as of December 31, 1996 and
the related statements of operations, partners' capital, and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Voice Partners of Greater
Mahoning Valley, Ltd. as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 35,696 $ 19,807
Accounts receivable, less reserve of $0 in 1996 and 1997 44,752 14,747
Notes receivable from affiliate 8,380 6,280
------------ ------------
Total current assets 88,828 40,834
------------ ------------
PROPERTY AND EQUIPMENT (NOTE 5) 82,203 82,203
Less accumulated depreciation (18,029) (21,830)
------------ ------------
Net property and equipment 64,174 60,373
------------ ------------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $3,042
AND $3,152 IN 1996 AND 1997 RESPECTIVELY
56,665 56,555
------------ ------------
Total assets $ 209,667 $ 157,762
============ ============
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 9,623 $ 11,055
Deferred revenue 16,849 17,180
Current portion of capital lease 23,734 26,061
Payable to affiliate 7,574 0
Line of credit 24,001 4,254
------------ ------------
Total current liabilities 81,781 58,550
------------ ------------
LONG-TERM LIABILITIES (NOTE 6):
Payable to affiliate 21,956 25,387
Capital Lease 26,871 18,286
Other 2,764 0
------------ ------------
51,591 43,673
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
PARTNERS' CAPITAL:
Partners' capital 240,000 240,000
Accumulated deficit (163,705) (184,461)
------------ ------------
Total partners' capital 76,295 55,539
------------ ------------
Total liabilities and partners' capital $ 209,667 $ 157,762
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
------------- ------------
(Unaudited)
<S> <C> <C>
REVENUES $ 95,459 $ 31,400
COST OF SALES 18,008 5,806
----------- ----------
Gross margin 77,451 25,594
----------- ----------
OPERATING EXPENSES:
Selling and marketing 57,815 14,751
General and administrative 75,838 17,836
Depreciation and amortization 17,380 3,912
----------- ----------
Total operating expenses 151,033 36,499
----------- ----------
OPERATING LOSS (73,582) (10,905)
OTHER (EXPENSE) INCOME:
Interest expense (7,556) (22,949)
Other, net (7,809) 13,098
----------- ----------
NET LOSS $ (88,947) $(20,756)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $41,347 $75,145 $116,492
Partners' contributions 24,750 24,000 48,750
Net loss (35,579) (53,368) (88,947)
---------- ---------- -----------
BALANCE, DECEMBER 31, 1996 $30,518 $45,777 $ 76,295
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (88,947) $ (20,756)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 17,380 3,912
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (10,817) 5,005
(Increase) decrease in note receivable from shareholdler (8,380) 2,100
Increase (decrease) in accounts payable and accrued expenses 14,576 (6,142)
Deferred revenue 11,559 331
----------- -----------
Total adjustments 24,318 5,206
----------- -----------
Net cash used in operating activities (64,629) (15,550)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of franchise rights (20,000) 0
Retirements of equipment (19,621) 0
----------- -----------
Net cash used in investing activities (39,621) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions 48,750 0
Receivable from financing company (25,000) 0
Proceeds from affiliate note payable 21,956 0
Proceeds from (payments on) line of credit 19,490 (19,081)
Increase in capital lease obligations 9,766 18,742
----------- -----------
Net cash provided by (used in) financing activities 74,962 (339)
----------- -----------
NET DECREASE IN CASH (29,288) (15,889)
CASH AT BEGINNING OF PERIOD 64,984 35,696
----------- -----------
CASH AT END OF PERIOD $ 35,696 $ 19,807
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 7,556 $ 3,121
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VOICE PARTNERS OF GREATER MAHONING VALLEY, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
Organization
Voice Partners of Greater Mahoning Valley, Ltd. (the "Company") is a
limited partnership that was created on March 24, 1995. The Company is
comprised of three general partners, with a total partnership interest of
40%, and nine limited partners with the remaining 60% partnership interest.
Nature of Business
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. Business is conducted using the
proprietary trade name "Voice-Tel." The Voice-Tel system operates on the
Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging services to the
Youngstown, Ohio, and northwest Pennsylvania areas.
Basis of Presentation
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of the Company in accordance with the rules
and regulations of the Securities and Exchange Commission. In the opinion
of the management of the Company, all adjustments (consisting only of
normal recurring adjustments) considered necessary for fair presentation
of the March 31, 1997 financial statements have been included, and the
accompanying financial statements present fairly the financial position
and the results of operations for the interim period presented. The
March 31, 1997 financial statements should be read in conjunction with the
December 31, 1996 audited financial statements and related notes contained
within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
-2-
Fair Value of Financial Instruments
The fair value of the long-term debt approximates its carrying value as
of December 31, 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 installed or placed in service.
The estimated useful lives are ten years for furniture and fixtures and
five years for voice messaging and computer equipment. The cost of
installed equipment includes expenditures for installation. Assets
recorded under leasehold improvements are depreciated over the shorter of
their useful lives or the terms of the related leases.
Intangible Assets
Purchased intangible assets, which include franchise agreements, are
recorded at cost. Intangible assets are amortized using the straight-line
method over the terms of the agreements, 15 years for the Youngstown
franchise agreement and 20 years for the northwest Pennsylvania franchise
agreement.
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreements $56,869
Organizational costs 2,238
Other 600
Less accumulated amortization (3,042)
---------
Intangibles, net $56,665
=========
</TABLE>
Long-Lived Assets
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when
the undiscounted estimated future cash flows are insufficient to recover
the current carrying amount of the asset. There was no impairment in
1996.
Revenue Recognition and Deferred Revenues
Revenues are recognized as the Company performs services in accordance
with contract terms. Billings in advance for messaging services are
recorded on the accompanying balance sheets as deferred revenue. These
revenues are recognized when the related service is provided. The
majority of the Company's customers are billed monthly; however, some
customers have quarterly or semiannual billing cycles.
<PAGE>
-3-
Cost of Services
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
Income Taxes
The Company is a partnership and, therefore, not a taxpaying entity for
federal or state income tax purposes; therefore, no provision for federal
or state income taxes has been recorded in the financial statements.
Regulation
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
Source of Supplies
The Company does not own a transmission network and, accordingly, relies
on both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
Factors Impacting Future Success
The future success of the Company is dependent upon a number of factors,
including the effects of rapid technological changes affecting the
markets for the Company'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 effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that
the Company may charge for its products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 39% of the Company's sales were
derived through one single entity during 1996. Although this entity is a
single national account that is managed on a collective basis, it is
actually comprised of a large number of individual subscribers located
throughout all franchise territories, including those operated by other
Voice-Tel franchises.
<PAGE>
-4-
4. FRANCHISE AGREEMENTS
The franchise rights for Mahoning Valley were obtained as a capital
contribution of one of the general partners, and the rights to northwest
Pennsylvania were acquired from one of the partners. The terms of the
franchise agreements are approximately 15 and 20 years, respectively. The
Company is required to pay a monthly royalty fee in an amount equal to
10% of gross sales, less certain costs. In addition, the Company is
required to pay a monthly marketing and promotion fee of 2% of gross sales.
The Company is periodically required to pay other special franchise fees
and assessments. During 1996, royalties, franchise fees, and other
assessments totaled $8,029 and are included in selling and marketing
expenses on the accompanying statement of operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Voice messaging equipment $74,644
Computer equipment 3,563
Office furniture, fixtures, and equipment 3,321
Leasehold improvements 675
---------
82,203
Less accumulated depreciation (18,029)
---------
Property and equipment, net $64,174
=========
</TABLE>
6. LINE OF CREDIT
Effective December 2, 1995, the Company obtained a $25,000 line of credit
with National City Bank. The facility is for an indefinite period, as
long as the maximum is not exceeded. Interest is compounded monthly at
prime plus 2%. The line of credit is personally guaranteed by the general
partners. At December 31, 1996, outstanding draws totaled $24,001.
7. LONG-TERM OBLIGATIONS
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under agreements which are classified
as capital leases. Most of these equipment leases have purchase options at
the end of the original lease term. Aggregate future minimum payments as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 28,767
1998 19,605
1999 10,442
------
Total minimum lease payments 58,814
Amounts representing interest (8,209)
------
Present value of net minimum payments 50,605
======
</TABLE>
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into an operating lease for facilities used in
its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in
excess of one year as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 7,200
1998 3,000
---------
$10,200
=========
</TABLE>
Rental expense under operating leases amounted to $27,444 for the year
ended December 31, 1996.
9. RELATED-PARTY TRANSACTIONS
The Company has a note payable to two of the partners for $20,000. The
principal and interest on the note are due in full on August 1, 1998. At
December 31, 1996, the balance on the note was $21,956.
In conjunction with capital contributions made by the partners during
1996, the Company received a note from a partner in the amount of
$10,000. The note has a due date of May 1, 1997 and is renewable every
six months thereafter but must be paid in full by August 1, 1998. The
interest rate through May 1, 1997 was 6%, increasing to prime plus 3%
thereafter. At December 31, 1996, the outstanding balance was $8,380. The
note was renewed on May 1, 1997.
Current payables to affiliates at December 31, 1996 of $7,574 represent
deposits belonging to one of the partners which were incorrectly
deposited in the Company's account.
10. SUBSEQUENT EVENT
On June 13, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $80,000. The transaction has
been accounted for as a purchase.
<PAGE>
DARP, INC.
d.b.a. VOICE-TEL OF NEW JERSEY
FINANCIAL STATEMENTS AS OF MAY 31, 1996 AND FEBRUARY 28, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
DARP, Inc. d.b.a. Voice-Tel of New Jersey:
We have audited the accompanying balance sheet of DARP, INC. d.b.a. VOICE-TEL OF
NEW JERSEY (a New Jersey C corporation) as of May 31, 1996 and the related
statements of operations, shareholders' equity, and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 DARP, Inc. d.b.a. Voice-Tel of
New Jersey as of May 31, 1996 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
DARP, INC.
D.B.A. VOICE-TEL OF NEW JERSEY
BALANCE SHEETS
MAY 31, 1996 AND FEBRUARY 28, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,207 $ 102,964
Accounts receivable, less allowance for uncollectible
accounts of $0 in 1996 and 1997, respectively 79,659 88,954
Prepaid expenses and other current assets 2,145 0
-------------- ---------------
Total current assets 103,011 191,918
-------------- ---------------
PROPERTY AND EQUIPMENT 559,517 640,706
Less accumulated depreciation (205,131) (299,879)
-------------- ---------------
Net property and equipment 354,386 340,827
-------------- ---------------
OTHER ASSETS:
Intangible asset, net of accumulated amortization of
$25,000 and $27,857 in 1996 and 1997, respectively 50,000 47,143
-------------- ---------------
Total assets $ 507,397 $ 579,888
============== ===============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 39,086 $ 31,434
Deferred revenue 14,943 21,196
Current portion of leases 107,904 128,147
-------------- ---------------
Total current liabilities 161,933 180,777
-------------- ---------------
NONCURRENT LIABILITIES
Long-Term Capital Leases (Note 6) 282,737 255,706
Deferred tax liability 15,500 15,500
-------------- ---------------
Total noncurrent liabilities 298,237 271,206
-------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock 20,000 20,000
Additional paid-in capital 201,500 201,500
Retained deficit (174,273) ( 93,595)
-------------- ---------------
Total shareholders' equity 47,227 127,905
-------------- ---------------
Total liabilities and shareholders' equity $ 507,397 $ 579,888
============== ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
DARP, INC.
d.b.a. VOICE-TEL OF NEW JERSEY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
AND FOR THE NINE-MONTH PERIOD ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
REVENUES $ 763,880 $ 723,732
COST OF SERVICES 235,059 201,613
------------- -------------
Gross margin 528,821 522,119
------------- -------------
OPERATING EXPENSES:
Selling and marketing 136,466 74,521
General and administrative 186,827 209,462
Depreciation and amortization 101,339 97,605
------------- -------------
Total operating expenses 424,632 381,588
------------- -------------
OPERATING INCOME 104,189 140,531
OTHER (EXPENSE) INCOME:
Interest expense (53,512) (50,844)
Other, net 30,043 27,238
------------- -------------
NET INCOME BEFORE INCOME TAXES 80,720 116,925
PROVISION FOR INCOME TAXES 27,851 36,247
------------- -------------
NET INCOME $ 52,869 $ 80,678
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DARP, INC.
d.b.a. VOICE-TEL OF NEW JERSEY
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
-------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 1, 1995 100 $20,000 $201,500 $(163,398) $ 58,102
Dividends to shareholders 0 0 0 (63,744) (63,744)
Net income 0 0 0 52,869 52,869
--------- -------- ----------- --------- ----------
BALANCE, MAY 31, 1996 100 $20,000 $201,500 $(174,273) $ 47,227
========= ======== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
DARP, INC.
d.b.a. VOICE-TEL OF NEW JERSEY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1996
AND FOR THE NINE-MONTH PERIOD ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 52,869 $ 80,678
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 101,339 97,605
Deferred income taxes (1,152) 0
Changes in operating assets and liabilities:
Accounts receivable ( 19,903) (9,295)
Prepaid expenses and other current assets (205) 2,145
Accounts payable and accrued liabilities 11,667 (7,652)
Deferred revenue 3,316 6,253
------------- -------------
Total Adjustments 95,062 89,056
------------- -------------
Net cash provided by operating activities 147,931 169,734
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (152,208) (81,189)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under capital lease obligations 152,208 74,679
Payments of capital leases (75,873) (81,467)
Distributions paid to shareholders (63,744) 0
------------- -------------
Net cash provided by (used) in financing activities 12,591 (6,788)
------------- -------------
NET INCREASE IN CASH 8,314 81,757
CASH AT BEGINNING OF PERIOD 12,893 21,207
------------- -------------
CASH AT END OF PERIOD $ 21,207 $ 102,964
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 53,512 $ 50,844
============= =============
Cash paid for taxes $ 22,400 $ 23,625
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DARP, INC.
d.b.a. VOICE-TEL OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
DARP, Inc. d.b.a. Voice-Tel of New Jersey ("DARP" or the "Company") is a C
corporation incorporated in the state of New Jersey on October 4, 1989.
NATURE OF BUSINESS
The Company provides digital voice messaging services under exclusive
franchise agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is
conducted using the proprietary trade name "Voice-Tel." The Voice-Tel
system operates on the Company's computer processing equipment using
commercially available telephone lines. DARP operates digital voice
messaging service centers in the greater metropolitan areas of Wharton,
Ewing, Trenton, and New Brunswick, New Jersey.
BASIS OF PRESENTATION
The February 28, 1997 financial statements are unaudited and have been
prepared by the management of DARP in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
February 28, 1997 financial statements have been included and the
accompanying financial statements present fairly the financial position and
results of operations for the interim period presented. The February 28,
1997 financial statements should be read in conjunction with the May 31,
1996 audited financial statements and related notes contained within this
report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, cash and cash equivalents include cash on
hand and highly liquid money market investments.
<PAGE>
-2-
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 installed or placed in service. The
estimated useful lives are five years for messaging computer systems and
office furniture and equipment and three years for computer software. The
cost of installed equipment includes expenditures for installation. Assets
recorded under capital leases are depreciated over the shorter of their
useful lives or the terms of the related leases.
INTANGIBLE ASSET
The purchased intangible asset, which is a franchise agreement, is recorded
at cost. The franchise agreement is amortized using the straight-line
method over the term of the agreement. The franchise agreement is amortized
over 20 years.
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's current assets and liabilities
approximates fair value due to the short term in which these instruments
mature. The carrying value of the Company's long-term debt approximates
fair value because the interest rates on the equipment loans approximate
prevailing interest rates for similar debt instruments.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheet as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
<PAGE>
-3-
COST OF SERVICES
Cost of services includes all direct expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. 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.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Company is dependent upon a number of factors,
including the effects of rapid technological changes affecting the markets
for the Company'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 effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effect on the prices that the
Company may charge for its products and services; the effects of regulatory
changes in the telecommunications industry; and the risk of dependence on
key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 68% of the Company's sales were derived
through a single national account during 1996. Although this entity is a
single national account that is managed on a collective basis, it is
actually comprised of a large number of individual subscribers located
throughout all franchise territories, including those operated by other
Voice-Tel franchises.
<PAGE>
-4-
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE. The term of the franchise agreement is 20 years with
an option to renew the agreement for an additional 10 years. The Company is
required to pay a monthly royalty fee in an amount equal to a specified
percentage of gross sales. The royalty rates are 6% in the first year of
the franchise agreement, 8% in the second year, and 10% thereafter. In
addition, the Company is required to pay a monthly marketing and promotion
fee of 2% of gross sales. The Company is periodically required to pay other
special franchise fees and assessments.
In conjunction with the execution of the franchise agreements, the Company
has agreed to act as the service representative of VTE within each of VTE's
franchise areas. As consideration for this, the Company receives a monthly
fee equal to 40% of the royalties it pays to VTE. During 1996, royalties,
franchise fees, and other assessments totaled approximately $74,000, net of
any service representative fees received.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at May 31, 1996:
<TABLE>
<S> <C>
Messaging computer systems $ 524,003
Computer software 32,123
Office furniture and equipment 3,391
-----------
559,517
Less accumulated depreciation (205,131)
-----------
Property and equipment, net $ 354,386
===========
</TABLE>
6. LONG-TERM OBLIGATIONS
CAPITAL LEASE OBLIGATIONS
The present value of future minimum lease payments as of May 31, 1996 is as
follows:
<TABLE>
<S> <C>
1997 $166,488
1998 159,614
1999 120,707
2000 47,231
2001 22,527
---------
Total minimum lease obligations 516,567
Less interest 125,926
---------
Present value of lease obligations $390,641
=========
</TABLE>
<PAGE>
7. INCOME TAXES
Details of the income tax provision for the year ended May 31, 1996 are as
follows:
<TABLE>
<S> <C>
Current:
Federal $19,719
State 8,132
-------
Total provision $27,851
=======
</TABLE>
The tax effect of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases which gives rise to deferred tax assets and liabilities as of May 31,
1996.
Noncurrent deferred tax liabilities:
Service and franchise fees $15,500
=======
The Company files stand alone federal and state tax returns.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate for the year ended May 31, 1997 is as follows:
Federal Statutory income tax rate 22.0%
Increase in taxes resulting from:
State income taxes 9.0
--------
Effective income tax rate 31.0%
========
<PAGE>
-5-
8. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities used
in its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in excess
of one year as of May 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 16,720
1998 13,500
1999 9,480
---------
$ 39,700
=========
</TABLE>
Rental expense under operating leases amounted to $19,130 for the year
ended May 31, 1996.
9. EQUITY INTEREST
COMMON STOCK
The common stock authorized, issued, and outstanding at May 31, 1996 for
the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
PAR CONTRIBUTED
SHARES VALUE FOR
SHARES ISSUED AND PER COMMON
AUTHORIZED OUTSTANDING SHARE STOCK
------------- --------------- -------- ---------------
<S> <C> <C> <C>
1,000 100 $200 $20,000
</TABLE>
10. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,397,000. The merger was
subject to certain conditions and was consummated on May 20, 1997. The
merger has been accounted for using the pooling-of-interests method.
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Indiana Communicator, Inc.:
We have audited the accompanying balance sheet of INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA (an Indiana S corporation) as of December 31, 1996
and the related statements of operations, shareholder's equity, and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Indiana Communicator, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 13, 1997
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $237,109 $ 4,178
Accounts receivable, less allowance for uncollectible
accounts of $0 in 1996 and 1997 59,725 55,538
Shareholder receivable 0 120,000
Prepaid expenses and other current assets 662 265
---------- ------------
Total current assets 297,496 179,981
---------- ------------
PROPERTY AND EQUIPMENT (NOTE 5) 354,950 358,279
Less accumulated depreciation (68,722) (86,461)
---------- ------------
Net property and equipment 286,228 271,818
---------- ------------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$30,662 AND $38,302 IN 1996 AND 1997, RESPECTIVELY 209,838 202,198
---------- ------------
Total assets $793,562 $653,997
========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 17,208 $ 30
Deferred revenue 49,014 46,274
Current portion of long-term debt 13,115 11,307
---------- ------------
Total current liabilities 79,337 57,611
NOTES PAYABLE (NOTE 6) 518,827 515,907
---------- ------------
Total liabilities 598,164 573,518
---------- ------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDER'S EQUITY:
Common stock (Note 8) 10,000 10,000
Paid-in capital 14,000 14,000
Retained earnings 171,398 56,479
---------- ------------
Total shareholder's equity 195,398 80,479
---------- ------------
Total liabilities and shareholder's equity $793,562 $653,997
========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
-------- -----------
(Unaudited)
<S> <C> <C>
REVENUES $812,657 $204,500
COST OF SERVICES 89,428 21,872
-------- -----------
Gross margin 723,229 182,628
-------- -----------
OPERATING EXPENSES:
Selling and marketing 96,166 20,379
General and administrative 205,563 39,815
Depreciation and amortization 99,384 25,379
-------- -----------
Total operating expenses 401,113 85,573
-------- -----------
OPERATING INCOME 322,116 97,055
INTEREST EXPENSE 50,423 11,974
NET INCOME $271,693 $ 85,081
======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN RETAINED
------------------
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 0 $ 0 $ 0 $ 0 $ 0
Initial contribution 100 10,000 14,000 0 24,000
Dividends to shareholder 0 0 0 (100,295) (100,295)
Net income 0 0 0 271,693 271,693
-------- -------- --------- ----------- ----------
BALANCE, December 31, 1996 100 $10,000 $14,000 $ 171,398 $ 195,398
======== ======== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 271,693 $ 88,608
-------------- ------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 99,384 21,852
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (59,725) 4,187
(Increase) decrease in prepaid assets (662) 397
Increase (decrease) in accounts payable and accrued expenses 17,208 (17,178)
Increase (decrease) in deferred revenue 49,014 (2,740)
-------------- ------------
Total adjustments 105,219 6,518
-------------- ------------
Net cash provided by operating activities 376,912 95,126
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (354,950) (3,329)
Increase in intangibles (240,500) 0
-------------- ------------
Net cash used in investing activities (595,450) (3,329)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution 24,000 0
Dividends paid to shareholder (100,295) (200,000)
Proceeds from issuance of long-term debt and capital leases 579,381 0
Repayments of long-term debt (47,439) (4,728)
(Increase) in shareholder receivable 0 (120,000)
-------------- ------------
Net cash provided by (used in) financing activities 455,647 (324,728)
-------------- ------------
NET INCREASE IN CASH 237,109 (232,931)
CASH AT BEGINNING OF PERIOD 0 237,109
-------------- ------------
CASH AT END OF PERIOD $ 237,109 $ 4,178
============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 50,423 $ 11,975
============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INDIANA COMMUNICATOR, INC.
d.b.a. VOICE-TEL OF INDIANA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
Indiana Communicator, Inc. d.b.a. Voice-Tel of Indiana is an S corporation
referred to herein as the "Company." The Company was incorporated in
Indiana on January 1, 1996 (Note 9).
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging services to the
greater metropolitan Indianapolis area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of the Company in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
March 31, 1997 financial statements have been included and the accompanying
financial statements present fairly the financial position and results of
operations for the interim period. The March 31, 1997 financial statements
should be read in conjunction with the December 31, 1996 audited financial
statements and related notes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
-2-
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 installed or placed in service. The
estimated useful lives are seven years for furniture and fixtures, five
years for office and computer equipment, and three years for computer
software. The cost of installed equipment includes expenditures for
installation. Assets recorded under leasehold improvements are depreciated
over the shorter of their useful lives or the terms of the related leases.
INTANGIBLE ASSETS
Purchased intangible assets, which include a franchise agreement, are
recorded at cost. Intangible assets are amortized using the straight-line
method over the estimated useful lives of the related assets or term of the
agreement (173 months for the remaining life of the franchise agreement at
the date of purchase).
Intangible balances consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Franchise agreement $ 60,000
Goodwill (Note 9) 72,000
Organization cost 500
Service representative agreement (Note 9) 108,000
Less accumulated amortization (30,662)
-----------
Intangibles, net $209,838
===========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheets as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the shareholder is allocated
the Company's taxable income.
<PAGE>
-3-
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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 the Company'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; effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that
the Company may charge for its products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 60% of the Company's sales were derived
through a single entity during 1996. Although this entity is a single
national account that is managed on a collective basis, it is actually
comprised of a large number of individual subscribers located throughout
all franchise territories, including those operated by other Voice-Tel
franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement
entered into with VTE (Note 1). The term of the franchise agreement is 20
years, with an option to renew the agreement for an additional 10 years.
The Company is required to pay a monthly royalty in an amount equal to 10%
of gross sales, less certain costs. In addition, the Company is required to
pay a monthly marketing and promotion fee of 2% of gross sales. The Company
is periodically required to pay other special franchise fees and
assessments.
In conjunction with the execution of the franchise agreement, the Company
has agreed to act as the service representative of VTE within its franchise
area. As consideration for this, the Company receives a monthly fee equal
<PAGE>
-4-
to 20% of the royalties it pays to VTE. During 1996, royalties, franchise
fees, and other assessments totaled $63,979, net of any service
representative fees received and are included in selling and marketing
expenses in the 1996 statement of income.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Voice messaging equipment $187,867
Voice messaging software 134,456
Office furniture, fixtures, and equipment 32,627
-----------
354,950
Less accumulated depreciation (68,722)
-----------
Property and equipment, net $286,228
===========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Note payable to shareholder, interest and principal
payments monthly, interest rate 9% $105,977
Note payable to Automated Messaging, Inc., interest and
principal payments monthly, interest rate 9% 425,965
----------
531,942
Less current maturities (13,115)
----------
Long-term debt, net of current portion $518,827
==========
</TABLE>
At December 31, 1996, principal payments on long-term debt are due as
follows:
<TABLE>
<S> <C>
1997 $ 13,115
1998 12,099
1999 13,235
2000 14,475
2001 15,833
Thereafter 463,185
----------
$531,942
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into an operating lease for the facility used in
its operations. Aggregate further minimum rental commitments under this
noncancelable operating
<PAGE>
-5-
lease, which expires on June 1, 2000, is $32,056 as of December 31, 1996.
Rental expense under operating leases amounted to $14,484 for the year
ended December 31, 1996.
8. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at December 31, 1996
for the Company is as follows:
<TABLE>
<CAPTION>
AMOUNT
PAR CONTRIBUTED
SHARES VALUE FOR
SHARES ISSUED AND PER COMMON
AUTHORIZED OUTSTANDING SHARE STOCK
------------ ------------- -------- -------------
<S> <C> <C> <C>
1,000 100 $1,000 $24,000
</TABLE>
9. RELATED-PARTY TRANSACTIONS
Effective January 1, 1996, the Company was incorporated through a purchase
transaction with Automated Messaging, Inc. ("AMI"). The sole shareholder of
AMI is the father of the sole shareholder of the Company. Certain assets,
including the equipment and the franchise agreement, were revalued to fair
market value at the date of the transaction. The $72,000 excess of the
acquisition cost over the fair value of the assets acquired has been
allocated to goodwill and is being amortized over 15 years. AMI was
purchased with the issuance of a note payable of $432,000.
Simultaneous with this transaction, the Company acquired the rights under a
service representative agreement from the shareholder for a period of five
years. The $108,000 cost is included in intangible assets in the
accompanying balance sheet and is being amortized over five years. The
related amount due to the shareholder is included in notes payable
(Note 6).
10. SUBSEQUENT EVENT
On May 21, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,836,000. The acquisition
has been accounted for using the pooling-of-interests method.
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
In-Touch Technologies, Inc.
d.b.a. Voice-Tel of California:
We have audited the accompanying balance sheet of IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA (a California S corporation) as of December 31,
1996 and the related statements of operations, shareholders' deficit, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 In-Touch Technologies, Inc.
d.b.a. Voice-Tel of California as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 6, 1997
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
----------- -----------
Unaudited
<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,189 $ 6,148
Accounts receivable, less allowance for uncollectible accounts of $1,101 93,577 99,251
Notes receivable 40,532 79,483
Advance to shareholder 0 9,551
Prepaid expenses and other current assets 8,393 8,393
----------- -----------
Total current assets 149,691 202,826
----------- -----------
PROPERTY AND EQUIPMENT 970,038 970,038
Less accumulated depreciation (710,062) (734,662)
----------- -----------
Net property and equipment 259,976 235,376
----------- -----------
OTHER ASSETS:
Franchise fees, net of accumulated amortization of $52,711 117,229 112,978
Deposits 6,280 6,280
Notes receivable 62,979 --
----------- -----------
Total other assets 186,488 119,258
----------- -----------
Total assets $ 596,155 $ 557,460
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 91,397 $ 72,306
Accrued expenses 49,213 36,560
Current portion of long-term obligations 415,332 371,506
Deferred revenue 58,777 47,574
----------- -----------
Total current liabilities 614,719 527,946
----------- -----------
LOSSES IN EXCESS OF INVESTMENT IN JOINT VENTURE (NOTE 8) 196,609 194,286
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASES (NOTE 6) 407,892 408,595
----------- -----------
SHAREHOLDERS' DEFICIT:
Common stock, $1,000 per share; 100 shares authorized, 100 shares issued and
outstanding 100,000 100,000
Treasury stock (Note 7) (35,000) (35,000)
Accumulated deficit (688,065) (638,367)
----------- -----------
Total shareholders' deficit (623,065) (573,367)
----------- -----------
Total liabilities and shareholders' deficit $596,155 $557,460
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
1996 1997
------------ ------------
Unaudited
<S> <C> <C>
REVENUES $1,449,753 $ 345,872
COST OF SERVICES 394,629 83,143
------------ ------------
Gross margin 1,055,124 262,729
------------ ------------
OPERATING EXPENSES:
Selling and marketing 367,763 76,040
General and administrative 457,221 77,910
Depreciation and amortization 107,765 28,851
------------ ------------
Total operating expenses 932,749 182,801
------------ ------------
OPERATING INCOME 122,375 79,928
OTHER EXPENSES:
Interest expense (74,235) (23,237)
Other, net (12,706) --
------------ ------------
NET INCOME $ 35,434 $ 56,691
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK TREASURY RETAINED
----------------------
SHARES AMOUNT STOCK DEFICIT TOTAL
---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 100 $100,000 $ 0 $(303,499) $(203,499)
Shareholder buyout 0 0 (35,000) (420,000) (455,000)
Dividends to shareholders 0 0 0 0 0
Net income 0 0 0 35,434 35,434
---------- ----------- ------------- ------------ -----------
BALANCE, DECEMBER 31, 1996 100 $100,000 $(35,000) $(688,065) $(623,065)
========== =========== ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
------ ------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,434 $ 56,691
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 107,765 $ 28,851
Changes in assets and liabilities:
Accounts receivable 10,741 (5,674)
Deposits and other assets (5,494) 0
Accounts payable and accrued expenses (12,397) (31,745)
Deferred revenue (4,792) (11,203)
----------- ----------
Total adjustments 95,823 (19,771)
----------- ----------
Net cash provided by operating activities 131,257 36,920
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Issuances)/Repayments of notes receivable (94,313) 22,447
Contributions to joint venture (23,323) (7,734)
Capital expenditures (67,723) --
Proceeds from sale of equipment 31,093 --
----------- ----------
Net cash used in investing activities (154,266) 14,713
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 333,161 97,862
Payment under long-term obligations (208,958) (140,985)
Advance to shareholder -- (9,551)
Repurchase of common stock (110,000) --
----------- ----------
Net cash provided by financing activities 14,203 (52,674)
----------- ----------
NET DECREASE IN CASH (8,806) (1,041)
CASH, BEGINNING OF PERIOD 15,995 7,189
----------- ----------
CASH, END OF PERIOD $ 7,189 $ 6,148
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 59,447 $ 16,374
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
IN-TOUCH TECHNOLOGIES, INC.
d.b.a. VOICE-TEL OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
In-Touch Technologies, Inc. d.b.a. Voice-Tel of California (an S
corporation), referred to herein as the "Company," was incorporated in the
state of California on August 3, 1990.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Company's computer processing equipment using commercially available
telephone lines. The Company provides digital messaging services to the
greater metropolitan San Francisco area.
BASIS OF PRESENTATION
The March 31, 1997 financial statements are unaudited and have been prepared
by the management of the Company in accordance with the rules and regulations
of the Securities and Exchange Commission. In the opinion of the management
of the Company, all adjustments (consisting only of normal recurring
adjustments) considered necessary for fair presentation of the March 31,
1997 financial statements have been included and the accompanying financial
statements present fairly the financial position and results of operations
for the interim period. The March 31, 1997 financial statements should be
read in conjunction with the December 31, 1996 financial statements and
related notes contained within this report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 installed or placed in service. The estimated
useful lives are ten years for office equipment and five years for computer
software and equipment. The cost of installed equipment includes
expenditures for installation. Assets recorded under capital leases are
depreciated over the shorter of their useful lives or the term of the related
leases.
<PAGE>
-2-
INTANGIBLE ASSETS
Purchased intangible assets, which include franchise agreements, are recorded
at cost. Intangible assets are amortized using the straight-line method over
the term of the agreement (20 years).
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment and
intangible assets, for impairment at each balance sheet date or whenever
events or changes in circumstances indicate that the carrying amount of an
asset should be assessed. An impairment is recognized when the undiscounted
estimated future cash flows are insufficient to recover the current carrying
amount of the asset. There was no impairment in 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt approximates its carrying value as of
December 31, 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying balance sheet as deferred revenue. These revenues are
recognized when the related service is provided. The majority of the
Company's customers are billed monthly; however, some customers have
quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice messaging
services, including long-distance carrier costs and applicable taxes.
INCOME TAXES
The Company has elected to be treated as a small business S corporation for
federal and state income tax purposes. As such, in lieu of corporate income
tax consequences arising at the company level, the individual shareholders
are allocated the Company's taxable income.
REGULATION
The Company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes that alternative
telecommunications facilities could be found in a
<PAGE>
-3-
timely manner, disruption of these services for more than a brief period
would have an adverse effect on operating results.
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
the Company'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; effects of intense competition in information and
telecommunications services markets, including, among other things, the
consequent effects on the prices that the Company may charge for its products
and services; the effect of regulatory changes in the telecommunications
industry; and the risk of dependence on key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist only of accounts receivable, as collateral is not
required. The Company's risk of loss is limited due to advance billings to
customers and the ability to terminate access on delinquent accounts.
Approximately 51% of the Company's sales was derived through a single
national account during 1996. Although this entity is managed on a
collective basis, it is actually comprised of a large number of individual
subscribers located throughout all franchise territories, including those
operated by other Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to a franchise agreement entered
into with VTE (Note 1). The term of the franchise agreement is 20 years,
with an option to renew the agreement for an additional 10 years. The
Company is required to pay a monthly royalty in an amount equal to 10% of
gross sales, less certain costs. In addition, the Company is required to pay
a monthly marketing and promotion fee of 2% of gross sales. The Company is
periodically required to pay other special franchise fees and assessments.
In conjunction with the execution of the franchise agreement, the Company has
agreed to act as the service representative of VTE within its franchise area.
As consideration for this, the Company receives a monthly fee equal to a
range of 20% to 60% of the royalties it pays to VTE. During 1996, royalties,
franchise fees, and other assessments totaled $151,466, net of any service
representative fees received.
<PAGE>
-4-
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Computer software $ 244,617
Messaging computer systems 699,556
Office equipment 25,865
----------
970,038
Less accumulated depreciation (710,062)
----------
Property and equipment, net $ 259,976
==========
</TABLE>
6. LONG-TERM OBLIGATIONS
LONG-TERM DEBT
Long-term debt as of December 31, 1996 consisted of the following:
Notes payable to individuals, interest and principal
payments beginning January 1, 2000, interest at 14%, due
on demand at option of lenders with repayments to begin
six months after January 1, 1997, based on a 60-month
amortization schedule $ 18,022
Notes payable to a franchise, interest and principal
payments monthly beginning July 1, 2000, interest at 14% 110,000
---------
128,022
Less current maturities 111,291
---------
Long-term debt, net of current maturities $ 16,731
---------
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $111,291
1998 2,870
1999 3,297
2000 3,790
Thereafter 6,774
--------
$128,022
========
</TABLE>
<PAGE>
-5-
SUBORDINATED DEBT
Subordinated debt as of December 31, 1996 consisted of the following:
Notes payable to a relative of a shareholder, interest and
principal payments monthly until February 28, 1998, interest at 14% $ 11,628
Notes payable to shareholder, interest and principal payments
monthly until January 1, 1999, interest at 8% 20,588
Notes payable to shareholders, interest and principal payments
beginning January 1, 2000, interest at 14%, due on demand at option
of lenders with repayments to begin six months after January 1,
1997 based on a 60-month amortization schedule 20,000
Notes payable to shareholder, interest and principal payments
monthly until December 1, 1996, interest at 10% 24,758
Notes payable to former shareholder, interest and principal
payments monthly until June 15, 2000, interest at prime 392,581
---------
469,555
Less current maturities 177,865
---------
Long-term subordinated debt, net of current maturities $ 291,690
=========
Maturities of long-term subordinated debt at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997 $177,865
1998 109,537
1999 118,923
2000 63,230
--------
$469,555
========
</TABLE>
CAPITAL LEASE OBLIGATIONS
The present value of future minimum lease payments as of December 31, 1996 is
as follows:
<TABLE>
<S> <C>
1997 $149,206
1998 86,200
1999 7,517
2000 7,517
2001 5,011
--------
Total minimum lease payments 255,451
Less interest 29,804
--------
Present value of lease payments $225,647
========
</TABLE>
<PAGE>
-6-
7. EQUITY INTERESTS
SHAREHOLDER BUYOUT
During 1996, the Company reacquired 35 of the 100 shares of $1,000 par value
common stock from a single shareholder. The Company bought out the
shareholder's interest in consideration of cash and a note payable. This
shareholder's interest in the business was reacquired pursuant to the terms
of a pre-existing agreement between the shareholders.
8. JOINT VENTURE
On January 1, 1993, the Company formed a 50-50 joint venture with Car Zee,
Inc. ("Car Zee") (formerly known as Voice-Tel of San Jose) under the name of
Voice-Tel of the Pacific ("VTOP"). VTOP operates as a service organization
providing administrative and sales services to the Company and Car Zee. The
investment has been accounted for under the equity method of accounting, and
losses in excess of contributions to the joint venture have been presented as
a long-term liability in the accompanying balance sheet to reflect the
Company's pro rata share of the accumulated deficit in VTOP. The Company's
equity in the joint venture is immaterial and is not disclosed separately in
the statement of operations.
9. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,795,000. The acquisition was
subject to certain conditions and was consummated on May 6, 1997. The
merger was accounted for using the pooling-of-interests method.
<PAGE>
125976 CANADA LTD.
D.B.A. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1996 AND JANUARY 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
125976 Canada Ltd.
d.b.a. Voice-Tel of Manitoba:
We have audited the accompanying consolidated balance sheet of 125976 CANADA
LTD. d.b.a. VOICE-TEL OF MANITOBA (a Canadian corporation) AND SUBSIDIARIES as
of April 30, 1996 and the related consolidated statements of operations,
shareholders' deficit, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of 125976
Canada Ltd. d.b.a. Voice-Tel of Manitoba and subsidiaries as of April 30, 1996
and the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles in the United States
of America.
/s/ Arthur Andersen LLP
Atlanta, Georgia
April 17, 1997
<PAGE>
125976 CANADA LTD.
d.b.a. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND JANUARY 31, 1997
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
ASSETS
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 33,156 $ 79,835
Accounts receivable:
Trade less allowance for doubtful
accounts of $0 in 1996 and 1997 39,784 81,350
Related party 117,618 39,693
Prepaid expenses and other current
assets 11,595 20,732
----------- -----------
Total current assets 202,153 221,610
----------- -----------
PROPERTY AND EQUIPMENT (NOTE 5) 1,051,186 1,187,142
Less accumulated depreciation (240,267) (413,513)
----------- -----------
Net property and equipment 810,919 773,629
----------- -----------
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $67,061 AND $104,105
IN 1996 AND 1997, RESPECTIVELY 813,118 776,074
----------- -----------
Total assets $1,826,190 $1,771,313
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 121,522 $ 138,346
Accrued expenses 18,602 20,649
Deferred revenue 116,909 132,074
Subordinated debt 1,081,095 797,743
Current portion of long-term debt 277,921 273,820
----------- -----------
Total current liabilities 1,616,049 1,362,632
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt (Note 6) 365,582 161,242
Deferred tax liability (Note 8) 215,434 215,434
----------- -----------
581,016 376,676
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' DEFICIT:
Common stock (Note 9) 200 200
Retained (deficit) earnings (371,075) 31,805
----------- -----------
Total shareholders'
(deficit) earnings (370,875) 32,005
----------- -----------
Total liabilities and
shareholders' deficit $1,826,190 $1,771,313
=========== ===========
</TABLE>
- - ------------------
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
125976 CANADA LTD.
d.b.a. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996 AND
THE NINE-MONTH PERIOD ENDED JANUARY 31, 1997
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
REVENUES $2,109,797 $ 2,087,542
COST OF SERVICES 305,196 258,728
---------- -----------
Gross margin 1,804,601 1,828,814
---------- -----------
OPERATING EXPENSES:
Selling and marketing 480,187 471,994
General and administrative 841,769 677,563
Depreciation and amortization 225,833 210,290
---------- -----------
Total operating expenses 1,547,789 1,359,847
---------- -----------
OPERATING INCOME 256,812 468,967
OTHER INCOME (EXPENSE):
Interest expense (130,113) (62,877)
Other, net 46,166 (3,210)
---------- -----------
NET INCOME $ 172,865 $ 402,880
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
125976 CANADA LTD.
d.b.a. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED APRIL 30, 1996
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------
SHARES AMOUNT DEFICIT TOTAL
------ ------ -------- ---------
<S> <C> <C> <C> <C>
BALANCE, MAY 1, 1995 200 $200 $(543,940) $(543,740)
Dividends to shareholders 0 0 0 0
Net income 0 0 172,865 172,865
------ ------ --------- ---------
BALANCE, April 30, 1996 200 $200 $(371,075) $(370,875)
====== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
<PAGE>
125976 CANADA LTD.
d.b.a. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1996 AND
THE NINE-MONTH PERIOD ENDED JANUARY 31, 1997
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1997
-------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 172,865 $ 402,880
--------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 225,833 210,290
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable--trade 51,171 (41,566)
(Increase) decrease in accounts receivable--related party (32,037) 77,925
Decrease (increase) in other current assets 924 (9,137)
Increase in accounts payable 656 16,824
Increase in accrued expenses 3,682 2,047
Deferred revenue 37,780 15,165
---------- ----------
Total adjustments 288,009 271,548
---------- ----------
Net cash provided by operating activities 460,874 674,428
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of capital assets (342,366) (135,956)
Purchase of franchise rights (40,020) 0
---------- ----------
Net cash used in investing activities (382,386) (135,956)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 303,920 0
Principal payments on long-term debt (250,369) (208,441)
Principal payments on subordinated debt (108,750) (283,352)
---------- ----------
Net cash used in financing activities (55,199) (491,793)
---------- ----------
NET INCREASE IN CASH 23,289 46,679
CASH AT BEGINNING OF PERIOD 9,867 33,156
---------- ----------
CASH AT END OF PERIOD $ 33,156 $ 79,835
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 132,204 $ 62,877
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
125976 CANADA LTD.
d.b.a. VOICE-TEL OF MANITOBA
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
125976 Canada Ltd. d.b.a. Voice-Tel of Manitoba (the "Company") was
incorporated on August 17, 1983 in Manitoba, Canada. The Company remained
inactive until September 21, 1993 when the Company began operating under
franchise rights granted by Voice-Tel Enterprises, Inc. ("VTE"). The
Company is the parent company of four other companies operating under VTE
franchises as well as a service company that provides computer usage to one
of the franchises.
NATURE OF BUSINESS
The Company provides digital messaging services under exclusive franchise
agreements with VTE. Business is conducted using the proprietary trade name
"Voice-Tel." The Voice-Tel system operates on the Company's computer
processing equipment using commercially available telephone lines.
Effective September 9, 1993, the Company acquired the franchise rights to
solicit and provide Voice-Tel services to the Winnipeg, Manitoba, area.
Late in 1993, the Company also acquired the Voice-Tel franchise rights for
the majority of the province of Saskatchewan; however, operations did not
begin until late 1996. In early 1994, the Company acquired the franchise
rights to the Edmonton and Calgary, Alberta, areas. Operations commenced in
Edmonton in August 1994 and in Calgary in August 1995. In early 1995, the
Company acquired the franchise rights to the
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of 125976 Canada
Ltd. d.b.a. Voice-Tel of Manitoba and its wholly owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated in
consolidation. These financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and are
presented in Canadian dollars.
The January 31, 1997 financial statements are unaudited and have been
prepared by the management of the Company in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation of the
January 31, 1997 financial statements have been included, and the
accompanying financial statements present fairly the financial position and
the results of operations for the interim period presented. The January 31,
1997 financial statements should be read in conjunction with the
April 30, 1996 financial statements and related footnotes contained
within this report.
<PAGE>
-2-
Vancouver, British Columbia, area. During 1996, the remaining service areas
in British Columbia were acquired.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Replacements and major
improvements related to property and equipment are capitalized. Normal
repairs and maintenance are charged to expense as incurred. Depreciation is
provided using the straight-line method over the estimated useful lives of
the assets (five to seven years). Amortization of leasehold improvements is
provided over the lives of the related leases or estimated useful lives,
whichever is shorter. Upon the retirement or sale of assets, the costs of
such assets and the related accumulated depreciation are removed from the
balance sheet and the gain or loss, if any, is included in income.
INTANGIBLE ASSETS
Purchased intangible assets, which include franchise agreements and
goodwill, are stated at cost, less accumulated amortization, and are being
amortized using the straight-line method over the 20-year terms of the
franchise agreements. The goodwill that arose from the purchase of the
Vancouver franchise is being amortized over the remaining term (17 years
and 5 months) of the franchise agreement purchased from a franchise.
Intangible asset balances consisted of the following at April 30, 1996:
<TABLE>
<S> <C>
Franchise agreements $392,414
Goodwill 487,765
---------
880,179
Less accumulated amortization (67,061)
---------
Intangibles, net $813,118
========
</TABLE>
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
<PAGE>
-3-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt approximates its carrying value as of
April 30, 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Company performs services in accordance with
contract terms. Billings in advance for messaging services are recorded on
the accompanying consolidated balances sheets as deferred revenue. These
revenues are recognized when the related service is provided. The majority
of the Company's customers are billed in monthly increments; however, some
customers have quarterly and semiannual billing cycles.
COST OF SERVICES
Cost of services includes all expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Using the liability method, deferred taxes
are determined based on the difference between the financial and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of its subscribers'
voice messaging. Although management believes 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.
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 the Company'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 effects of intense
<PAGE>
-4-
competition in information and telecommunications services markets,
including, among other things, the consequent effect on the prices that the
Company may charge for its products and services; the effect of regulatory
changes in the telecommunications industry; and the risk of dependence on
key managerial personnel.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Company's risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts. Approximately 90% of the Company's sales were derived
through a single national account during 1996. Although this entity is a
single account that is managed on a collective basis, it is actually
comprised of a large number of individual subscribers who are billed
separately and are located throughout all franchise territories, including
those operated by other Voice-Tel franchises.
4. FRANCHISE AGREEMENTS
The franchise rights were acquired pursuant to franchise agreements entered
into with VTE (Note 1). The term of each franchise agreement is 20 years,
with an option to renew the agreement for an additional 10 years. The
Company is required to pay a monthly royalty in an amount equal to a
specified percentage of gross sales, less certain costs. The royalty rates
are 6% in the first year of operation under the franchise agreements, 8% in
the second year, and 10% thereafter (Note 1). In addition, the Company is
required to pay a monthly marketing and promotion fee of 2% of gross sales,
less certain costs. The Company is periodically required to pay other
special franchise fees and assessments.
In conjunction with the execution of the franchise agreements, the Company
has agreed to act as the service representative of VTE within each of its
franchise areas. As consideration for this, the Company receives a monthly
fee equal to 20% of the royalties it pays to VTE. During 1996, royalties,
franchise fees, and other assessments totaled $123,659, net of any service
representative fees received.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at April 30, 1996:
<TABLE>
<S> <C>
Messaging computer systems $1,034,710
Office equipment 12,305
Leasehold improvements 4,171
-----------
1,051,186
Less accumulated depreciation (240,267)
-----------
Property and equipment, net $ 810,919
===========
</TABLE>
<PAGE>
-5-
6. FINANCING OBLIGATIONS
LONG-TERM DEBT
Long-term debt consisted of the following at April 30, 1996:
Note payable to Toronto Dominion Bank in 42 monthly installments of
$2,775, plus interest at a rate of 1% over the bank's prime rate
(7.5% at April 30, 1996); balance due December 31, 1997;
collateralized by equipment $ 55,450
Note payable to Toronto Dominion Bank in 36 monthly installments of
$261, plus interest at a rate of 1% over the bank's prime rate
(7.5% at April 30, 1996); balance due September 30, 1997;
collateralized by equipment 4,439
Note payable to Toronto Dominion Bank in 36 monthly installments of
$233, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due December 31, 1997;
collateralized by equipment 4,660
Note payable to Toronto Dominion Bank in 36 monthly installments of
$366, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due March 30, 1998;
collateralized by equipment 8,392
Note payable to Toronto Dominion Bank in 42 monthly installments of
$5,130, principal and interest at a rate of 1% over the bank's
prime rate (7.5% at April 30, 1996); balance due August 30, 1998;
collateralized by equipment 143,620
Note payable to Toronto Dominion Bank in 38 monthly installments of
$195, principal and interest at a rate of 2% over the bank's prime
rate (8.5% at April 30, 1996); balance due August 30, 1998;
collateralized by equipment 5,460
Note payable to Toronto Dominion Bank in 36 monthly installments of
$1,250, principal and interest at a rate of 2% over the bank's
prime rate (8.5% at April 30, 1996); balance due January 30, 1999;
collateralized by equipment 41,250
Note payable to Toronto Dominion Bank in 42 monthly installments of
$2,025, principal and interest at a rate of 1% over the bank's
prime rate (7.5% at April 30, 1996); balance due February 20, 1998;
collateralized by equipment 44,550
<PAGE>
-6-
Note payable to Toronto Dominion Bank in 36 monthly installments of
$415, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due January 20, 1998;
collateralized by equipment $ 8,715
Note payable to Toronto Dominion Bank in 36 monthly installments of
$460, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due February 28, 1998;
collateralized by equipment 10,120
Note payable to Toronto Dominion Bank in 36 monthly installments of
$362, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due March 30, 1998;
collateralized by equipment 8,294
Note payable to Toronto Dominion Bank in 32 monthly installments of
$250, principal and interest at a rate of 2% over the bank's prime
rate (8.5% at April 30, 1996); balance due February 28, 1998;
collateralized by equipment 5,500
Note payable to Toronto Dominion Bank in 36 monthly installments of
$240, principal and interest at a rate of 2% over the bank's prime
rate (8.5% at April 30, 1996); balance due January 30, 1999;
collateralized by equipment 7,920
Note payable to Toronto Dominion Bank in 42 monthly installments of
$3,250, principal and interest at a rate of 2% over the bank's
prime rate (8.5% at April 30, 1996); balance due July 30, 1999;
collateralized by equipment 126,250
Note payable to Toronto Dominion Bank in 42 monthly installments of
$4,048, principal and interest at a rate of 1% over the bank's
prime rate (7.5% at April 30, 1996); balance due August 30, 1998;
collateralized by equipment 113,328
Note payable to Toronto Dominion Bank in 42 monthly installments of
$330, principal and interest at a rate of 1% over the bank's prime
rate (7.5% at April 30, 1996); balance due September 30, 1998;
collateralized by equipment 9,570
Note payable to Toronto Dominion Bank in 38 monthly installments of
$1,165, principal and interest at a rate of 2% over the bank's
prime rate (8.5% at April 30, 1996); balance due August 30, 1998;
collateralized by equipment 32,620
<PAGE>
-7-
Note payable to Toronto Dominion Bank in 36 monthly installments
of $405, principal and interest at a rate of 2% over the bank's
prime rate (8.5% at April 30, 1996); balance due January 30,
1999; collateralized by equipment $ 13,365
---------
643,503
Less current maturities 277,921
---------
Long-term debt, net of current portion $ 365,582
=========
Maturities of long-term debt at April 30, 1996 are as follows:
1997 $ 277,921
1998 256,511
1999 99,821
2000 9,250
2001 0
Thereafter 0
---------
$ 643,503
=========
SUBORDINATED DEBT
Subordinated debt consisted of the following at April 30, 1996:
Subordinated notes payable to shareholders, monthly interest-only
payments at a rate of 1% over prime rate (7.5% at April 30,
1996); principal payments made subject to available cash
flow; subordinate to all debt owed to Toronto Dominion Bank $ 299,800
Subordinated notes payable to shareholder, monthly interest-only
payments at a rate of .75% over the prime rate (7.25% at
April 30, 1996); principal payments made subject to available
cash flow; subordinated to all debt owed to Toronto Dominion
Bank 189,282
Subordinated notes payable to shareholder, monthly interest-only
payments at a rate of 1% over the prime rate (7.5% at April 30,
1996); principal payments made subject to available cash flow;
subordinated to all debt owed to Toronto Dominion Bank 560,000
Subordinated note payable to VTE in ten monthly installments
of U.S. $3,009; principal and interest at a rate of 10%;
balance due December 15, 1996; subordinated to all debt owed
to Toronto Dominion Bank 32,013
-----------
Total subordinated debt $ 1,081,095
===========
<PAGE>
-8-
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company has entered into various operating leases for facilities used
in its operations. Aggregate future minimum rental commitments under
noncancelable operating leases with original or remaining periods in excess
of one year as of April 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $15,951
1998 16,273
1999 8,487
2000 3,820
2001 0
Thereafter 0
-------
$44,531
=======
</TABLE>
Rent expense under operating leases amounted to $28,456 for the year ended
April 30, 1996.
8. INCOME TAXES
The Company has no income tax provision for the year ended April 30, 1996
due to the utilization of operating loss carryforwards. The Company has
available, at April 30, 1996, unused operating loss carryforwards of
approximately $139,000, expiring in 2002.
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax liabilities as of April 30, 1996 are
as follows:
<TABLE>
Noncurrent deferred tax liabilities (assets):
<S> <C>
Property, plant, and equipment basis differences $289,804
Net operating loss carryforwards (74,370)
---------
Net deferred tax liability $215,434
=========
</TABLE>
<PAGE>
-9-
9. EQUITY INTERESTS
COMMON STOCK
The common stock authorized, issued, and outstanding at April 30, 1996 of
the Company is as follows:
<TABLE>
<CAPTION>
PAR AMOUNT
SHARES VALUE CONTRIBUTED
SHARES ISSUED AND PER FOR COMMON
AUTHORIZED OUTSTANDING SHARE STOCK
---------- ----------- ----- -----------
<S> <C> <C> <C> <C>
125976 Canada Ltd. Unlimited 200 None $200
</TABLE>
10. RELATED-PARTY TRANSACTIONS
At April 30, 1996, the Company recorded a related-party receivable from
Voice-Tel Services Company of $117,618 related to April collections of
accounts receivable.
During 1996, the Company recorded $12,642 in rental expenses related to a
building and office furniture and equipment leased from Brooks Equipment, a
shareholder.
11. SUBSEQUENT EVENT
On April 2, 1997, the Company entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $5,440,000. The acquisition is
subject to certain conditions and is expected to be consummated on or about
April 30, 1997. If completed, the merger is intended to be accounted for
using the pooling-of-interests method.
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE and
VOICE SYSTEMS OF GREATER DAYTON, INC.
Combined Financial Statements
as of December 31, 1996 and March 31, 1997
Together With
Auditors' Report
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
L'Harbot, Inc. and
Voice Systems of Greater Dayton, Inc.:
We have audited the accompanying combined balance sheet of L'HARBOT, INC. d.b.a.
VOICE-TEL TRI-STATE (an Ohio S corporation) AND VOICE SYSTEMS OF GREATER DAYTON,
INC. (an Ohio S corporation) as of December 31, 1996 and the related combined
statements of operations, shareholders' equity, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of L'Harbot,
Inc. and Voice Systems of Greater Dayton, Inc. as of December 31, 1996 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 5, 1997
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE AND
VOICE SYSTEMS OF GREATER DAYTON, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $185,043 $186,830
Accounts receivable, less allowance for uncollectible
accounts of $5,315 in 1996 and 1997 73,703 72,957
--------- ----------
Total current assets 258,746 259,787
--------- ----------
PROPERTY AND EQUIPMENT (NOTE 5) 492,215 503,363
Less accumulated depreciation (260,846) (285,457)
--------- ----------
Net property and equipment 231,369 217,906
--------- ----------
OTHER ASSETS:
Franchise fee, net of accumulated amortization of $42,257
and $50,857 in 1996 and 1997, respectively 87,743 79,143
Customer base, net of accumulated amortization of $64,056
and $68,205 in 1996 and 1997, respectively 4,149 0
Other assets 0 2,353
--------- ----------
Total other assets 91,892 81,496
--------- ----------
Total assets $582,007 $559,189
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 23,506 $ 29,451
Deferred revenue 48,545 47,000
Current portion of long-term debt (Note 6) 51,833 39,239
Other current liabilities 6,498 5,960
-------- --------
Total current liabilities 130,382 121,650
-------- --------
LOAN FROM SHAREHOLDER (NOTE 6) 56,496 47,424
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
COMMON STOCK:
L'Harbot, Inc., no par value; 750 shares authorized;
100 shares issued and outstanding in 1996 and 1997 110,000 110,000
Voice Systems of Greater Dayton, Inc., no par value;
850 shares authorized; 100 shares issued and
outstanding in 1996 and 1997 500 500
Retained earnings 284,629 279,615
-------- --------
Total shareholders' equity 395,129 390,115
-------- --------
Total liabilities and shareholders' equity $582,007 $559,189
======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE AND
VOICE SYSTEMS OF GREATER DAYTON, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
--------- -----------
(Unaudited)
<S> <C> <C>
REVENUES $719,933 $203,961
COST OF SALES 158,973 39,828
--------- -----------
Gross margin 560,960 164,133
--------- -----------
OPERATING EXPENSES:
Selling and marketing 259,835 71,807
General and administrative 86,156 22,619
Depreciation and amortization 116,424 37,360
--------- -----------
Total operating expenses 462,415 131,786
--------- -----------
OPERATING INCOME 98,545 32,347
OTHER (EXPENSE) INCOME (272) 12,639
--------- -----------
NET INCOME $ 98,273 $ 44,986
========= ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE AND
VOICE SYSTEMS OF GREATER DAYTON, INC.
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
L'HARBOT, INC. VOICE SYSTEMS OF
d.b.a. VOICE-TEL TRI-STATE GREATER DAYTON, INC. RETAINED
-------------------------- --------------------
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ -------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 100 $110,000 100 $ 500 $196,356 $306,856
Net income 0 0 0 0 98,273 98,273
Dividends to shareholders 0 0 0 0 (10,000) (10,000)
------ -------- ------ ------ -------- --------
BALANCE, DECEMBER 31, 1996 100 $110,000 100 $ 500 $284,629 $395,129
====== ======== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE AND
VOICE SYSTEMS OF GREATER DAYTON, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 98,273 $ 44,986
---------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 116,424 37,360
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,038) 746
Decrease (increase) in other assets 11,042 (2,353)
(Decrease) increase in accounts payable and accrued expenses (8,549) 5,945
Increase (decrease) in deferred revenue 16,107 (1,545)
Other 336 (538)
---------- -----------
Total adjustments 132,322 39,615
---------- -----------
Net cash provided by operating activities 230,595 84,601
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (87,723) (11,148)
---------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on long-term debt (53,016) (21,666)
Dividends paid to shareholders (10,000) (50,000)
---------- -----------
Net cash used in financing activities (63,016) (71,666)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 79,856 1,787
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 105,187 185,043
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185,043 $ 186,830
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 9,691 $ 1,801
========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
L'HARBOT, INC. d.b.a. VOICE-TEL TRI-STATE AND
VOICE SYSTEMS OF GREATER DAYTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
L'Harbot, Inc. ("L'Harbot") d.b.a. Voice-Tel Tri-State and Voice Systems of
Greater Dayton, Inc. ("Dayton") are separate corporations which have common
ownership and are collectively referred to herein as the "Companies."
L'Harbot and Dayton were incorporated in Ohio on October 13, 1989 and April
18, 1994, respectively.
NATURE OF BUSINESS
The Companies provide digital messaging services under exclusive franchise
agreements with Voice-Tel Enterprises, Inc. ("VTE"). Business is conducted
using the proprietary trade name "Voice-Tel." The Voice-Tel system operates
on the Companies' computer processing equipment using commercially
available telephone lines. Effective October 1989, L'Harbot acquired the
franchise rights to solicit and provide Voice-Tel services. Effective April
1994, Dayton acquired its franchise rights from a third party who had
previously acquired the rights from VTE. The Companies primarily operate in
the state of Ohio.
BASIS OF PRESENTATION
The accompanying combined financial statements of the Companies are
prepared on the accrual basis of accounting and present their combined
assets, liabilities, revenues, expenses, and cash flows as if the Companies
existed as a separate corporation during the period presented.
The financial information included herein may not necessarily reflect the
financial position, results of operations, or cash flows of the Companies
in the future or what the financial position, results of operations, or
cash flows of the Companies would have been if they were combined as a
separate and stand-alone company during the periods presented.
The March 31, 1997 financial statements are unaudited and have been
prepared by the management of L'Harbot and Dayton in accordance with the
rules and regulations of the Securities and Exchange Commission. In the
opinion of the management of the Companies, all adjustments (consisting
only of normal recurring adjustments) considered necessary for fair
presentation of the March 31, 1997 financial statements have been included,
and the accompanying financial statements present fairly the financial
position and the results of operations for the interim period presented.
The March 31, 1997 financial statements should be read in conjunction with
the December 31, 1996 audited financial statements and related footnotes
contained within the report.
<PAGE>
-2-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF COMBINATION
The financial statements include the accounts of L'Harbot, Inc. and Voice
Systems of Greater Dayton, Inc. All significant intercompany balances and
transactions have been eliminated in combination.
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 installed or placed in service. The
estimated useful lives are five to seven years for telephone equipment and
three to seven years for furniture, fixtures, and equipment. The cost of
installed equipment includes expenditures for installation.
INTANGIBLE ASSETS
Purchased intangible assets, which include franchise agreements and
customer base, are recorded at cost. Intangible assets are amortized using
the straight-line method over the estimated useful lives of the related
assets or terms of the agreements (20 years for franchise agreements and
three years for customer base).
LONG-LIVED ASSETS
Management reviews its long-lived assets, such as property and equipment
and intangible assets, for impairment at each balance sheet date or
whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. An impairment is recognized when the
undiscounted estimated future cash flows are insufficient to recover the
current carrying amount of the asset. There was no impairment in 1996.
<PAGE>
-3-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt approximates its carrying value as of
December 31, 1996.
REVENUE RECOGNITION AND DEFERRED REVENUES
Revenues are recognized as the Companies perform services in accordance
with contract terms. Billings in advance for messaging services are
recorded on the accompanying combined balance sheets as deferred revenue.
These revenues are recognized when the related service is provided. The
majority of the Companies' customers are billed monthly; however, some
customers have quarterly or semiannual billing cycles.
COST OF SERVICES
Cost of services includes all direct expenses incurred in providing voice
messaging services, including long-distance carrier costs and applicable
taxes.
INCOME TAXES
The Companies have elected to be treated as small business S corporations
for federal and state income tax purposes. As such, in lieu of corporate
income tax consequences arising at the Companies' level, the individual
shareholders are allocated their proportionate shares of the Companies'
taxable income or loss.
REGULATION
The Companies are subject to regulation by the Federal Communications
Commission and by various state public service and public utility
commissions.
SOURCE OF SUPPLIES
The Companies do not own a transmission network and, accordingly, rely on
both facilities-based and nonfacilities-based local and long-distance
carriers and other companies to provide transmission of their subscribers'
voice messaging. Although management believes 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.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Companies is dependent upon a number of factors,
including the effect of rapid technological changes affecting the markets
for the Companies' products and services and management's ability to
<PAGE>
-4-
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; effects of intense
competition in information and telecommunications services markets,
including, among other things, the consequent effects on the prices that
the Companies may charge for their products and services; the effect of
regulatory changes in the telecommunications industry; and the risk of
dependence on key managerial personnel.
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist only of accounts receivable, as
collateral is not required. The Companies' risk of loss is limited due to
advance billings to customers and the ability to terminate access on
delinquent accounts.
The Companies' ten largest customers accounted for approximately 66% of net
sales for the year ended December 31, 1996. Approximately 56% of the
Companies' sales were derived from a single national account during 1996.
Although this entity is a single national account that is managed on a
collective basis, it is actually comprised of a large number of individual
subscribers located throughout all franchise territories, including those
operated by other Voice-Tel franchisees.
4. FRANCHISE AGREEMENTS
Franchise rights were acquired pursuant to franchise agreements entered
into with VTE (Note 1) in October 1989 by L'Harbot and April 1994 by
Dayton. Under the franchise agreements, the Companies have the exclusive
rights to solicit and provide Voice-Tel digital messaging services in the
Dayton and Cincinnati, Ohio, areas. The terms of the franchise agreements
are 20 years, with an option to renew for an additional 10 years. In
addition to the initial franchise fees, which are being amortized over the
terms of the agreements, the Companies are required to pay a monthly
royalty in an amount equal to 10% of gross sales, less certain costs. A
monthly marketing and promotion fee of 2% of gross sales is also payable to
VTE.
In return for L'Harbot acting as VTE's exclusive service representative
and supervising operations of the local franchise, VTE pays the L'Harbot a
continuing fee equal to 40% of the royalty received by VTE on gross sales,
less certain costs, for the term of the franchise agreement. The Companies
are periodically required to pay other special franchise fees and
assessments. During 1996, royalties, franchise fees, and other assessments
totaled approximately $85,000, net of any service representative fees
received and are included in selling and marketing expenses on the
accompanying statement of operations. In addition, the franchise agreements
contain a covenant not to compete for up to three years subsequent to the
termination of such agreement.
<PAGE>
-5-
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Telephone equipment $470,268
Furniture, fixtures and equipment 21,947
---------
Total property and equipment 492,215
Accumulated depreciation (260,846)
---------
Property and equipment, net $231,369
=========
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
$200,000 promissory note to shareholder; 6.75% interest,
payable in 60 monthly installments of $3,937, due in
full April 1, 1999 $ 97,137
$42,000 promissory note to Star Bank, N.A.; 8.9% interest,
payable in 36 monthly installments of $1,334, due in full
September 12, 1997 11,192
--------
108,329
Less current maturities (51,833)
--------
$ 56,496
========
</TABLE>
Future maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 51,833
1998 46,358
1999 10,138
2000 0
2001 0
Thereafter 0
--------
$108,329
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Companies lease certain facilities used in their operations under
noncancelable operating lease agreements. Aggregate future minimum annual
rental obligations under noncancelable operating leases as of December 31,
1996 are as follows:
<PAGE>
-6-
<TABLE>
<S> <C>
1997 $15,673
1998 14,625
1999 14,743
2000 14,743
2001 4,190
Thereafter 0
---------
$63,974
=========
</TABLE>
Rental expense was approximately $17,000 during 1996.
8. RELATED-PARTY TRANSACTIONS
L'Harbot purchases additional voice messaging capacity from Dayton. All
intercompany revenues and expenses have been eliminated in the accompanying
combined financial statements.
As disclosed in Note 6, Dayton has outstanding debt to its shareholder.
9. SUBSEQUENT EVENT
On May 22, 1997, the Companies entered into a definitive agreement to merge
with Premiere Technologies, Inc. ("Premiere") in exchange for shares of
Premiere stock with a value of approximately $1,300,000. The acquisition
has been accounted for using the pooling-of-interests method.
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the acquisitions by Premiere Technologies, Inc. ("Premiere" or the
"Company"), in separate transactions, of: (i) TeleT Communications LLC
("TeleT"); (ii) Voice-Tel Enterprises, Inc, ("VTE"), VTN, Inc. ("VTN") the
general partner of Voice-Tel Network Limited Partnership ("VTNLP"), the
limited partner interest in VTNLP, and certain independently owned and
operated franchisees of VTE that met the significance tests of Rule 3-05 of
Regulation S-X (referred to collectively as the "Other Significant
Franchisees" and such acquisitions are referred to collectively as the the
"Other Significant Voice-Tel Acquisitions"); and (iii) certain additional
individually insignificant franchisees that when aggregated meet the
significance tests of Rule 3-05 of Regulation S-X (referred to collectively as
the "Significant Franchisees"). The Other Significant Franchisees and the
Significant Franchisees are sometimes referred to collectively as the
"Significant Voice-Tel Entities" and such acquisitions are referred to
collectively as the "Significant Voice-Tel Acquisitions." The unaudited pro
forma financial information relating to the Company, TeleT and each of the
Other Significant Franchisees has previously been filed with the Securities
and Exchange Commission (the "Commission") and is incorporated by reference
herein from the Company's Current Report on Form 8-K dated April 30, 1997, as
amended by the Company's Current Report on Form 8-K/A filed with the
Commission on June 16, 1997.
The unaudited pro forma combined financial information gives effect to the
Company's acquisition of TeleT on September 18, 1996 as though the transaction
occurred January 1, 1996. The Company exchanged 498,187 shares of its common
stock and paid approximately $2.8 million in cash for TeleT. This acquisition
has been accounted for under the purchase method of accounting.
In addition, the unaudited pro forma combined financial information gives
effect to the Company's acquisition of Voice Partners on June 13, 1997 and the
limited partner interest in VTNLP on April 29, 1997 as though such
transactions occurred on March 31, 1997 for pro forma balance sheet purposes
and on January 1, 1996 for pro forma statements of income purposes. The
Company paid approximately $80,000 and $9,200,000 in cash for Voice Partners
and the limited partner interest in VTNLP, respectively. These acquisitions
have been accounted for under the purchase method of accounting. All remaining
acquisitions of the Significant Voice-Tel Entities were accounted for under
the pooling-of-interests method of accounting and the unaudited pro forma
combined financial statements reflect these transactions as if they had
occurred January 1, 1994.
The number of pro forma weighted average common shares and common share
equivalents used to compute pro forma net income per share reflects the
aggregate of the weighted average outstanding shares or owners' interests of
the businesses acquired through the Significant Voice-Tel Acquisitions,
adjusted to equivalent shares of Premiere for all periods presented.
The Company's historical financial statements for the nine-month fiscal
period ended December 31, 1994 have been adjusted to reflect a comparative
twelve-month period ended December 31, 1994 reported for the Significant
Voice-Tel Entities. The additional three-month period adjustment is unaudited
and should be read in conjunction with the Company's Annual Report on Form 10-
K for the year ended December 31, 1996 filed with the Commission on March 27,
1997 incorporated by reference herein.
Certain balance sheet and income statement amounts contained in historical
financial statements of the Significant Voice-Tel Entities have been
reclassified to conform with the unaudited pro forma combined financial
statement presentation and disclosure practices of Premiere. In connection
with the Company's acquisitions of VTE, VTN, the limited partner interest in
VTNLP, and substantially all of the franchisees (referred to collectively as
the Voice-Tel Entities and such acquisitions are referred to collectively as
the "Voice-Tel Acquisitions"), the Company will take a charge in the second
quarter of 1997 of approximately $40 million to $45 million, consisting of
transaction expenses and restructuring and related costs (including severance
costs, charges for asset impairment and costs related to exiting the franchise
business and closing certain facilities). This charge (at an assumed level of
$45 million), net of the related income tax effect, has been reflected as a
reduction in retained earnings and shareholders' equity of $32.5 million in
the pro forma balance sheet.
<PAGE>
The pro forma financial information does not give effect to the acquisition
of the remaining franchisees which are not "significant" under Rule 3-05 of
Regulation S-X. The Significant Voice-Tel Acquisitions represented
approximately 71%, 67% and 63% of the revenues of the combined Voice-Tel
Entities (after eliminating transactions between such entities) for 1996, 1995
and 1994, respectively.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had
the Significant Voice-Tel Acquisitions occurred at the beginning of the
periods presented nor is it necessarily indicative of future financial
position or results of operations. These unaudited pro forma combined
financial statements are based on the respective historical financial
statements for Premiere, TeleT and the Significant Voice-Tel Entities and
should be read in conjunction with the respective historical financial
statements incorporated by reference herein.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
as of March 31, 1997
<TABLE>
<CAPTION>
Other Significant
Voice-Tel
Premiere Acquisitions VMS
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 67,337,850 $ 2,130,238 $ 89,877
Accounts receivable 7,057,714 11,610,059 114,355
Deferred tax assets, net 2,177,632 470,000 -
Prepaid expenses and other current assets 3,206,445 3,002,520 9,611
Total current assets 79,779,641 17,212,817 213,843
Property and equipment, net 21,111,340 12,109,453 319,998
Other assets: 42,553,379 8,533,833 256,983
Total Assets: 143,444,360 37,856,103 790,824
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 4,405,506 12,418,934 175,595
Accounts payable and accrued expenses 10,597,872 13,180,279 99,283
Income tax payable - - -
Total current liabilities 15,003,378 25,599,213 274,878
Long-term Liabilities:
Long-term debt 172,272 8,173,319 -
Subordinated debt - 6,684,843 -
Deferred taxes 334,520 825,640 -
Other accrued liabilities - 216,637 -
Total long-term liabilities 506,792 15,900,439 -
Total Liabilities 15,510,170 41,499,652 274,878
Shareholders' Equity:
Common stock 240,948 5,381,029 1,200
Treasury stock - (3,180,645) -
Additional paid in capital 125,798,347 1,004,018 171,462
Stock subscription receivable - (43,770) -
Retained earnings 1,894,895 (6,804,181) 343,284
Total equity 127,934,190 (3,643,549) 515,946
Total liabilities and shareholders' equity $ 143,444,360 $ 37,856,103 $ 790,824
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
as of March 31, 1997
<TABLE>
<CAPTION>
VTST MMP VTB Hi-Pak Voice-Net
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 66,513 $ 38,564 $ 245,087 $ 81,436 $ 190,446
Accounts receivable 44,307 98,961 389,447 133,358 173,653
Deferred tax assets, net - - - - -
Prepaid expenses and other current assets 3,050 1,459 - 4,068 26,475
Total current assets 113,870 138,984 634,534 218,862 390,574
Property and equipment, net 110,277 111,394 369,577 446,320 373,698
Other assets: 65,663 91,592 47,813 110,071 36,046
Total Assets: 289,810 341,970 1,051,924 775,253 800,318
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt - 49,327 9,279 84,136 103,883
Accounts payable and accrued expenses 9,901 164,738 942,128 110,861 234,388
Income tax payable - - - - -
Total current liabilities 9,901 214,065 951,407 194,997 338,271
Long-term Liabilities:
Long-term debt - 154,700 - 50,363 74,365
Subordinated debt - - - - -
Deferred taxes - - - - -
Other accrued liabilities - - - - -
Total long-term liabilities - 154,700 - 50,363 74,365
Total Liabilities 9,901 368,765 951,407 245,360 412,636
Shareholders' Equity:
Common stock 225,000 88,900 50,000 73,000 400,000
Treasury stock - - - - (130,000)
Additional paid in capital - - - 149,860 -
Stock subscription receivable - - - - -
Retained earnings 54,909 (115,695) 50,517 307,033 117,682
Total equity 279,909 (26,795) 100,517 529,893 387,682
Total liabilities and shareholders' equity $ 289,810 $ 341,970 $ 1,051,924 $ 775,253 $ 800,318
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Historical
Dowd D & K
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 301,365 $ 207,389
Accounts receivable 87,696 59,180
Deferred tax assets, net - -
Prepaid expenses and other current assets 575 6,620
Total current assets 389,636 273,189
Property and equipment, net 221,817 203,409
Other assets: 30,110 89,005
Total Assets: 641,563 565,603
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 46,266 68,411
Accounts payable and accrued expenses 83,488 104,714
Income tax payable - -
Total current liabilities 129,754 173,125
Long-term Liabilities
Long-term debt 15,818 14,052
Subordinated debt - -
Deferred taxes - -
Other accrued liabilities 194,198 -
Total long-term liabilities 210,016 14,052
Total Liabilities 339,770 187,177
Shareholders' Equity:
Common stock 500 30,000
Treasury stock - -
Additional paid in capital - 195,900
Stock subscription receivable - -
Retained earnings 301,293 152,526
Total equity 301,793 378,426
Total liabilities and shareholders' equity $ 641,563 $ 565,603
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
as of March 31, 1997
<TABLE>
<CAPTION>
Voice
AudioInfo. Partners DARP VTI In-Touch
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,511 $ 19,807 $ 102,964 $ 4,178 $ 6,148
Accounts receivable 31,027 14,747 88,954 55,538 178,734
Deferred tax assets, net - - - - -
Prepaid expenses and other current assets 30,863 6,280 - 120,265 17,944
Total current assets 64,401 40,834 191,918 179,981 202,826
Property and equipment, net 17,209 60,373 340,827 271,818 235,376
Other assets: 54,448 56,555 47,143 202,198 119,258
Total Assets: 136,058 157,762 579,888 653,997 557,460
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 33,825 30,315 128,147 11,307 371,506
Accounts payable and accrued expenses 4,081 28,235 52,630 46,304 156,440
Income tax payble - - - - -
Total current liabilities 37,906 58,550 180,777 57,611 527,946
Long-term Liabilities:
Long-term debt - 43,673 255,706 515,907 408,595
Subordinated Debt - - - - -
Deferred taxes - - 15,500 - -
Other accrued liabilities - - - - 194,286
Total long-term liabilities - 43,673 271,206 515,907 602,881
Total Liabilities 37,906 102,223 451,983 573,518 1,130,827
Shareholders' Equity:
Common stock 1,000 - 20,000 10,000 100,000
Treasury stock - - - - (35,000)
Additional paid in capital 4,000 240,000 201,500 14,000 -
Stock subscription receivable - - - - -
Retained earnings 93,152 (184,461) (93,595) 56,479 (638,367)
Total equity 98,152 55,539 127,905 80,479 (573,367)
Total liabilities and shareholders' equity $ 136,058 $ 157,762 $ 579,888 $ 653,997 $ 557,460
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Manitoba(H) L'Harbot
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 59,876 $ 186,830
Accounts receivable 61,013 72,957
Deferred tax assets, net - -
Prepaid expenses and other current assets 45,319 -
Total current assets 166,208 259,787
Property and equipment, net 580,222 217,906
Other assets: 582,056 81,496
Total Assets: 1,328,486 559,189
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 803,672 39,239
Accounts payable and accrued expenses 218,302 82,411
Income tax payable - -
Total current liabilities 1,021,974 121,650
Long-term Liabilities:
Long-term debt 120,932 47,424
Subordinated debt - -
Deferred taxes 161,576 -
Other accrued liabilities - -
Total long-term liabilities 282,508 47,424
Total Liabilities 1,304,482 169,074
Shareholders' Equity:
Common stock 150 110,500
Treasury stock - -
Additional paid in capital - -
Stock subscription receivable - -
Retained earnings 23,854 279,615
Total equity 24,004 390,115
Total liabilities and shareholders' equity $ 1,328,486 $ 559,189
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
as of March 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ (9,877,638)(D) $ 61,193,441
Accounts receivable (8,314,000)(B) 11,957,700
Deferred tax assets, net - 2,647,632
Prepaid expenses and other current assets (72,500)(C) 6,408,994
Total current assets (18,264,138) 82,207,767
Property and equipment, net (1,040,468)(B) 45,340,684
9,280,138 (D)
Other assets: (3,347,191)(C) 49,610,458
Total Assets: (13,371,659) 177,158,909
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (5,858,000)(B) 12,921,348
Accounts payable and accrued expenses (2,026,000)(B) 24,090,055
Income tax payable 1,314,646 (E) 1,314,646
Total current liabilities (6,569,354) 38,326,049
Long-term Liabilities:
Long-term debt - 10,047,126
Subordinated debt - 6,684,843
Deferred taxes 709,983 (E) 2,047,219
Other accrued liabilities 32,500,000 (A) 33,105,121
Total long-term liabilities 33,209,983 51,884,309
Total Liabilities 26,640,629 90,210,358
Shareholders' Equity:
Common stock (6,443,332)(F) 288,895
Treasury stock 3,345,645 (F) -
Additional paid in capital (368,782)(F) 127,410,305
Stock subscription receivable 43,770 (F) -
Retained earnings (36,589,589) (40,750,649)
Total equity (40,012,288) 86,948,551
Total liabilities and shareholders' equity $ (13,371,659) $ 177,158,909
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
<1><2> <2> Pro Forma
Historical Historical Adjustments
Premiere Telet Telet
<S> <C> <C> <C>
Revenues $ 10,093,122 $ 62,651 $ -
Cost of services 3,450,941 -
Gross margin 6,642,181 62,651 -
Operating expenses:
Selling, general and administrative 5,364,808 221,144 -
Depreciation and amortization 344,486 - 13,393 (I)
Total operating expenses 5,709,294 221,144 13,393
Operating income (loss) 932,887 (158,493) (13,393)
Other income (expense):
Interest income 266,186 - (27,983)(K)
Interest expense (90,473) - -
Other, net (4,563) (3,251) -
Net income (loss) before income taxes $ 1,104,037 $ (161,744) $ (41,376)
Provision (benefit) for income taxes 371,219 (63,081) (16,964)(L)
Net income (loss) $ 732,818 $ (98,663) $ (24,412)
Pro forma income (loss) attributable
to common shareholders for primary
earnings per share $ 1,010,547 $ (98,663) $ (24,412)
Earnings per share $ .05
Weighted average number of common
shares and common share equivalents
outstanding 18,750,781 498,187
(1) Excludes effect of extraordinary items of $59,000, net of tax effect.
(2) Derived from the historical statements of operations of the Company and Connect, Inc. (incorporated by reference herein),
Leitess Information Solutions LLC and Planet Communications LLC (collectively, "Telet Communications LLC").
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Pro Forma Historical
Other
Significant
Voice-Tel
Premiere Acquisitions VMS VTST MMP VTB
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 10,155,773 $ 13,134,256 $ 431,063 $ 132,926 $ 343,702 $ 671,177
Cost of services 3,450,941 2,769,878 85,433 21,707 112,228 190,761
Gross margin 6,704,832 10,364,378 345,630 111,219 231,474 480,416
Operating expenses:
Selling, general and administrative 5,585,952 6,874,531 195,838 49,743 189,608 354,291
Depreciation and amortization 357,879 1,579,552 54,857 21,778 19,490 37,827
Total operating expenses 5,943,831 8,454,083 250,695 71,521 209,098 392,118
Operating income (loss) 761,001 1,910,295 94,935 39,698 22,376 88,298
Other income (expense):
Interest income 238,203 178,000 667 - - -
Interest expense (90,473) (814,758) (10,778) - (9,601) (1,348)
Other, net (7,814) 107,188 1,521 - - 148
Net income (loss) before income taxes $ 900,917 $ 1,380,725 $ 86,345 $ 39,698 $ 12,775 $ 87,098
Provision (benefit) for income taxes 291,175 176,949 - - - -
Net income (loss) $ 609,742 $ 1,203,776 $ 86,345 $ 39,698 $ 12,775 $ 87,098
Pro forma income (loss) attributable
to common shareholders for primary
earnings per share $ 887,472 $ 1,203,776 $ 86,345 $ 39,698 $ 12,775 $ 87,098
Earnings per share $ .05
Weighted average number of common
shares and common share equivalents
outstanding 19,248,968 (M)
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Hi-Pak Voice-Net Dowd D & K
<S> <C> <C> <C> <C>
Revenues $ 423,862 $ 390,466 $ 218,063 $ 377,516
Cost of services 69,286 55,448 31,750 126,579
Gross margin 354,576 335,018 186,313 250,937
Operating expenses:
Selling, general and administrative 270,022 217,817 106,294 177,150
Depreciation and amortization 58,649 38,089 31,751 15,867
Total operating expenses 328,671 255,906 138,045 193,017
Operating income (loss) 25,905 79,112 48,268 57,920
Other income (expense):
Interest income 1,232 - - -
Interest expense (10,156) (6,016) (3,428) (2,813)
Other, net 2,350 1,857 1,787 -
Net income (loss) before income taxes $ 19,331 $ 74,953 $ 46,627 $ 55,107
Provision (benefit) for income taxes - 6,548 - -
Net income (loss) $ 19,331 $ 68,405 $ 46,627 $ 55,107
Pro forma income (loss) attributable to common
shareholders for primary earnings per share $ 19,331 $ 68,405 $ 46,627 $ 55,107
Earnings per share
Weighted average number of common shares and
common share equivalents outstanding
<CAPTION>
Voice
AudioInfo. Partners DARP
<S> <C> <C> <C>
Revenues $ 99,058 $ 23,865 $ 241,244
Cost of services 17,082 4,502 67,204
Gross margin 81,976 19,363 174,040
Operating expenses:
Selling, general and administrative 51,145 33,413 94,661
Depreciation and amortization 17,729 4,345 32,535
Total operating expenses 68,874 37,758 127,196
Operating income (loss) 13,102 (18,395) 46,844
Other income (expense):
Interest income - - -
Interest expense (2,941) (1,889) (16,948)
Other, net - (1,952) 9,079
Net income (loss) before income taxes $ 10,161 $ (22,236) $ 38,975
Provision (benefit) for income taxes 1,524 - 9,062
Net income (loss) $ 8,637 $ (22,236) $ 29,913
Pro forma income (loss) attributable to common
shareholders for primary earnings per share $ 8,637 $ (22,236) $ 29,913
Earnings per share
Weighted average number of common shares and
common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Pro Forma
VTI In-Touch Manitoba(H) L'Harbot Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 203,164 $ 362,438 $ 488,035 $ 179,983 $ (1,858,000) (B) $ 26,018,591
Cost of services 22,357 98,657 139,099 39,743 (551,500) (B) 6,751,155
Gross margin 180,807 263,781 348,936 140,240 (1,306,500) 19,267,436
Operating expenses:
Selling, general and administrative 75,432 206,246 205,415 86,498 (1,144,000) (B) 13,630,056
Depreciation and amortization 24,846 26,941 47,292 29,106 (161,496) (B) 2,184,955
(110,250) (C)
58,168 (D)
Total operating expenses 100,278 233,187 252,707 115,604 (1,357,578) 15,815,011
Operating income (loss) 80,529 30,594 96,229 24,636 51,078 3,452,425
Other income (expense):
Interest income - - - - (268,079) (B) 150,023
Interest expense (12,606) (18,559) (18,000) - 148,579 (B) (871,735)
Other, net - (3,177) - (68) - 110,919
Net income (loss) before income taxes $ 67,923 $ 8,858 $ 78,229 $ 24,568 $ (68,422) 2,841,632
Provision (benefit) for income taxes - - 39,893 - 700,158 (E) 1,225,309
Net income (loss) $ 67,923 $ 8,858 $ 38,336 $ 24,568 $ (768,580) $ 1,616,323
Pro forma income (loss) attributable
to common shareholders for primary
earnings per share $ 67,923 $ 8,858 $ 38,336 $ 24,568 $ (1,043,085) $ 1,619,548
Earnings per share $ .07
Weighted average number of common shares
and common share equivalents outstanding 3,738,584 (G) 22,987,552
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Other Significant
Voice-Tel
Premiere Acquisitions VMS VTST
<S> <C> <C> <C> <C>
Revenues $ 18,871,052 $ 13,741,293 $ 421,358 $ 139,070
Cost of services 6,211,183 3,129,303 68,285 19,416
Gross margin 12,659,869 10,611,990 353,073 119,654
Operating expenses:
Selling, general and administrative 6,825,039 7,138,928 183,915 52,733
Depreciation and amortization 1,242,744 1,428,818 56,308 21,735
Total operating expenses 8,067,783 8,567,746 240,223 74,468
Operating income (loss) 4,592,086 2,044,244 112,850 45,186
Other income (expense):
Interest Income 707,320 173,323 795 --
Interest expense (77,651) (611,189) (2,840) --
Other, net 38,661 112,113 2,535 --
Net income (loss) before income taxes $ 5,260,416 $ 1,718,491 $ 113,340 $ 45,186
Provision (benefit) for income taxes 1,498,094 393,396 -- --
Net income (loss) $ 3,762,322 $ 1,325,095 $ 113,340 $ 45,186
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 4,148,041(1) $ 1,325,095 $ 113,340 $ 45,186
Earnings per share $ 0.16
Weighted average number of common shares and common
share equivalents outstanding 26,620,621
</TABLE>
- - ---------------
(1) Amount includes the pro forma net interest adjustment of $385,719 assumed
under the treasury stock method.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Historical
MMP VTB Hi-Pak Voice-Net Dowd D & K AudioInfo
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 314,185 $ 683,164 $ 442,283 $ 433,973 $ 228,864 $ 302,605 $ 99,321
Cost of services 84,924 196,736 72,510 80,021 24,382 82,901 17,575
Gross margin 229,261 486,428 369,773 353,952 204,482 219,704 81,746
Operating expenses:
Selling, general and administrative 170,465 377,786 262,026 211,507 86,164 159,268 63,764
Depreciation and amortization 19,291 28,034 59,379 38,435 31,509 27,610 18,933
Total operating expenses 189,756 405,820 321,405 249,942 117,673 186,878 82,697
Operating income (loss) 39,505 80,608 48,368 104,010 86,809 32,826 (951)
Other income (expense):
Interest income -- -- 352 -- -- -- --
Interest expense (6,882) (363) (6,529) (6,029) (2,683) (2,343) (1,829)
Other, net -- 166 (5,066) 591 (20,718) -- 13,227
Net income (loss) before income taxes $ 32,623 $ 80,411 $ 37,125 $ 98,572 $ 63,408 $ 30,483 $ 10,447
Provision (benefit) for income taxes -- -- -- 12,962 -- -- 1,567
Net income (loss) $ 32,623 $ 80,411 $ 37,125 $ 85,610 $ 63,408 $ 30,483 $ 8,880
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 32,623 $ 80,411 $ 37,125 $ 85,610 $ 63,408 $ 30,483 $ 8,880
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Voice Pro Forma
Partners DARP VTI In-Touch Manitoba(H) L'Harbot Adjustments
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 31,400 $229,626 $204,500 $ 345,872 $ 521,886 $203,961 $(2,089,900)(B)
Cost of services 5,806 54,060 21,872 83,143 64,682 39,828 (809,500)(B)
Gross margin 25,594 175,566 182,628 262,729 457,204 164,133 (1,280,400)
Operating expenses:
Selling, general and administrative 32,587 74,027 60,194 153,950 287,389 94,426 (833,000)(B)
Depreciation and amortization 3,912 41,427 25,379 28,851 52,573 37,360 (195,410)(B)
(110,250)(C)
58,168 (D)
Total operating expenses 36,499 115,454 85,573 182,801 339,962 131,786 (1,080,492)
Operating income (loss) (10,905) 60,112 97,055 79,928 117,242 32,347 (199,908)
Other income (expense):
Interest income -- -- -- -- -- -- (48,000)(B)
(119,500)(D)
Interest expense (22,949) -- (11,974) (23,237) (15,719) -- 48,000 (B)
Other, net 13,098 10,053 -- -- (803) 12,639 --
Net income (loss) before income taxes $ (20,756) $ 70,165 $ 85,081 $ 56,691 $ 100,720 $ 44,986 $ (319,408)
Provision (benefit) for income taxes -- - -- -- -- -- 670,016 (E)
Net income (loss) $ (20,756) $ 70,165 $ 85,081 $ 56,691 $ 100,720 $ 44,986 $ (989,424)
Pro forma income(Loss) attributable
to common shareholders for primary
earnings per share $ (20,756) $ 70,165 $ 85,081 $ 56,691 $ 100,720 $ 44,986 $(1,127,968)
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding 3,838,222 (G)
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma
<S> <C>
Revenues $ 35,124,513
Cost of services 9,447,127
Gross margin 25,677,386
Operating expenses:
Selling, general and administrative 15,401,168
Depreciation and amortization 2,914,806
Total operating expenses 18,315,974
Operating income (loss) 7,361,412
Other income (expense):
Interest income 714,290
Interest expense (744,217)
Other, net 176,496
Net income (loss) before income taxes $ 7,507,981
Provision (benefit) for income taxes 2,576,035
Net income (loss) $ 4,931,946
Pro forma income(Loss) attributable to-
common shareholders for primary earnings
per share $ 5,179,121
Earnings per share $ .17
Weighted average number of common shares and
common share equivalents outstanding 30,458,843
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<1> <2> <2> Pro Forma
Historical Historical Adjustments
Premiere Telet Telet
<S> <C> <C> <C>
Revenues $ 52,079,338 $ 250,603 $ --
Cost of services 16,710,820 -- --
Gross margin 35,368,518 250,603 --
Operating expenses:
Selling, general and administrative 25,765,839 884,576 --
Depreciation and amortization 2,255,253 -- 53,571 (I)
Charge for purchased R & D 11,030,000 -- (11,030,000)(J)
Accrued litigation 1,250,000 -- --
Total operating expenses 40,301,092 884,576 (10,976,429)
Operating income (loss) (4,932,574) (633,973) 10,976,429
Other income (expense):
Interest income 2,529,197 -- (111,930)(K)
Interest expense (188,340) --
Other, net 68,641 (13,007) --
Net income (loss) before income taxes $ (2,523,076) $ (646,980) $ 10,864,499
Provision (benefit) for income taxes (1,626,541) (252,322) 4,236,972 (L)
Net income (loss) $ (896,535) $ (394,658) $ 6,627,527
Preferred stock dividends 29,337 -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ (925,872) $ (394,658) $ 6,627,527
Earnings per share $ (0.05)
Weighted average number of common shares
and common share equivalents outstanding 20,170,000 498,187 (M)
</TABLE>
- - ----------
(1) Excludes effect of extraordinary items of $59,000, net of tax effect.
(2) Derived from the historical statements of operations of the Company and
Connect, Inc. (incorporated by reference herein), Leitess Information Solutions
LLC and Planet Communications LLC (collectively, "TeleT Communications LLC").
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Other Significant
Pro Forma Voice-Tel
Premiere Acquisitions VMS VTST MMP VTB
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 52,329,941 $ 53,662,574 $ 1,724,253 $ 531,702 $ 1,374,806 $ 2,684,708
Cost of services 16,710,820 11,349,010 341,730 86,826 448,913 763,043
Gross margin 35,619,121 42,313,564 1,382,523 444,876 925,893 1,921,665
Operating expenses:
Selling, general and administrative 26,650,415 28,571,307 783,350 198,972 758,430 1,417,162
Depreciation and amortization 2,308,824 6,328,591 219,427 87,110 77,958 151,308
Charge for purchased R & D --
Accrued litigation 1,250,000
Total operating expenses 30,209,239 34,899,898 1,002,777 286,082 836,388 1,568,470
Operating income (loss) 5,409,882 7,413,666 379,746 158,794 89,505 353,195
Other income (expense):
Interest income 2,417,267 680,477 2,667 -- -- --
Interest expense (188,340) (3,068,178) (43,111) -- (38,404) (5,392)
Other, net 55,634 428,750 6,085 -- -- 593
Net income (loss) before income taxes $ 7,694,443 $ 5,454,715 $ 345,387 $ 158,794 $ 51,101 $ 348,396
Provision (benefit) for income taxes 2,358,109 2,193,973 -- -- -- --
Net income (loss) $ 5,336,334 $ 3,260,742 $ 345,387 $ 158,794 $ 51,101 $ 348,396
Preferred stock dividends 29,337 -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 5,306,997 $ 3,260,742 $ 345,387 $ 158,794 $ 51,101 $ 348,396
Earnings per share $ .26
Weighted average number of common shares
and common share equivalents outstanding 20,668,187
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Voice
Hi-Pak Voice-Net Dowd D & K AudioInfo. Partners
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,695,447 $ 1,561,865 $ 872,252 $ 1,510,065 $ 396,230 $ 95,459
Cost of services 277,142 221,790 126,998 506,315 68,328 18,008
Gross margin 1,418,305 1,340,075 745,254 1,003,750 327,902 77,451
Operating expenses:
Selling, general and administrative 1,080,089 871,269 425,177 708,600 204,578 133,653
Depreciation and amortization 234,596 152,354 127,003 63,468 70,915 17,380
Charge for purchased R & D
Accrued litigation
Total operating expenses 1,314,685 1,023,623 552,180 772,068 275,493 151,033
Operating income (loss) 103,620 316,452 193,074 231,682 52,409 (73,582)
Other income (expense):
Interest income 4,927 -- -- -- -- --
Interest expense (40,623) (24,062) (13,710) (11,250) (11,763) (7,556)
Other, net 9,400 7,428 7,147 -- -- (7,809)
Net income (loss) before income taxes $ 77,324 $ 299,818 $ 186,511 $ 220,432 $ 40,646 $ (88,947)
Provision (benefit) for income taxes -- 26,190 -- 6,096
Net income (loss) $ 77,324 $ 273,628 $ 186,511 $ 220,432 $ 34,550 $ (88,947)
Preferred stock dividends -- -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 77,324 $ 273,628 $ 186,511 $ 220,432 $ 34,550 $ (88,947)
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
DARP VTI In-Touch Manitoba(H) L'Harbot Adjustments
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 964,976 $812,657 $ 1,449,753 $ 1,952,139 $ 719,933 $ (7,865,345)(B)
Cost of services 268,817 89,428 394,629 556,396 158,973 (2,599,000)(B)
Gross margin 696,159 723,229 1,055,124 1,395,743 560,960 (5,266,345)
Operating expenses:
Selling, general and administrative 378,644 301,729 824,984 821,660 345,991 (4,830,000)(B)
Depreciation and amortization 130,140 99,384 107,765 189,167 116,424 (547,805)(B)
(441,000)(C)
232,671 (D)
Charge for purchased R & D
Accrued litigation
Total operating expenses 508,784 401,113 932,749 1,010,827 462,415 (5,586,134)
Operating income (loss) 187,375 322,116 122,375 384,916 98,545 319,789
Other income (expense):
Interest income -- -- -- -- -- (325,131)(B)
(478,000)(D)
Interest expense (67,792) (50,423) (74,235) (71,998) -- 325,131 (B)
Other, net 36,317 -- (12,706) -- (272) --
Net income (loss) before income taxes $ 155,900 $271,693 $ 35,434 $ 312,918 $ 98,273 (158,211)
Provision (benefit) for income taxes 36,247 159,572 2,318,255 (E)
Net income (loss) $ 119,653 $271,693 $ 35,434 $ 153,346 $ 98,273 $ (2,476,466)
Preferred stock dividends -- -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 119,653 $271,693 $ 35,434 $ 153,346 $ 98,273 $ (2,021,493)
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding 6,667,828 (G)
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
<S> <C>
Revenues $ 116,473,415
Cost of services 29,788,166
Gross margin 86,685,249
Operating expenses:
Selling, general and administrative 59,646,010
Depreciation and amortization 9,725,680
Charge for purchased R & D --
Accrued litigation 1,250,000
Total operating expenses 70,621,690
Operating income (loss) 16,063,559
Other income (expense):
Interest income 2,302,207
Interest expense (3,391,706)
Other, net 530,567
Net income (loss) before income taxes $ 15,504,627
Provision (benefit) for income taxes 7,098,442
Net income (loss) $ 8,406,185
Preferred stock dividends 29,337
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 8,831,821
Earnings per share $ .32
Weighted average number of common shares
and common share equivalents outstanding 27,336,015
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Other
Significant
Voice-Tel
Premiere Acquisitions VMS
<S> <C> <C> <C>
Revenues $ 22,325,938 $ 43,167,910 $ 1,471,584
Cost of services 7,602,511 8,560,491 337,027
Gross margin 14,723,427 34,607,419 1,134,557
Operating expenses:
Selling, general and administrative 11,727,559 26,246,439 671,836
Depreciation and amortization 696,898 4,823,929 88,536
Accrued litigation -- 2,500,000 --
Total operating expenses 12,424,457 33,570,368 760,372
Operating income (loss) 2,298,970 1,037,051 374,185
Other income (expense):
Interest income 283,082 815,097 2,402
Interest expense (366,034) (3,106,692) (36,737)
Other, net 32,062 249,462 3,775
Net income (loss) before income taxes $ 2,248,080 $ (1,005,082) $ 343,625
Provision (benefit) for income taxes 330,486 (685,813) --
Net income (loss) $ 1,917,594 $ (319,269) $ 343,625
Preferred stock dividends 308,419 -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per phare $ 1,807,382(1) $ (319,269) $ 343,625
Earnings per share $ 0.10
Weighted average number of common shares
and common share equivalents outstanding 17,529,000
</TABLE>
- - ---------------
(1) Amount includes the pro forma net interest adjustment of $198,207 assumed
under the treasury method.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
VTST MMP VTB Hi-Pak Voice-Net Dowd
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 434,186 $ 762,120 $ 1,837,486 $ 1,477,687 $ 1,237,306 $ 724,253
Cost of services 61,608 121,447 548,189 178,378 232,153 101,210
Gross margin 372,578 640,673 1,289,297 1,299,309 1,005,153 623,043
Operating expenses:
Selling, general and administrative 178,542 469,854 1,068,174 1,055,405 684,229 377,844
Depreciation and amortization 76,439 84,771 138,208 192,239 161,155 103,551
Accrued litigation -- -- -- -- -- --
Total operating expenses 254,981 554,625 1,206,382 1,247,644 845,384 481,395
Operating income (loss) 117,597 86,048 82,915 51,665 159,769 141,648
Other income (expense):
Interest income -- -- -- 3,078 -- --
Interest expense -- (50,896) (12,000) (44,486) (35,944) (14,750)
Other, net -- -- 653 3,415 (826) (26,714)
Net income (loss) before income taxes $ 117,597 $ 35,152 $ 71,568 $ 13,672 $ 122,999 $ 100,184
Provision (benefit) for income taxes -- -- -- -- 10,670 --
Net income (loss) $ 117,597 $ 35,152 $ 71,568 $ 13,672 $ 112,329 $ 100,184
Preferred stock dividends -- -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 117,597 $ 35,152 $ 71,568 $ 13,672 $ 112,329 $ 100,184
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Historical
Voice
D & K AudioInfo. Partners DARP VTI In-Touch Manitoba (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,255,213 $ 453,074 $ -- $710,627 $ -- $ 1,409,254 $ 1,238,119
Cost of services 458,999 64,590 -- 161,828 -- 350,274 361,162
Gross margin 796,214 388,484 -- 548,799 -- 1,058,980 876,957
Operating expenses:
Selling, general and administrative 699,002 160,219 -- 342,575 -- 922,480 675,922
Depreciation and amortization 54,171 67,119 -- 136,789 -- 105,032 150,707
Accrued litigation -- -- -- -- -- -- --
Total operating expenses 753,173 227,338 -- 479,364 -- 1,027,512 826,629
Operating income (loss) 43,041 161,146 -- 69,435 -- 31,468 50,328
Other income (expense):
Interest income -- -- -- -- -- 1,048 --
Interest expense (21,463) (19,199) -- -- -- (46,857) (86,521)
Other, net -- -- -- 31,643 -- (3,349) --
Net income (loss) before income taxes $ 21,578 $ 141,947 $ -- $101,078 $ -- $ (17,690) $ (36,193)
Provision (benefit) for income taxes -- 22,527 -- -- -- -- --
Net income (loss) $ 21,578 $ 119,420 $ -- $101,078 $ -- $ (17,690) $ (36,193)
Preferred stock dividends -- -- -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 21,578 $ 119,420 $ -- $101,078 $ -- $ (17,690) $ (36,193)
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Pro Forma
L'Harbot Adjustments Pro Forma
<S> <C> <C> <C>
Revenues $ 618,480 $ (7,357,060)(B) $ 71,766,177
Cost of services 125,200 (532,000)(C) 18,733,067
Gross margin 493,280 (6,825,060) 53,033,110
Operating expenses:
Selling, general and administrative 288,398 (5,283,776)(B) 40,284,702
Depreciation and amortization 92,372 (357,956)(B) 6,406,960
(207,000)(C)
Accrued litigation -- -- 2,500,000
Total operating expenses 380,770 (5,848,732) 49,191,662
Operating income (loss) 112,510 (976,328) 3,841,448
Other income (expense):
Interest income -- (345,049)(B) 759,658
Interest expense -- 345,049 (B) (3,496,530)
Other, net 39,287 329,408
Net income (loss) before income taxes $ 151,797 $ (976,328) $ 1,433,984
Provision (benefit) for income taxes -- 614,077 (E) 291,947
Net income (loss) $ 151,797 $ (1,590,405) $ 1,142,037
Preferred stock dividends -- -- 308,419
Pro forma income(loss) attributable to
common shareholders for primary earnings
per share $ 151,797 $ (1,788,612)(G) $ 833,618
Earnings per share $ .05
Weighted average number of common shares
and common share equivalents outstanding (1,918,331)(G) 15,610,669
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Other Significant
Voice-Tel
Premiere Acquisitions VMS VTST
<S> <C> <C> <C> <C>
Revenues $ 9,995,000 $ 32,738,419 $ 754,438 $ 346,315
Cost of services 3,516,000 7,037,571 118,636 58,845
Gross margin 6,479,000 25,700,848 635,802 287,470
Operating expenses:
Selling, general and administrative 6,092,000 24,784,655 521,527 121,736
Depreciation and amortization 420,000 3,727,097 155,000 67,957
Total operating expenses 6,512,000 28,511,752 676,527 189,693
Operating income (loss) (33,000) (2,810,904) (40,725) 97,777
Other income (expense):
Interest income 149,000 398,401 881 --
Interest expense (291,000) (2,012,797) (29,418) (8,813)
Other, net 43,000 297,246 30,826 --
Net income (loss) before income taxes $ (132,000) $ (4,128,054) $ (38,436) $ 88,964
Provision (benefit) for income taxes 48,000 (1,413,241) -- --
Net income (loss) $ (180,000) $ (2,714,813) $ (38,436) $ 88,964
Preferred stock dividends 320,000 -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ (500,000) $ (2,714,813) $ (38,436) $ 88,964
Earnings per share $ (0.05) -- -- --
Weighted average number of common shares and common share
equivalents outstanding 10,804,000
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Historical
MMP VTB Hi-Pak Voice-Net Dowd D & K
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 353,875 $ 1,583,930 $ 1,209,241 $ 1,002,324 $ 703,490 $ 692,061
Cost of services 41,936 455,647 156,116 235,561 117,977 211,897
Gross margin 311,939 1,128,283 1,053,125 766,763 585,513 480,164
Operating expenses:
Selling, general and administrative 223,394 907,117 802,950 545,333 280,849 366,768
Depreciation and amortization 65,525 130,768 96,427 135,770 110,402 34,409
Total operating expenses 288,919 1,037,885 899,377 681,103 391,251 401,177
Operating income (loss) 23,020 90,398 153,748 85,660 194,262 78,987
Other income (expense):
Interest income 19 -- 3,588 -- -- --
Interest expense (40,313) (18,000) (42,994) (39,151) (26,804) (4,740)
Other, net -- -- 4,025 314 (39,604) --
Net income (loss) before income taxes $ (17,274) $ 72,398 $ 118,367 $ 46,823 $ 127,854 $ 74,247
Provision (benefit) for income taxes -- -- -- 6,135 -- --
Net income (loss) $ (17,274) $ 72,398 $ 118,367 $ 40,688 $ 127,854 $ 74,247
Preferred stock dividends -- -- -- -- -- --
Pro forma income (loss) attributable
to common shareholders for primary
earnings per share $ (17,274) $ 72,398 $ 118,367 $ 40,688 $ 127,854 $ 74,247
Earnings per share
Weighted average number of common shares and
common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION> Voice
AudioInfo Partners DARP VTI In-Touch Manitoba(H) L'Harbot
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 292,814 $ -- $ 455,007 $ -- $ 787,180 $ 197,145 $470,565
Cost of services 47,747 -- 112,951 -- 132,359 62,323 59,297
Gross margin 245,067 -- 342,056 -- 654,821 134,822 411,268
Operating expenses:
Selling, general and administrative 74,175 -- 184,431 -- 519,354 223,348 216,650
Depreciation and amortization 88,706 -- 97,456 -- 185,898 26,849 57,992
Total operating expenses 162,881 -- 281,887 -- 705,252 250,197 274,642
Operating income (loss) 82,186 -- 60,169 -- (50,431) (115,375) 136,626
Other income (expense):
Interest income -- -- -- -- 423 5,454 --
Interest expense (25,588) -- -- -- (64,831) -- (14,815)
Other, net -- -- 19,246 -- 59,300 -- --
Net income (loss) before income taxes $ 56,598 $ -- $ 79,415 $ -- $ (55,539) $(109,921) $121,811
Provision (benefit) for income taxes -- -- -- -- -- -- --
Net income (loss) $ 56,598 $ -- $ 79,415 $ -- $ (55,539) $(109,921) $121,811
Preferred stock dividends -- -- -- -- -- -- --
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ 56,598 $ -- $ 79,415 $ -- $ (55,539) $(109,921) $121,811
Earnings per share
Weighted average number of common shares
and common share equivalents outstanding
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
<S> <C> <C>
Revenues $ (5,752,704)(B) $ 45,829,100
Cost of services (192,000)(C) 12,172,863
Gross margin (5,560,704) 33,656,237
Operating expenses:
Selling, general and administrative (4,009,000)(B) 31,855,287
Depreciation and amortization (202,619)(B) 5,147,637
(50,000)(C)
Total operating expenses (4,261,619) 37,002,924
Operating income (loss) (1,299,085) (3,346,687)
Other income (expense):
Interest income (121,131)(B) 436,635
Interest expense 121,131 (B) (2,498,133)
Other, net 414,353
Net income (loss) before income taxes $ (1,299,085) $ (4,993,832)
Provision (benefit) for income taxes 26,394 (E) (1,332,712)
Net income (loss) $ (1,325,479) $ (3,661,120)
Preferred stock dividends -- 320,000
Pro forma income (loss) attributable to
common shareholders for primary earnings
per share $ (1,325,479) $ (3,981,120)
Earnings per share $ (.26)
Weighted average number of common shares and
common share equivalents outstanding 4,806,669 (G) 15,610,669
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS--SIGNIFICANT VOICE-TEL ACQUISITIONS
Pro forma adjustments have been made to:
(A) Reflect the Company's anticipation that, in connection with the
Voice-Tel Acquisitions, it will take a charge in the second quarter of 1997
of approximately $40 million to $45 million, consisting of transaction
expenses and restructuring and related costs (including severance costs,
charges for asset impairment, costs related to exiting the franchise
business and closing certain facilities). This charge (at an assumed level
of $45 million), net of the related income tax effect, has been reflected
as a reduction in retained earnings and shareholders' equity of $32.5
million in the pro forma balance sheet.
(B) Eliminate intercompany transactions between the Significant Voice-Tel
Entities. These transactions include royalties, transaction fees for
network usage, management fees and equipment sales. All sales and cost of
sales associated with such transactions, including intercompany profit
included in equipment cost and depreciation, are eliminated in the pro
forma combined financial statements. Also, adjustments have been made to
eliminate intercompany accounts receivable and payable.
(C) Conform VTE and VTNLP accounting treatment for certain preoperating
costs with policies followed by Premiere. Adjustments have been made to
charge to expense during the period incurred preoperating costs capitalized
by VTE and VTNLP which would have been expensed under policies followed by
Premiere. Associated amortization expense has been reduced to reflect such
adjustments.
(D) Give effect to purchase of Voice Partners and the limited partner
interest in VTNLP as though such transactions occurred on March 31, 1997
for pro forma balance sheet purposes, and January 1, 1996 for pro forma
statement of income purposes. These adjustments consist of allocation of
the cash purchase price ($80,000 for Voice Partners and $9.2 million for
the limited partner interest in VTNLP) to the underlying assets and
liabilities and, for pro forma statement of income purposes, additional
depreciation and amortization resulting from increased basis of property
and equipment over an estimated useful life of 40 years and a reduction in
interest income resulting from the reduction of cash.
(E) Provide for income taxes for entities which operated as S
corporations or partnerships prior to the Significant Voice-Tel
Acquisitions as if they were combined with Premiere and subject to taxation
for all periods presented. In addition, adjustments have been made for the
income tax effect of all of the foregoing pro forma adjustments.
(F) Reflect the issuance of shares of Premiere common stock in exchange
for all of the outstanding common shares of the Significant Voice-Tel
Entities. The excess of the par value of Premiere common stock over those
received in exchange for the Significant Voice-Tel Entities is reflected as
a reduction of additional paid in capital of the combined company.
(G) Give effect to additional shares issued to the Significant Voice-Tel
Entities as though such shares were issued January 1, 1994 and adjust for
change in shares computed under the modified treasury stock method except
for 1995 which reflects the adjustment to show the conversion from the
modified treasury stock method to the primary method of computing earnings
per share.
Adjustments have been made to:
(H) Translate financial information from Canadian dollars to U.S. dollars
using an average exchange rate of .75 U.S. dollars per one Canadian dollar.
<PAGE>
PRO FORMA STATEMENT OF INCOME ADJUSTMENTS--TELET
Pro forma adjustments necessary to reflect the purchase of TeleT as though
such transaction occurred effective January 1, 1996 have been made to:
(I) Reflect additional depreciation and amortization expense associated
with the increase in the basis of the acquired assets to fair market value
at the date of acquisition.
(J) Reverse the nonrecurring charge for in process research and
development.
(K) Reflect reduction in interest income resulting form cash paid in
acquisition.
(L) Reflect income tax effect of pro forma adjustments.
(M) Give effect to additional shares issued in connection with the
acquisition as though such shares were issued January 1, 1996.
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
- - ------- ----------- ----
2.1 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice Messaging Development Corporation of
Michigan and the Owners of Voice Messaging Development Corporation of
Michigan. (1)
2.2 Transfer Agreement dated as of June 13, 1997 by and among Premiere
Technologies, Inc., Voice Partners of Greater Mahoning Valley, Ltd.
and the Owners of Voice Partners of Greater Mahoning Valley, Ltd.
2.3 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., In-Touch Technologies, Inc. and the Owners of In-
Touch Technologies, Inc. (1)
2.4 Transfer Agreement dated as of March 31, 1997 by and among Premiere
Technologies, Inc. and Owners of the Western Franchisees: 3325882
Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc., 3337821
Manitoba Inc. and 3266631 Manitoba Inc. (1)(2)
23.1 Consent of Arthur Andersen LLP.
____________________
(1) Waive One Franchisee(s).
(2) Certain of the Significant Franchisees operate through multiple, but
commonly owned, business entities.
<PAGE>
EXHIBIT 2.1
TRANSFER AGREEMENT
BY AND AMONG
PREMIERE TECHNOLOGIES, INC.,
VOICE MESSAGING DEVELOPMENT
CORPORATION OF MICHIGAN
AND
OWNERS OF VOICE MESSAGING DEVELOPMENT
CORPORATION OF MICHIGAN
DATED AS OF APRIL 2, 1997
<PAGE>
TRANSFER AGREEMENT
------------------
THIS TRANSFER AGREEMENT (this "Agreement") is entered into as of April 2,
1997 by and among Premiere Technologies, Inc., a Georgia corporation
("Premiere"), Voice Messaging Development Corporation of Michigan, a Michigan
corporation (the "Company"), and those parties listed on the signature pages
hereto as the owners of the Company (the "Owners").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, this Agreement provides for the acquisition of the Company by
Premiere pursuant to the merger of the Company with and into a wholly owned
subsidiary of Premiere ("Merger Corp"), with Merger Corp as the surviving
corporation in such merger (the "Merger");
WHEREAS, the respective Boards of Directors of Premiere and the Company
have approved the terms and conditions set forth in this Agreement;
WHEREAS, the Owners own one hundred percent (100%) of the equity interests
in the Company;
WHEREAS, this Agreement provides for all of the Owners' equity interests in
the Company to be converted into the right to receive shares of Premiere Stock
in connection with the Merger;
WHEREAS, it is also the intention of the parties hereto that the form of
the transactions with respect to the Company, Premiere and Merger Corp shall
qualify as a "reorganization" within the meaning of Section 368(a) of the Code
for federal income tax purposes; and
WHEREAS, it is also the intention of the parties hereto that the business
combination to be effected by the Merger be accounted for as a pooling of
interests.
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
I. UNIFORM TERMS AND CONDITIONS
--------------------------------
1.1 Incorporation by Reference. The Uniform Terms and Conditions attached
--------------------------
hereto as Exhibit A (the "Uniform Terms") are hereby made a part of and
---------
incorporated herein as if fully restated herein. Capitalized terms not defined
herein shall have the meanings provided in the Uniform Terms.
-2-
<PAGE>
II. TERMS OF MERGER
--------------------
2.1 The Merger.
----------
(a) Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Merger Corp in
accordance with the provisions of the business corporation act under the laws of
the State of Michigan (the "Michigan Act") and the laws of the State of Georgia
(the "Georgia Act"). Merger Corp shall be the surviving corporation resulting
from the Merger, shall thereafter conduct the business and operations of the
Company as a wholly owned subsidiary of Premiere and shall continue to be
governed by the laws of the State of Georgia. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective boards of directors of Premiere, Merger Corp and the Company.
(b) Subject to the provisions of this Agreement, the parties
shall file Articles or a Certificate of Merger, as appropriate, executed in
accordance with the relevant provisions of the Michigan Act and a Certificate of
Merger executed in accordance with the relevant provisions of the Georgia Act
and shall make all other filings or recordings required under each such Act as
soon as practicable on or after the Closing Date. The Merger and other
transactions contemplated by this Agreement shall become effective on the date
and at the time the Articles or a Certificate of Merger, as appropriate, of
Merger reflecting the Merger becomes effective with the Secretary of State of
the State of Michigan and the Certificate of Merger reflecting the Merger
becomes effective with the Secretary of State of the State of Georgia (the
"Effective Time").
(c) The charter and Bylaws of Merger Corp in effect immediately
prior to the Effective Time shall be the charter and Bylaws of the surviving
corporation until otherwise amended or repealed, the directors of Merger Corp
immediately prior to the Effective Time shall serve as the directors of the
surviving corporation from and after the Effective Time, and the officers of
Merger Corp in office immediately prior to the Effective Time shall serve as the
officers of the surviving corporation from and after the Effective Time.
2.2 Conversion of Shares. Subject to the provisions of this Section 2.2,
--------------------
and in consideration for the transactions contemplated hereby, at the Effective
Time, by virtue of the Merger and without any action on the part of the parties
hereto or the shareholders of any of the parties hereto, the shares of the
constituent corporations of the Merger shall be converted as follows:
(a) Each share of Premiere Stock and each share of Merger Corp
common stock issued and outstanding at the Effective Time shall remain issued
and outstanding after the Effective Time.
(b) All of the shares of the capital stock, no par value per
share, of the Company ("Company Stock") (excluding treasury shares and excluding
shares held by shareholders who perfect their statutory dissenters' rights as
provided in Section 2.4 of this Agreement) issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive:
(i) the number of shares of Premiere Stock determined by
dividing (A) the product of .9 multiplied by the
Company Purchase Price, by (B) the Average Closing
Price; and
-3-
<PAGE>
(ii) the number of shares of Premiere Stock determined by
dividing (A) the product of .1 multiplied by the
Company Purchase Price, by (B) the Average Closing
Price (the "General Escrow Amount");
all as determined in accordance with Section 2.3 below (collectively, the
"Consideration"). Subject to Section 2.2(d) below, the Consideration shall be
issuable to the Owners pro rata in accordance with their ownership of Company
Common Stock pursuant to Section 2.6, which ownership the Owners represent has
not been adjusted in contemplation of the transactions described herein.
(c) Any and all shares of Company Common Stock held as treasury
shares by the Company shall be canceled and retired at the Effective Time, and
no consideration shall be issued in exchange therefor.
(d) Upon consummation of the Merger, the Owners shall deliver
the General Escrow Amount in negotiable form to the Escrow Agent to be held in
escrow pursuant to the terms and conditions of the Escrow Agreement in the form
attached hereto as Exhibit B, which shall be executed and delivered by Premiere
---------
and the Owners at the Closing.
2.3 Calculation of Consideration. For purposes of determining the
----------------------------
Consideration issuable to the Owners pursuant to Section 2.2(b) above, the
following shall apply:
(a) "Average Closing Price" shall be the average of the daily
last sale prices of Premiere Stock for the period consisting of twenty (20)
consecutive trading days on which such shares are actually traded on the Nasdaq
National Market (as reported by the Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Premiere) ending at the
close of trading on the first trading day immediately preceding the Closing;
provided, however, that the Average Closing Price shall not be less than $22.50
- - -------- -------
nor more than $30.50 (collectively, $22.50 and $30.50 are referred to as the
"Average Closing Price Limitations").
(b) "Company Purchase Price" shall be the sum of (i) the amount
determined by multiplying the Normalized EBITDA of the Company by the Stock
Multiple, plus (ii) the amount of cash reflected on the Closing Date Balance
----
Sheet, minus (iii) the aggregate amount of principal and accrued and unpaid
-----
interest under funded debt and capital lease obligations reflected on the
Closing Date Balance Sheet, and minus (iv) the amount by which the Transaction
-----
Costs exceed the Deductible Amount.
(c) "Deductible Amount" shall be an amount equal to $5,000.
(d) "Normalized EBITDA" of the Company shall be an amount equal
to $65,316.
(e) "Registration Right" shall mean the right to include
Premiere Stock issued in the Merger in a registration statement which Premiere
intends to file promptly after the end of the first full fiscal quarter of
Premiere containing the period of post-Merger combined operations required by
ASRs 130 and 135, pursuant to the terms and conditions of the Stock Restriction
and Registration Rights Agreement in the form attached hereto as of Exhibit C
---------
(the "Registration Rights Agreement") .
(f) "Stock Multiple" shall be six (6).
-4-
<PAGE>
(g) "Transaction Costs" shall mean all amounts incurred but
unpaid by the Company in connection with (i) the negotiation and preparation of
this Agreement, (ii) the preparation of the Audited Financial Statements, (iii)
the consummation of the Transactions and (iv) one-half of the costs and expenses
of public record searches pursuant to Section 5.9(b) of the Uniform Terms.
2.4 Dissenting Shareholders. Subject to Section 4.2, any holder of shares
-----------------------
of voting capital stock of the Company who perfects any available dissenters'
rights in accordance with and as contemplated by the Michigan Act shall be
entitled to receive the value of such shares in cash from the Company after the
Effective Time as determined pursuant to such provision of law; provided, that
no such payment shall be made to any dissenting shareholder unless and until
such dissenting shareholder has complied with the applicable provisions of the
Michigan Act and surrendered to the Company the certificate or certificates
representing the shares for which payment is being made. In the event that a
dissenting shareholder of the Company fails to perfect, or effectively withdraws
or loses, its right to appraisal and of payment for its shares, Premiere shall
issue and deliver the consideration to which such holder of shares of Company
capital stock is entitled under this Article II (without interest) upon
surrender of certificates representing such shares held by such holder.
2.5 Closing. The Closing shall take place at the offices of Alston & Bird
-------
LLP, Atlanta, Georgia, at 10:00 a.m. local time, on the date set forth in the
Uniform Terms, provided all conditions set forth in Articles V and VI of the
Uniform Terms and Articles IV and V of this Agreement have been satisfied or
waived, or on such other date or at such other place and time mutually agreed
upon by the parties.
2.6 Exchange of Shares. Promptly after the Effective Time, Premiere and
------------------
Company shall cause to be mailed to the former Company shareholders appropriate
transmittal materials for the surrender of the certificate or certificates
formerly representing their shares of Company Common Stock in exchange for
shares of Premiere Stock as provided in this Agreement. Until surrendered for
exchange in accordance herewith, each certificate theretofore representing
shares of Company Common Stock shall from and after the Effective Time represent
only the right to receive the Consideration provided in this Agreement in
exchange therefor. No certificates representing fractional shares will be
issued as a result of the Merger. Each holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Premiere Common Stock shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Premiere Common Stock multiplied by the Average Closing Price.
2.7 Purchase for Investment, Etc. Each Owner represents and warrants the
-----------------------------
following to Premiere:
(a) such Owner has accurately completed the Investor
Questionnaire required by Premiere prior to or contemporaneous with the
execution of the Transfer Agreement and the statements therein are true and
correct and acknowledges that Premiere has relied upon such statements in
entering into this Agreement;
-5-
<PAGE>
(b) such Owner is acquiring Premiere Stock for such Owner's own
account and not with a view to or for sale in connection with any public
distribution thereof within the meaning of the Securities Act;
(c) such Owner (i) has sufficient knowledge and experience in
financial and business matters to enable him, her or it to evaluate the merits
and risks of an investment in Premiere Stock, (ii) has the ability to bear the
economic risk of acquiring Premiere Stock for an indefinite period and to afford
a complete loss thereof and (iii) has had an opportunity to ask questions of and
to receive answers from the officers of Premiere and to obtain additional
information in writing as requested, which has been made available to and
examined by such Owner or such Owner's advisors; and
(d) such Owner (i) acknowledges that Premiere Stock has not been
registered under any securities laws and cannot be resold without registration
thereunder or exemption therefrom, (ii) agrees not to transfer all or any
Premiere Stock received by such Owner unless such transfer has been registered
or is exempt from registration under applicable securities laws and (iii)
acknowledges that the certificate(s) representing Premiere Stock shall bear the
following legend with respect to the restrictions on transfer under applicable
securities laws:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, and may not be offered,
sold, transferred or otherwise disposed of unless registered with
the Securities and Exchange Commission of the United States and
the securities regulatory authorities of applicable states or
unless an exemption from such registration is available."
2.8 Accounting, Tax and Regulatory Matters. Each Owner and the Company,
--------------------------------------
jointly and severally, represents and warrants to Premiere that neither the
Company, any Owner nor any Affiliate thereof has taken or agreed to take any
action or has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying for pooling-of-interests
accounting treatment or as a reorganization within the meaning of Section 368(a)
of the Code, or (ii) materially impede or delay receipt of any consents referred
to in Section 5.6 of the Uniform Terms or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
III. ADDITIONAL AGREEMENTS
---------------------------
3.1 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, the Company and Merger Corp shall execute and file
the Articles or Certificate of Merger, as appropriate, with the Secretary of
State of the State of Michigan and a Certificate of Merger with the Secretary of
State of the State of Georgia in connection with the Closing.
3.2 Conditions to Closing. The Company, the Owners and Premiere agree to
---------------------
use their commercially reasonable best efforts to satisfy the closing conditions
set forth in Articles IV and V of this Agreement by the date indicated therein
or the Closing Date, as applicable.
3.3 Additional Indemnification Items. Subject to Sections 8.2 through 8.6
--------------------------------
of the Uniform Terms, the Owners and, if the Transactions involve an Asset
Transfer, the Company, shall jointly and severally indemnify and hold harmless
Premiere, and its officers, directors, agents or affiliates,
-6-
<PAGE>
from and against any and all Losses suffered or incurred by any such party by
reason of or arising out of any of the following:
(a) a breach of Section 2.19 of the Uniform Terms as it relates
to liability for sales tax (irrespective of whether disclosed on Schedule 2.19
or in the Financial Statements.
3.4 Tax Matters. Each of the Company, the Owners and Premiere undertakes
-----------
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code for federal income tax purposes.
Notwithstanding the foregoing, the Owners understand that (i) Premiere makes no
representation or warranty regarding the tax treatment of this Agreement or the
Merger, (ii) the Closing is not subject to a condition that an Internal Revenue
Service ruling or tax opinion be obtained as to the federal income tax
consequences of this Agreement or the Merger, and (iii) the Company and the
Owners shall look to their respective advisors for advice concerning the tax
consequences of this Agreement and the Merger.
3.5 Registration Rights. At the Closing, Premiere and the Owners shall
-------------------
execute and deliver the Registration Rights Agreement.
3.6 Accounting Treatment.
--------------------
(a) The Company and each of the Owners has accurately completed
the Pooling Questionnaire required by Premiere prior to or contemporaneous with
the execution of this Agreement, and the statements therein are true and
correct.
(b) Premiere, the Company and each of the Owners agrees to use
its reasonable efforts to cause the Merger, and to take no action which would
cause the Merger not, to qualify for treatment as a pooling of interests for
accounting purposes. Without limiting the foregoing, the Company and each of the
Owners agrees not to sell, transfer, or otherwise dispose of his, her or its
interests in, or reduce his, her or its risk relative to, any of the shares of
Premiere Common Stock received in connection with the Merger until such time as
Premiere notifies the Company and each such Owner that the requirements of ASRs
130 and 135 have been met. The Company and each of the Owners understands that
ASRs 130 and 135 relate to the publication of financial results of at least
thirty (30) days of post-Merger combined operations of Premiere and the Company.
Premiere agrees that it shall publish such results within forty-five (45) days
after the end of the first fiscal quarter of Premiere containing the required
period of post-Merger combined operations and that it shall notify the Company
and each of the Owners promptly following such publication. Premiere shall be
entitled to place the following restrictive legend on the shares of Premiere
Stock issued pursuant to the Merger to enforce the foregoing restrictions:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce his
risks relative thereto in any way, until such time as Premiere
Technologies, Inc. ("Premiere") has published the financial results
covering at least 30 days of combined operations after the effective
date of the merger through which the business combination was
effected."
3.7 Affiliate Agreements. The Company has disclosed in Schedule 3.7 all
-------------------- ------------
Persons whom it reasonably believes is an "affiliate" of the Company for
purposes of Rule 145 under the 1933 Act.
-7-
<PAGE>
The Company shall use its reasonable efforts to cause each such Person to
deliver to Premiere as soon as reasonably practicable following the execution of
this Agreement, a written agreement, substantially in the form attached hereto
as Exhibit D.
---------
3.8 Tax Representations. In connection with the opinion to be rendered to
-------------------
Premiere by Alston & Bird to the effect that the transactions contemplated
hereby will constitute a tax-free reorganization within the meaning of Section
368(a) of the Code, the Owners shall furnish such counsel with such
representations as to their plans for the disposition of the shares of Premiere
Stock to be received in the Transactions as such counsel shall reasonably
request.
3.9 Restricted Stock. All contractual restrictions or limitations on
----------------
transfer with respect to Company Common Stock under any plan, program, contract
or arrangement, to the extent that such restrictions or limitations have not
already lapsed (whether as a result of the Transactions or otherwise), and
except as otherwise expressly provided in such plan, program, contract or
arrangement, shall remain in full force and effect with respect to shares of
Premiere Stock into which such restricted stock is converted pursuant to Section
2.2 of this Transfer Agreement.
3.10 Exchange Listing. Premiere shall use its reasonable efforts to list,
----------------
prior to the Effective Time, on the Nasdaq National Market the shares of
Premiere Stock to be issued to the Owners pursuant to the Transactions, and
Premiere shall give all notices and make all filings with the NASD required in
connection with the Transactions.
IV. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF PREMIERE
-------------------------------------------------------
In addition to the conditions of Premiere contained in Article V of the
Uniform Terms, the obligation of Premiere to consummate the Transactions is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
4.1 Approval of Owners. The Owners shall have approved the Merger in
------------------
accordance with the requirements of the Michigan Act and the Company shall have
provided Premiere certified copies of such resolutions, and Owners holding no
more than ten percent (10%) of the Company Common Stock issued and outstanding
immediately prior to the Effective Time shall have exercised any of the rights
described in Section 2.4.
4.2 Grand Solution Documents. VTNLP, VTE, the NAP and each of the
------------------------
Franchisee Companies shall have executed and delivered Grand Solution Documents
reflecting the terms described in Exhibit E hereto in form and substance
---------
reasonable satisfactory to Premiere.
4.3 Pooling Letter. Premiere shall have received a letter from the
--------------
Company, in the form attached hereto as Exhibit F, containing representations
---------
related to the pooling of interests accounting treatment.
4.4 Reorganization Opinion. Premiere shall have received an opinion of
----------------------
Alston & Bird LLP, counsel to Premiere, to the effect that the transactions
contemplated by the Agreement, including the Merger, will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code.
-8-
<PAGE>
4.5 Voice Response Corporation. All of the Company's obligations to or in
--------------------------
respect of with Voice Response Corporation, including without limitation
guarantees of indebtedness shall have been terminated. Further, Voice Response
Corporation shall vacate the office or other commercial space currently occupied
by the Company, within a reasonable period of time after closing, provided
however, under no condition will Voice Response Corporation remain in the space
90 days after Closing or interfere in the operations of Premiere post closing.
V. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF THE COMPANY
---------------------------------------------------------
AND THE OWNERS
--------------
In addition to the conditions of the Company and the Owners contained in
Article VI of the Uniform Terms, the obligation of the Company and the Owners to
consummate the Transactions is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions:
5.1 Approval of Premiere and Merger Corp. The Board of Directors of
------------------------------------
Premiere and the Board of Directors and the shareholder of Merger Corp shall
have approved the Merger in accordance with the requirement of applicable state
law. Premiere and Merger Corp shall have provided the Company certified copies
of such resolutions.
5.2 Registration Rights. Premiere and each Owner shall have executed and
-------------------
delivered a Registration Rights Agreement.
VI. MISCELLANEOUS
------------------
6.1 Notices. The addresses for notices in accordance with Section 10.1 of
-------
the Uniform Terms for the Company and the Owners are as follows:
If to the Company: With a copy to:
Marvin Kasoff Michael P. McNamara, Jr.
Hi-Pak System, Inc. Baker & Hostetler LLP
31033 Schoolcraft 1900 East 9th Street
Livonia, MI 48150 Cleveland, OH 44114-3485
Phone: (313) 485-5110 Phone: (216) 621-0200
Fax: (313) 458-2835 Fax: (216) 696-0740
-9-
<PAGE>
If to the Owners: With a copy to:
Marvin Kasoff Michael P. McNamara, Jr.
Hi-Pak System, Inc. Baker & Hostetler LLP
31033 Schoolcraft 1900 East 9th Street
Livonia, MI 48150 Cleveland, OH 44114-3485
Phone: (313) 485-5110 Phone: (216) 621-0200
Fax: (313) 458-2835 Fax: (216) 696-0740
6.2 Owner's Representative. The Owners' Representative for purposes of
----------------------
Section 10.2 of the Uniform Terms shall be Marvin Kasoff, who shall serve as the
Owner's Representative under the terms of said Section 10.2 of the Uniform
Terms.
6.3 Certain Definitions. In addition to the terms defined elsewhere
-------------------
herein and in the Uniform Terms, as used in this Agreement:
(a) "Anticipated Closing Date" shall mean April 30, 1997.
------------------------
(b) "Knowledge" of the Company shall mean the personal knowledge
---------
after due inquiry of those facts that are known or should
reasonably have been known after due inquiry by Marvin Kasoff,
Barbara Kasoff and Ken Snyder and the knowledge of any such
Persons obtained or which would have been obtained from a
reasonable investigation.
(c) "Outside Closing Date" shall mean June 30, 1997.
--------------------
[Signatures begin on next page.]
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
PREMIERE:
PREMIERE TECHNOLOGIES, INC.,
a Georgia corporation
By:/s/ Patrick G. Jones
------------------------
Title: Sr. V.P.
---------------------
Attest:
By: /s/ Douglas B. Hadaway
----------------------------
Title: Asst. V.P.
------------------------
COMPANY:
VOICE MESSAGING
DEVELOPMENT CORPORATION
OF MICHIGAN
a Michigan corporation
By: /s/ Barbara Kasoff
-----------------------
Title: President
-----------------
Attest:
By: /s/ Marvin Kasoff
----------------------------
Title: Secretary
------------------------
OWNERS:
/s/ Marvin Kasoff
--------------------------
MARVIN KASOFF,
an individual resident of the
State of Michigan, and as sole trustee of
the MARVIN KASOFF REVOCABLE
TRUST
Witness:
By:______________________________
Name:____________________________
[Signatures continued on next page.]
<PAGE>
/s/ Barbara Kasoff
--------------------------
BARBARA KASOFF,
an individual resident of the
State of Michigan, and as sole trustee of
the BARBARA KASOFF REVOCABLE
TRUST
Witness:
By:______________________________
Name:____________________________
/s/ Kenneth Snyder
--------------------------
KENNETH SNYDER,
an individual resident of the
State of Michigan
Witness:
By:______________________________
Name:____________________________
<PAGE>
EXHIBIT 2.2
TRANSFER AGREEMENT
(Partnership Interest Acquisition)
(Partnership-Cash-Purchase)
This Transfer Agreement (this "Agreement") is entered into as of June 13,
1997 by and among PREMIERE TECHNOLOGIES, INC. ("Premiere"), a corporation
organized and existing under the laws of Georgia, VOICE PARTNERS OF GREATER
MAHONING VALLEY, LTD. ( the "Company"), a limited partnership organized and
existing under the laws of Ohio (the "Company Jurisdiction"), and the parties
listed on the signature pages hereto as the owners of the Company (whether one
or more, referred to as the "Owners").
Background
This Agreement provides for the acquisition of the Company by Premiere or
its wholly-owned subsidiary, Voice-Tel Enterprises, Inc. ("VTE"), pursuant to an
acquisition of the partnership interests of each Owner in the Company (the
"Partnership Interests") by VTE in exchange for cash consideration (the
"Acquisition"). The respective Boards of Directors of Premiere and VTE, and all
of the partners of the Company have approved the terms and conditions set forth
in this Agreement. This Agreement provides for all of the Owners' equity
interests in the Company to be acquired for the consideration described below in
the Acquisition.
Now, Therefore, in consideration of the foregoing, the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. The Uniform Terms and Conditions attached hereto as EXHIBIT A (the
"Uniform Terms") are hereby made a part of and incorporated herein as if fully
restated herein. Capitalized terms used and not defined herein shall have the
meanings provided in the Uniform Terms. The Transfer Agreement shall control in
the event of any conflict with any provision of the Uniform Terms.
2. The consideration for the Acquisition will be determined in
accordance with the provisions of the Uniform Terms; provided that : Article 10,
entitled "Share Exchange," shall be deleted in its entirety and in lieu thereof
the following shall be inserted:
10. ACQUISITION
10.1. ACQUISITION (GENERAL)
Subject to the terms and conditions of this Agreement, at the
Effective Time, each Owner shall transfer and convey to VTE all
Partnership Interests owned by such Owner for the Consideration specified
in the Transfer Agreement.
10.2 ACQUISITION (CASH CONSIDERATION)
Subject to the provisions of this Section, and in consideration
for the transactions contemplated hereby, at the Effective Time, all Partnership
Interests owned by the Owners at the Effective Time shall be exchanged for the
right to receive:
<PAGE>
(a) an amount of cash equal to ninety percent (90%) of the Company
Purchase Price; and
(b) an amount of cash equal to ten percent (10%) of the Company
Purchase Price (the "General Escrow Amount")
(collectively, the "Consideration"). Subject to Section 6.4., the
Consideration shall be payable to the Owners pro rata in accordance with
their ownership of the Partnership Interests.
The following provisions of the Uniform Terms shall not apply: Article 11,
entitled "Forward Triangular Merger," Article 12, entitled "Reverse Triangular
Merger," and Article 14, entitled "Accounting Matters" and provided further that
any reference in the Uniform Terms to "Company Stock" shall be deemed to be the
"Partnership Interests," and any reference to "Stock Transfer" shall be deemed
to be a reference to the "Acquisition."
3. "Deductible Amount" shall mean $10,000.00.
4. "Multiple" shall mean 1.7.
5. "Reference Number" shall mean $98,718 multiplied by .75, or
$74,038.50.
6. ________________ shall serve as the Owner's Representative under the
terms of Section 8.2. of the Uniform Terms.
7. EXHIBIT 5.10. (Additional Deliveries)
None.
8. EXHIBIT 6.1.2. (Additional Indemnification Matters)
None.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
PREMIERE:
PREMIERE TECHNOLOGIES, INC.
/s/ Patrick G. Jones
---------------------------------------------
By: Patrick G. Jones
Its: Senior Vice President-Finance and Legal
[Signatures continued on next page]
-2-
<PAGE>
COMPANY:
VOICE PARTNERS OF GREATER MAHONING VALLEY LTD.
/s/ William A. Currin
-------------------------------------------------
Currin Enterprises, Inc., an Ohio Corporation and
a General Partner of the Company
By: William A. Currin, President
/s/ Philip W. Mikita
-------------------------------------------------
Mikita Enterprises, Inc., an Ohio Corporation and
a General Partner of the Company
By: Philip W. Mikita, President
PARTNERS:
Execute, print or type full name and full mailing
address, phone and fax numbers:
/s/ Philip W. Mikita
--------------------------------------------------
Mikita Enterprises, Inc., an Ohio corporation
By: Philip W. Mikita, President
______________________________
______________________________
______________________________
Phone: _______________________
Fax:__________________________
/s/ William A. Currin
--------------------------------------------------
Currin Enterprises, Inc., an Ohio corporation
By: William A. Currin, President
______________________________
______________________________
______________________________
Phone:________________________
Fax:__________________________
[Signatures continued on next page.]
-3-
<PAGE>
/s/ William A. Currin
----------------------------------------
William A. Currin
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Philip W. Mikita
----------------------------------------
Philip W. Mikita
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Peter L. Newell
----------------------------------------
Peter L. Newell
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Robert D. Phillips
----------------------------------------
Robert D. Phillips
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Edward De Rose
----------------------------------------
Edward De Rose
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ George E. Currin
----------------------------------------
George E. Currin
______________________________
______________________________
Phone:________________________
Fax:__________________________
-4-
<PAGE>
/s/ Robert P. Drew
----------------------------------------
Robert P. Drew
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Edward G. Sogan
----------------------------------------
Edward G. Sogan
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Christopher C. Zorn
----------------------------------------
Christopher C. Zorn
______________________________
______________________________
Phone:________________________
Fax:__________________________
/s/ Thomas C. Tyler
----------------------------------------
Thomas C. Tyler
______________________________
______________________________
Phone:________________________
Fax:__________________________
-5-
<PAGE>
EXHIBIT 2.3
TRANSFER AGREEMENT
BY AND AMONG
PREMIERE TECHNOLOGIES, INC.,
IN-TOUCH TECHNOLOGIES, INC.
AND
OWNERS OF IN-TOUCH TECHNOLOGIES, INC.
DATED AS OF APRIL 2, 1997
<PAGE>
TRANSFER AGREEMENT
THIS TRANSFER AGREEMENT (this "Agreement") is entered into as of April 2,
1997 by and among Premiere Technologies, Inc., a Georgia corporation
("Premiere"), In-Touch Technologies, Inc., a California corporation (the
"Company"), and those parties listed on the signature pages hereto as the owners
of the Company (the "Owners").
W I T N E S S E T H:
WHEREAS, this Agreement provides for the acquisition of the Company by
Premiere pursuant to the merger of the Company with and into a wholly owned
subsidiary of Premiere ("Merger Corp"), with Merger Corp as the surviving
corporation in such merger (the "Merger");
WHEREAS, the respective Boards of Directors of Premiere and the Company
have approved the terms and conditions set forth in this Agreement;
WHEREAS, the Owners own one hundred percent (100 %) of the equity
interests in the Company;
WHEREAS, this Agreement provides for all of the Owners' equity interests
in the Company to be converted into the right to receive shares of Premiere
Stock in connection with the Merger;
WHEREAS, it is also the intention of the parties hereto that the form of
the transactions with respect to the Company, Premiere and Merger Corp shall
qualify as a "reorganization" within the meaning of Section 368(a) of the Code
for federal income tax purposes; and
WHEREAS, it is also the intention of the parties hereto that the business
combination to be effected by the Merger be accounted for as a pooling of
interests.
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
I. UNIFORM TERMS AND CONDITIONS
1.1 Incorporation by Reference. The Uniform Terms and Conditions attached
hereto as Exhibit A (the "Uniform Terms") are hereby made a part of and
incorporated herein as if fully restated herein. Capitalized terms not defined
herein shall have the meanings provided in the Uniform Terms.
<PAGE>
II. TERMS OF MERGER
2.1 The Merger.
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, the Company shall be merged with and into Merger Corp in
accordance with the provisions of the business corporation act under the laws of
the State of California (the "California Act") and the laws of the State of
Georgia (the "Georgia Act"). Merger Corp shall be the surviving corporation
resulting from the Merger, shall thereafter conduct the business and operations
of the Company as a wholly owned subsidiary of Premiere and shall continue to be
governed by the laws of the State of Georgia. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective boards of directors of Premiere, Merger Corp and the Company.
(b) Subject to the provisions of this Agreement, the parties
shall file a Certificate of Merger executed in accordance with the relevant
provisions of the California Act and a Certificate of Merger executed in
accordance with the relevant provisions of the Georgia Act and shall make all
other filings or recordings required under each such Act as soon as practicable
on or after the Closing Date. The Merger and other transactions contemplated by
this Agreement shall become effective on the date and at the time the
Certificate of Merger reflecting the Merger becomes effective with the Secretary
of State of the State of California and the Certificate of Merger reflecting the
Merger becomes effective with the Secretary of State of the State of Georgia
(the "Effective Time").
(c) The charter and Bylaws of Merger Corp in effect immediately
prior to the Effective Time shall be the charter and Bylaws of the surviving
corporation until otherwise amended or repealed, the directors of Merger Corp
immediately prior to the Effective Time shall serve as the directors of the
surviving corporation from and after the Effective Time, and the officers of
Merger Corp in office immediately prior to the Effective Time shall serve as the
officers of the surviving corporation from and after the Effective Time.
2.2 Conversion of Shares. Subject to the provisions of this Section 2.2,
and in consideration for the transactions contemplated hereby, at the Effective
Time, by virtue of the Merger and without any action on the part of the parties
hereto or the shareholders of any of the parties hereto, the shares of the
constituent corporations of the Merger shall be converted as follows:
(a) Each share of Premiere Stock and each share of Merger Corp
common stock issued and outstanding at the Effective Time shall remain issued
and outstanding after the Effective Time.
(b) All of the shares of the capital stock, par value $___ per
share, of the Company ("Company Stock") (excluding treasury shares and excluding
shares held by shareholders who perfect their statutory dissenters' rights as
provided in Section 2.4 of this Agreement) issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive:
(i) the number of shares of Premiere Stock
determined by dividing (A) the product of .9
multiplied by the Company Purchase Price, by (B)
the Average Closing Price; and
-2-
<PAGE>
(ii) the number of shares of Premiere Stock
determined by dividing (A) the product of .1 multiplied by the Company
Purchase Price, by (B) the Average Closing Price (the "General Escrow Amount");
all as determined in accordance with Section 2.3 below (collectively, the
"Consideration"). Subject to Section 2.2(d) below, the Consideration shall be
issuable to the Owners pro rata in accordance with their ownership of Company
Common Stock pursuant to Section 2.6, which ownership the Owners represent has
not been adjusted in contemplation of the transactions described herein.
(c) Any and all shares of Company Common Stock held as treasury
shares by the Company shall be canceled and retired at the Effective Time, and
no consideration shall be issued in exchange therefor.
(d) Upon consummation of the Merger, the Owners shall deliver the
General Escrow Amount in negotiable form to the Escrow Agent to be held in
escrow pursuant to the terms and conditions of the Escrow Agreement in the form
attached hereto as Exhibit B, which shall be executed and delivered by Premiere
and the Owners at the Closing.
2.3 Calculation of Consideration. For purposes of determining the
Consideration issuable to the Owners pursuant to Section 2.2(b) above, the
following shall apply:
(a) "Average Closing Price" shall be the average of the daily
last sale prices of Premiere Stock for the period consisting of twenty (20)
consecutive trading days on which such shares are actually traded on the Nasdaq
National Market (as reported by the Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Premiere) ending at the
close of trading on the first trading day immediately preceding the Closing;
provided, however, that the Average Closing Price shall not be less than $22.50
nor more than $30.50 (collectively, $22.50 and $30.50 are referred to as the
"Average Closing Price Limitations").
(b) "Company Purchase Price" shall be the sum of (i) the amount
determined by multiplying the Normalized EBITDA of the Company by the Stock
Multiple, plus (ii) the amount of cash reflected on the Closing Date Balance
Sheet, minus (iii) the aggregate amount of principal and accrued and unpaid
interest under funded debt and capital lease obligations reflected on the
Closing Date Balance Sheet, minus (iv) the amount by which the Transaction Costs
exceed the Deductible Amount.
(c) "Deductible Amount" shall be an amount equal to $5,000.
(d) "Normalized EBITDA" of the Company shall be an amount equal
to $440,762.
(e) "Registration Right" shall mean the right to include Premiere
Stock issued in the Merger in a registration statement which Premiere intends to
file promptly after the end of the first full fiscal quarter of Premiere
containing the period of post-Merger combined operations required by ASRs 130
and 135, pursuant to the terms and conditions of the Stock Restriction and
Registration Rights Agreement in the form attached hereto as of Exhibit C (the
"Registration Rights Agreement").
(f) "Stock Multiple" shall be six (6).
-3-
<PAGE>
(g) "Transaction Costs" shall mean all amounts incurred but
unpaid by the Company in connection with (i) the negotiation and preparation of
this Agreement, (ii) the preparation of the Audited Financial Statements, (iii)
the consummation of the Transactions and (iv) one-half of the costs and expenses
of public record searches pursuant to Section 5.9(b) of the Uniform Terms.
2.4 Dissenting Shareholders. Subject to Section 4.2, any holder of shares
of voting capital stock of the Company who perfects any available dissenters'
rights in accordance with and as contemplated by the California Act shall be
entitled to receive the value of such shares in cash from the Company after the
Effective Time as determined pursuant to such provision of law; provided, that
no such payment shall be made to any dissenting shareholder unless and until
such dissenting shareholder has complied with the applicable provisions of the
California Act and surrendered to the Company the certificate or certificates
representing the shares for which payment is being made. In the event that a
dissenting shareholder of the Company fails to perfect, or effectively withdraws
or loses, its right to appraisal and of payment for its shares, Premiere shall
issue and deliver the consideration to which such holder of shares of Company
capital stock is entitled under this Article II (without interest) upon
surrender of certificates representing such shares held by such holder.
2.5 Closing. The Closing shall take place at the offices of Alston & Bird
LLP, Atlanta, Georgia, at 10:00 a.m. local time, on the date set forth in the
Uniform Terms, provided all conditions set forth in Articles V and VI of the
Uniform Terms and Articles IV and V of this Agreement have been satisfied or
waived, or on such other date or at such other place and time mutually agreed
upon by the parties.
2.6 Exchange of Shares. Promptly after the Effective Time, Premiere and
Company shall cause to be mailed to the former Company shareholders appropriate
transmittal materials for the surrender of the certificate or certificates
formerly representing their shares of Company Common Stock in exchange for
shares of Premiere Stock as provided in this Agreement. Until surrendered for
exchange in accordance herewith, each certificate theretofore representing
shares of Company Common Stock shall from and after the Effective Time represent
only the right to receive the Consideration provided in this Agreement in
exchange therefor. No certificates representing fractional shares will be issued
as a result of the Merger. Each holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Premiere Common Stock shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Premiere Common Stock multiplied by the Average Closing Price.
2.7 Purchase for Investment, Etc. Each Owner, represents and warrants
the following to Premiere:
(a) such Owner has accurately completed the Investor
Questionnaire required by Premiere prior to or contemporaneous with the
execution of the Transfer Agreement and the statements therein are true and
correct and acknowledges that Premiere has relied upon such statements in
entering into this Agreement;
(b) such Owner is acquiring Premiere Stock for such Owner's
own account and not with a view to or for sale in connection with any public
distribution thereof within the meaning of the Securities Act;
-4-
<PAGE>
(c) such Owner (i) has sufficient knowledge and experience in
financial and business matters to enable him, her or it to evaluate the merits
and risks of an investment in Premiere Stock, (ii) has the ability to bear the
economic risk of acquiring Premiere Stock for an indefinite period and to afford
a complete loss thereof and (iii) has had an opportunity to ask questions of and
to receive answers from the officers of Premiere and to obtain additional
information in writing as requested, which has been made available to and
examined by such Owner or such Owner's advisors; and
(d) such Owner (i) acknowledges that Premiere Stock has not
been registered under any securities laws and cannot be resold without
registration thereunder or exemption therefrom, (ii) agrees not to transfer all
or any Premiere Stock received by such Owner unless such transfer has been
registered or is exempt from registration under applicable securities laws and
(iii) acknowledges that the certificate(s) representing Premiere Stock shall
bear the following legend with respect to the restrictions on transfer under
applicable securities laws:
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, and may not be
offered, sold, transferred or otherwise disposed of unless
registered with the Securities and Exchange Commission of the
United States and the securities regulatory authorities of
applicable states or unless an exemption from such
registration is available."
2.8 Accounting, Tax and Regulatory Matters. Each Owner and the Company,
jointly and severally, represents and warrants to Premiere that neither the
Company, any Owner nor any Affiliate thereof has taken or agreed to take any
action or has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying for pooling-of-interests
accounting treatment or as a reorganization within the meaning of Section 368(a)
of the Code, or (ii) materially impede or delay receipt of any consents referred
to in Section 5.6 of the Uniform Terms or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
III. ADDITIONAL AGREEMENTS
3.1 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, the Company and Merger Corp shall execute and file
the Certificate of Merger with the Secretary of State of the State of California
and a Certificate of Merger with the Secretary of State of the State of Georgia
in connection with the Closing.
3.2 Conditions to Closing. The Company, the Owners and Premiere agree to
use their commercially reasonable best efforts to satisfy the closing conditions
set forth in Articles IV and V of this Agreement by the date indicated therein
or the Closing Date, as applicable.
3.3 Additional Indemnification Items. Subject to Sections 8.2 through 8.6
of the Uniform Terms, the Owners and, if the Transactions involve an Asset
Transfer, the Company, shall jointly and severally indemnify and hold harmless
Premiere, and its officers, directors, agents or affiliates, from and against
any and all Losses suffered or incurred by any such party by reason of or
arising out of any of the following:
-5-
<PAGE>
(a) a breach of Section 2.19 of the Uniform Terms as it relates
to liability for sales tax (irrespective of whether disclosed on Schedule 2.19
or in the Financial Statements).
3.4 Tax Matters. Each of the Company, the Owners and Premiere undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code for federal income tax purposes.
Notwithstanding the foregoing, the Owners understand that (i) Premiere makes no
representation or warranty regarding the tax treatment of this Agreement or the
Merger, (ii) the Closing is not subject to a condition that an Internal Revenue
Service ruling or tax opinion be obtained as to the federal income tax
consequences of this Agreement or the Merger, and (iii) the Company and the
Owners shall look to their respective advisors for advice concerning the tax
consequences of this Agreement and the Merger.
3.5 Registration Rights. At the Closing. Premiere and the Owners
shall execute and deliver the Registration Rights Agreement.
3.6 Accounting Treatment.
(a) The Company and each of the Owners has accurately completed
the Pooling Questionnaire required by Premiere prior to or contemporaneous with
the execution of this Agreement, and the statements therein are true and
correct.
(b) Premiere, the Company and each of the Owners agrees to use
its reasonable efforts to cause the Merger, and to take no action which would
cause the Merger not, to qualify for treatment as a pooling of interests for
accounting purposes. Without limiting the foregoing, the Company and each of the
Owners agrees not to sell, transfer, or otherwise dispose of his, her or its
interests in, or reduce his, her or its risk relative to, any of the shares of
Premiere Common Stock received in connection with the Merger until such time as
Premiere notifies the Company and each such Owner that the requirements of ASRs
130 and 135 have been met. The Company and each of the Owners understands that
ASRs 130 and 135 relate to the publication of financial results of at least
thirty (30) days of post-Merger combined operations of Premiere and the Company.
Premiere agrees that it shall publish such results within forty-five (45) days
after the end of the first fiscal quarter of Premiere containing the required
period of post-Merger combined operations and that it shall notify the Company
and each of the Owners promptly following such publication. Premiere shall be
entitled to place the following restrictive legend on the shares of Premiere
Stock issued pursuant to the Merger to enforce the foregoing restrictions:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests"
and may not be sold, nor may the owner thereof reduce his risks
relative thereto in any way, until such time as Premiere Technologies,
Inc. ("Premiere") has published the financial results covering at least
30 days of combined operations after the effective date of the merger
through which the business combination was effected.
3.7 Affiliate Agreements. The Company has disclosed in Schedule 3.7 all
Persons whom it reasonably believes is an "affiliate" of the Company for
purposes of Rule 145 under the 1933 Act. The Company shall use its reasonable
efforts to cause each such Person to deliver to Premiere as soon as reasonably
practicable following the execution of this Agreement, a written agreement,
substantially in the form attached hereto as Exhibit D.
-6-
<PAGE>
3.8 Tax Representations. In connection with the opinion to be rendered to
Premiere by Alston & Bird to the effect that the transactions contemplated
hereby will constitute a tax-free reorganization within the meaning of Section
368(a) of the Code, the Owners shall furnish such counsel with such
representations as to their plans for the disposition of the shares of Premiere
Stock to be received in the Transactions as such counsel shall reasonably
request.
3.9 Restricted Stock. All contractual restrictions or limitations on
transfer with respect to Company Common Stock under any plan, program, contract
or arrangement, to the extent that such restrictions or limitations have not
already lapsed (whether as a result of the Transactions or otherwise), and
except as otherwise expressly provided in such plan, program, contract or
arrangement, shall remain in full force and effect with respect to shares of
Premiere Stock into which such restricted stock is converted pursuant to Section
2.2 of this Transfer Agreement.
3.10 Exchange Listing. Premiere shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq National Market the shares of
Premiere Stock to be issued to the Owners pursuant to the Transactions, and
Premiere shall give all notices and make all filings with the NASD required in
connection with the Transactions.
IV. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF PREMIERE
In addition to the conditions of Premiere contained in Article V of the
Uniform Terms, the obligation of Premiere to consummate the Transactions is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
4.1 Approval of Owners. The Owners shall have approved the Merger in
accordance with the requirements of the California Act and the Company shall
have provided Premiere certified copies of such resolutions, and Owners holding
no more than ten percent (10%) of the Company Common Stock issued and
outstanding immediately prior to the Effective Time shall have exercised any of
the rights described in Section 2.4.
4.2 Grand Solution Documents. VTNLP, VTE, the NAP and each of the
Franchisee Companies shall have executed and delivered Grand Solution Documents
reflecting the terms described in Exhibit E hereto in form and substance
reasonable satisfactory to Premiere.
4.3 Audited Financial Statements. Premiere shall have received balance
sheets of the Company as of December 31, 1995 and 1996 and the related
statements of operations, cash flows and changes in owners' equity for the
fiscal years then ended (the "Audited Financial Statements") prepared in
accordance with GAAP and Regulation S-X promulgated by the Commission,
accompanied by an unqualified audit opinion of Arthur Andersen LLP relating
thereto. The Audited Financial Statements shall not reflect any material change
in the Company's financial condition or results of operations from the condition
and results reported in the Financial Statements for the corresponding periods
delivered by the Company prior to the execution of this Agreement.
4.4 Pooling Letter. Premiere shall have received a letter, dated as of the
Effective Time, in form and substance reasonably acceptable to Premiere, from
Arthur Andersen LLP to the effect that the Merger will qualify for pooling of
interests accounting treatment, and no action shall have
-7-
<PAGE>
been taken by any regulatory authority or any statute, rule, regulation or order
enacted, promulgated or issued by any regulatory authority, or any proposal made
for any such action by any regulatory authority which is reasonably likely to be
put into effect, that would prevent Premiere from accounting for the business
combination to be effected by the Merger as a pooling of interests.
4.5 Reorganization Opinion. Premiere shall have received an opinion of
Alston & Bird LLP, counsel to Premiere, to the effect that the transactions
contemplated by the Agreement, including the Merger, will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code.
4.6 Waiver of Rights Under Shareholder Agreements. Premiere must receive
written waivers in the form and substance satisfactory to Premiere from each of
the parties to that certain Shareholder Agreement dated October 30, 1990.
V. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE OWNERS
In addition to the conditions of the Company and the Owners contained in
Article VI of the Uniform Terms, the obligation of the Company and the Owners to
consummate the Transactions is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions:
5.1 Approval of Premiere and Merger Corp. The Board of Directors of
Premiere and the Board of Directors and the shareholder of Merger Corp shall
have approved the Merger in accordance with the requirement of applicable state
law. Premiere and Merger Corp shall have provided the Company certified copies
of such resolutions.
5.2 Registration Rights. Premiere and each Owner shall have executed
and delivered a Registration Rights Agreement.
VI. MISCELLANEOUS
6.1 Notices. The addresses for notices in accordance with Section 10.1
of the Uniform Terms for the Company and the Owners are as follows:
<TABLE>
<S> <C> <C>
If to the Company: With a copy to:
Gary Wilberg Michael P. McNamara, Jr.
In-Touch Techologies, Inc. Baker & Hostetler LLP
c/o Voice-Tel 1900 East 9th Street
6140 Stoneridge Mall Rd., Suite 500 Cleveland, OH 44114-3485
Pleasanton, CA 94588
Phone: (510) 468-7700 Phone: (216) 621-0200
Fax: (510) 468-7710 Fax: (216) 696-0740
Voice-Tel (510) 727-6605
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C>
If to the Owners: With a copy to:
Gary Wilberg Michael P. McNamara, Jr.
In-Touch Techologies, Inc. Baker & Hostetler LLP
c/o Voice-Tel 1900 East 9th Street
6140 Stoneridge Mall Rd., Suite 500 Cleveland, OH 44114-3485
Pleasanton, CA 94588
Phone: (510) 468-7700 Phone: (216) 621-0200
Fax: (510) 468-7710 Fax: (216) 696-0740
Voice-Tel (510) 727-6605
</TABLE>
6.2 Owner's Representative. The Owners' Representative for purposes of
Section 10.2 of the Uniform Terms shall be Gary Wilberg, who shall serve as the
Owner's Representative under the terms of said Section 10.2 of the Uniform
Terms.
6.3 Certain Definitions. In addition to the terms defined elsewhere here
in and in the Uniform Terms, as used in this Agreement:
(a) "Anticipated Closing Date" shall mean April 30, 1997.
(b) "Knowledge" of the Company shall mean the personal knowledge
after due inquiry of those facts that are known or should
reasonably have been known after due inquiry by Gary Wilberg and
Gene Wilberg and the knowledge of any such Persons obtained or
which would have been obtained from a reasonable investigation.
(c) "Outside Closing Date" shall mean June 30, 1997.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
PREMIERE:
PREMIERE TECHNOLOGIES, INC.
a Georgia corporation
By: /s/ Patrick G. Jones
-----------------------
Title: Sr. V. P.
Attest: ---------------------
By:/s/ Douglas B. Hadaway
---------------------------------
Title:Director of Strategic Planning
------------------------------
COMPANY:
IN-TOUCH TECHNOLOGIES, INC.,
a California corporation
By:/s/ Gary J. Wilberg
-------------------------
Title: President
---------------------
Attest:
By:/s/ Kees J. Van der Zee
---------------------------------
Title:CFO
------------------------------
OWNERS:
/s/ Gary J. Wilberg
------------------------------
GARY WILBERG,
an individual resident of the
State of California
Witness:
By: /s/ Kathleen P. Kennedy
--------------------------------
Name: Kathleen P. Kennedy
------------------------------
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE.]
<PAGE>
/s/ Kendall Cooper
------------------------------
KENDALL COOPER,
an individual resident of the
State of California
Witness:
By: /s/ Robyn Santarini
--------------------------------
Name:Robyn Santarini
-------------------------------
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE.]
<PAGE>
/s/ Gene W.Wilberg II
------------------------------
GENE WILBERG,
an individual resident of the
State of Illinois
Witness:
By:/s/ Kathleen P. Kennedy
---------------------------------
Name:Kathleen P. Kennedy
-------------------------------
<PAGE>
EXHIBIT 2.4
VOICE-TEL CANADA
WESTERN
COMPANIES
TRANSFER AGREEMENT
BY AND AMONG
PREMIERE TECHNOLOGIES, INC.,
AND
OWNERS OF THE WESTERN FRANCHISEES:
- 3325882 MANITOBA INC.
- 601965 ALBERTA LTD.
- 3266622 MANITOBA INC.
- 3337821 MANITOBA INC.
- 3266631 MANITOBA INC.
DATED AS OF MARCH 31, 1997
<PAGE>
TRANSFER AGREEMENT
THIS TRANSFER AND REORGANIZATION AGREEMENT (this "Agreement") is entered
into as of March 31, 1997.
A M O N G S T:
PREMIERE TECHNOLOGIES, INC.
a Georgia corporation
(hereinafter referred to as "Premiere")
OF THE FIRST PART;
- AND -
PREMIERE TECHNOLOGIES, INC.
in trust, on behalf of a corporation to be incorporated under the
laws of the Province of Ontario (the "Acquisition Sub")
OF THE SECOND PART;
- AND -
PAT HANEY ("Haney")
of the Province of Manitoba,
JIM FIELDS ("Fields")
of the Province of Manitoba,
BROOKS EQUIPMENT LIMITED ("Brooks")
a Manitoba Corporation
(Haney and Fields sometimes
hereinafter collectively referred to the
"Primary Owners" and together with
Brooks, the "Owners")
OF THE THIRD PART.
WHEREAS, this Agreement provides for the incorporation of the Acquisition
Sub and the acquisition by it of the Companies (as hereafter defined);
AND WHEREAS, the respective boards of directors of Premiere and each of the
Holding Companies approved the terms and conditions set forth in this Agreement;
<PAGE>
AND WHEREAS, by Transfer Agreement dated of even date and executed and
delivered earlier this day made amongst Premiere, the Acquisition Sub, the
Primary Owners, 1086237 Ontario Inc. ("Holdco"), Pat Haney, Jim Fields, and
Brooks Equipment Limited respecting the sale of all right, title and interest in
and to all of Equity Stock of 1086236 Ontario Inc. ("Vtech");
AND WHEREAS, The Primary Owners collectively own and shall convey or cause
to be conveyed here under, directly or indirectly, one hundred percent (100%) of
the Equity Stock of the Western Companies;
AND WHEREAS, it is also the intention of the parties hereto that the form
of the transactions hereunder with respect to the Companies, Premiere and the
Acquisition Sub shall qualify as a "reorganization within the meaning of Section
368(a) of the Code for federal income tax purposes and shall qualify as a
rollover pursuant to subsection 85(l) of the Income Tax Act (Canada) ("ITA");
AND WHEREAS, it is also the intention of the parties hereto that the
business combination to be effected by the subject form of transactions be
accounted for as a pooling of interests;
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which arc hereby acknowledged, the parties agree
as follows:
1. UNIFORM TERMS AND CONDITIONS
--------------------------------
1.1 Incorporation by Reference. The Uniform Terms and Conditions attached
--------------------------
hereto as Exhibit A (the "Uniform Terms") are hereby made a part of and
incorporated herein as if fully restated herein. Capitalized terms not defined
herein shall have the meanings provided in the Uniform Terms.
1.2 Canadianized Terms and Conditions. In accordance with the provisions
---------------------------------
of the Uniform Terms expressing this Agreement to be paramount, attached hereto
as Exhibit AA (the "Canadianized Terms") are terms and conditions amending the
Uniform Terms to conform to matters pertaining to the law of Canada which
Canadianized Terms are hereby made a part of and incorporated herein as if fully
restated herein. Capitalized Terms not defined herein and not defined in the
Uniform Terms shall have the meanings provided in the Canadianized Terms.
1.3 Company. In this Agreement, the Uniform Terms, and the Canadianized
-------
Terms, references to the singular term "Company" shall be deemed to mean a
reference to all of the Holding Companies and all of the Operating Companies
considered collectively on a consolidated basis except where the context
requires the term to be interpreted as a reference to a particular Company.
-2-
<PAGE>
1.4 Owners. In this Agreement, the term "Owners" includes the Primary
------
Owners who own any of the Equity Stock directly or indirectly of the corporate
Owners selling Holding Company Equity Stock hereunder as registered and
beneficial owner. In those circumstances, it is intended that, notwithstanding
any other provision in this Agreement or in the Uniform Terms:
(a) Whenever an Owner's liability hereunder is expressed to be
'several', such liability shall be borne severally by the Owners selling Holding
Company Equity Stock (the 'Selling Owners') and each such several liability
shall then be borne jointly and severally by such Selling Owner and all other
Owners holding a direct or indirect interest in the Equity Stock of such Selling
Owner; and
(b) Whenever the liability of an Owner is expressed to be 'joint and
several' with the liability of the other Owners hereunder, each Owner shall be
so jointly and severally liable together with all other Owners hereunder,
regardless of their relationship to any particular Selling Owner.
2. TERMS OF MERGER
---------------
2.1 The Share Exchange. On or before the Closing Date, as more
------------------
particularly set out herein, the following shall occur (collectively and
interchangeably referred to herein as either the "Merger", or the "Transfer
Transactions").
(a) Incorporation of Acquisition Sub: After the execution and
delivery of this Agreement, and prior to the Closing Date, Premiere shall cause
the Acquisition Sub to be incorporated as a wholly owned subsidiary pursuant to
Certificate of Articles of Incorporation (the "Articles"), filed under the OBCA
and under the name "Voice-Tel of Canada" or under such other name as Premiere,
in its discretion, may elect. The share capital of the Acquisition Sub shall be
divided into an unlimited number of common shares (the "Common Shares") and an
unlimited number of exchangeable non-voting special shares (the "Exchangeable
Shares") which Common Shares and Exchangeable Shares shall have the rights,
privileges, restrictions and conditions set out in Exhibit "G" annexed hereto.
Upon the incorporation of the Acquisition Sub as a wholly owned subsidiary of
Premiere, Premiere shall cause the Acquisition Sub to adopt the benefits and
burdens of this Agreement in accordance with Section 21 of the OBCA as the party
of the second part hereunder and if an original party hereto. Notwithstanding
such adoption by the Acquisition Sub, Premiere shall thereafter continue to be
jointly and severally liable with the Acquisition Sub for the obligations
hereunder of the Acquisition Sub to and including the Closing Date. After the
Closing Date and upon completion of the transactions contemplated hereunder on
the Closing Date, Premiere shall be released and forever discharged from any
further joint and several liability for the obligations hereunder of the
Acquisition Sub; save and except, in respect of any obligations specifically
adopted by Premiere as party of the first part hereunder and expressed to
survive the Closing or as may be embodied in any agreement delivered by Premiere
at the Closing.
-3-
<PAGE>
(b) Purchase and Sale: Subject to the terms and conditions hereof,
the Acquisition Sub shall purchase from the Owners, and the Owners shall sell to
the Acquisition Sub, the Holding Company Equity Stock on the Closing Date. The
Acquisition Sub and the Owners intend that the purchase price for the Holding
Company Equity Stock shall be equal to the Company Purchase Price determined in
accordance with Section 2.3 below;
(c) Satisfaction of Company Purchase Price: On the Closing Date, the
Acquisition Sub shall satisfy the Company Purchase Price payable to the Owners
for the Holding Company Equity Stock by issuing to the Owners the following
securities in full payment of the Company Purchase Price (the "Consideration"):
(i) each Owner will receive for all stock of a particular class of
stock of a particular Holding Company being sold by that Owner to
the Acquisition Sub hereunder (the "Particular Stock") that
number of Exchangeable Shares that is equal to the product that
is obtained when the number of shares of such Particular Stock
being sold by that Owner is multiplied by the Exchange Ratio
applicable to that class of Particular Stock.
Each Owner shall convey to the Acquisition Sub all of that Owner's right, title
and interest in and to all of the Holding Company Equity Stock to be sold by
that Owner hereunder free and Clear of all liens, claims and encumbrances of any
nature whatsoever. The Exchange Ratio for each Particular Stock will be
determined in accordance with Section 2.2 hereof and any fractional Exchange
Shares derived from the application of the foregoing formula will be handled in
accordance with Section 2.6 hereof;
(d) Section 85(1) Election: Notwithstanding that the purchase price
for all of the Holding Company Equity Stock sold hereunder shall be the Company
Purchase Price and that the aggregate issue price for the Exchangeable Share
Consideration issued therefore shall be that amount determined in accordance
with subsections 2.1 (b) and 2.l(c) above, the Acquisition Sub and each Selling
Owner shall complete and file an election (the "Election") pursuant to
subsection 85(l) of the ITA, electing that the purchase price for each block of
Particular Stock constituting the Company Equity Stock shall be equal to that
Owner's aggregate adjusted cost base therefore as of the date hereof for all
purposes of the ITA (the "Elected Amount"). For these purposes, the Selling
Owners advise that their respective Elected Amounts for each block of Particular
Stock sold by them hereunder shall be as advised by the Owner's Representative
by the Closing Date and, failing such advice, shall be as thereafter advised by
the accountants who, heretofore, have produced the financial statements for the
Company issuing the Particular Stock;
(e) Adjustment to Elected Amount: If, notwithstanding the manner in
which the Acquisition Sub and each Owner have agreed to determine the Elected
Amount pursuant to subsection 2.l(d) hereof for any block of Particular Stock:
-4-
<PAGE>
(i) there shall be issued to either the Acquisition Sub or the
particular Owner a notice of assessment or reassessment
pursuant to any taxing statute, which assessment or
reassessment is based upon in assumption of fact or a finding
by any taxing authority that there must be an adjustment or
deemed adjustment (the "Adjusted Election") to the Elected
Amount in subsection 2.1(d) hereof; or
(ii) any taxing authority notifies either the Acquisition Sub or the
particular Owner that it intends to issue such notice of
assessment or reassessment; then, subject to the rights of the
Acquisition Sub and the particular Owner, if any, to object to
or appeal such assessment to any authority, board or court of
competent jurisdiction and as applicable to such assessment or
reassessment;
(iii) the elected purchase price for that block of Particular Stock
fund to the Elected Amount therefore selected under subsection
2.1(e) shall, for the purposes of this Agreement, be deemed to
be and to have always been the Adjusted Election as finally
agreed to between such taxing authority and the Acquisition Sub
or the particular Owner, as the case may be, or where either
the Acquisition Sub or the Owner has objected to or appealed
any such assessment or reassessment, as finally determined by
such authority, board or court.
(f) Further Assurances: The Acquisition Sub and each particular
Owner shall execute such other documents, cause such meetings to be held, votes
cast, resolutions passed, bylaws enacted, and shall do all such things,
including filing an election pursuant to subsection 85(l) of the ITA as may be
necessary or desirable to give effect to subsections 2.1(d) and 2.1(e) and the
provisions thereof including in respect of the Adjusted Election(s), if any.
Provided the Position taken by a particular Owner in respect of an Adjusted
Election is not detrimental to other parties hereto, each such other party shall
reasonably cooperate with that Owner in respect of the Owner's position on the
Adjusted Election;
2.2 Exchange Ratio and Escrow Amounts. Subject to the provisions of this
---------------------------------
Section 2.2 and in consideration of the transactions contemplated hereby, at the
Closing Date, the Company Equity Stock shall be exchanged for Exchangeable
Shares in accordance with exchange ratios (the "Exchange Ratios") determined as
follows:
(a) The aggregate number of Exchangeable Shares to be issued
hereunder (the "Exchangeable Share Total") shall be determined by dividing the
Company Purchase Price (determined on a consolidated basis for all of the
Companies in accordance with Section 2.3 hereof) by the Average Closing Price
(determined in accordance with Section 2.3 hereof);
-5-
<PAGE>
(b) The Exchange Ratio in respect of each share of Particular Stock
shall be equal to the number, rounded to six (6) decimal places, that is
obtained when the product of the Contributing Factor for Particular Stock times
the Exchangeable Share Total is divided by the number of issued and outstanding
shares of that Particular Stock being purchased hereunder;
(c) For purposes of the foregoing calculation, the "Contributing
Factor" represents the proportion of the Company Purchase Price that is
allocatable to all shares of that Particular Stock being purchased hereunder.
For these purposes, the Owners have advised Premiere and the Acquisition Sub
that the Contributing Factors for each block of Particular Stock, constituting
in the aggregate the Holding Company Equity Stock, and each Owner's pro rata
share consistent with subsection 2.2(d) below, is that factor set Out Opposite
that block of Particular Stock in the table below:
<TABLE>
<CAPTION>
=====================================================================
BLOCK OF PARTICULAR STOCK CONTRIBUTING FACTORS
- - ---------------------------------------------------------------------
<S> <C>
all issued and outstanding common 1,000
shares of VTM
- - ---------------------------------------------------------------------
1,000 total
=====================================================================
</TABLE>
(d) The parties agree that the Exchangeable Shares issuable to any
Owner pursuant to subsection 2.l(c) hereof, shall be further divided into:
(i) 10% of the Exchangeable Shares receivable by that particular
Owner (the "General Escrow Amount"); and
(ii) 90% of the Exchangeable Shares receivable by that Particular
Owner (the "Deliverable Shares").
Subject to subsection 2.2(e) below, and in accordance with Section 2.6, all
Owners shall be issued the Consideration payable hereunder pro rata in
accordance with their ownership of Holding Company Equity Stock and applicable
Exchange Ratios pursuant to which ownership the Owners represent has not been
adjusted in contemplation of the transactions described herein;
(e) Upon consummation of the share exchange set out in Section 2.1
hereof, each Owner shall deliver his particular General Escrow Amount in
negotiable form to the Escrow Agreement(s) to be held in escrow pursuant to the
terms and conditions of the Escrow Agreement(s) in the form (s) attached hereto
as Exhibit B, which shall be executed and delivered by Premiere, the Acquisition
Sub and the Owners at the Closing.
-6-
<PAGE>
2.3 Calculation of Consideration. For purposes of determining the
----------------------------
Consideration issuable to the Owners pursuant to Section 2.2 above, the
following shall apply:
(a) "Average Closing Price" shall be the average of the daily last
sale US$ prices of Premiere Stock for the period consisting of twenty (20)
consecutive trading days on which such shares are actually traded on the Nasdaq
National Market (as reported by the Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Premiere) ending at the
close of trading on the first trading day immediately preceding the Closing;
provided, however, that the Market Value Per Share shall not be less than
- - -------- -------
US$22.50 nor more than US$30.50 (collectively, US$22.50 and US$30.50 are
referred to as the "Average Closing Price Limitations");
(b) "C$ Company Purchase Price" shall be the C$ sum of (i) the amount
determined by multiplying the Normalized EBITDA of the Company by the
appropriate Stock Multiple or Cash Multiple, plus (ii) the amount of cash
----
reflected on the Closing Date Balance Sheet, minus (iii) the aggregate amount of
principal and accrued and unpaid interest under funded debt and capital lease
obligations reflected on the Closing Date Balance Sheet, minus (iv) the amount
by which the Transaction Costs exceed the Deductible Amount, and minus (v) one-
-----
half (1/2) of C$ costs and expenses of Arthur Andersen LLP incurred by Premiere
in connection with preparation of the Audited Financial Statements for the
Company but not to exceed C$17,117.00;
(c) "Company Purchase Price" means the aforesaid C$ Company Purchase
Price expressed in US$ by multiplying the C$ Company Purchase Price by the noon
spot exchange rate (on the day on which the Average Closing Price is calculated)
for C$ expressed in US$ as reported by the Bank of Canada or, in the event such
spot exchange rate is not available, such exchange rate as is published in the
Toronto Globe and Mail on that date;
(d) "Deductible Amount" shall be an amount equal to C$3,435.00 to be
split amongst all Companies, if more than one Company hereunder;
(e) "Normalized EBITDA" of the Company shall be an amount equal to
C$1,057,619.00;
(f) "Registration Right" shall mean the right to include underlying
Premiere Stock issued pursuant to the attributes of the Exchangeable Shares in a
registration statement which Premiere intends to file promptly after the end of
the first full fiscal quarter of Premiere containing the period of post-merger
combined operations required by ASRs 130 and 135, pursuant to the terms and
conditions of the Stock Restriction and Registration Rights Agreement in the
form attached hereto as Exhibit C (the "Registration Rights Agreement");
(g) "Stock Multiple" shall be six (6);
-7-
<PAGE>
(h) "Transaction Costs" shall mean all C$ amounts Incurred but unpaid
by the Company in connection with (i) the negotiation and preparation of this
Agreement, (ii) the preparation of the Audited Financial Statements, (iii) the
consummation of the Transactions, and one-half ( 1/2) of the costs and expenses
of public record searches pursuant to Section 5.9(b) of the Uniform Terms, but
shall exclude the portion of the costs and expenses of Arthur Andersen LLP
incurred by Premiere in connection with the preparation of the Audited Financial
Statements for which the Owners are responsible;
2.4 Shareholders. Each of the Primary Owners jointly and severally
represents and warrants that the Owners collectively are the registered, legal
and beneficial owners of all of the Holding Company Equity Stock and that the
Holding Company, is the registered, legal and beneficial owner directly or
indirectly of all of the issued and outstanding shares and rights to shares in
the capital stock of all of the Operating Companies.
2.5 Closing. The Closing shall take place at the offices of
-------
Morris/Rose/Ledger, Toronto, Ontario, at 10:00 a.m. local time, on the date set
forth in the Uniform Terms, provided all conditions set forth in Articles V and
VI of the Uniform Terms and Articles IV and V of this Agreement have been
satisfied or waived, or on such other date or at such other place and time
mutually agreed upon by the parties.
2.6 Exchange Shares.
---------------
(a) Promptly after the Effective Time, Premiere and the Acquisition
Sub shall cause to be mailed to the Owners appropriate transmittal materials for
the surrender of the certificate or certificates formerly representing their
shares of Holding Company Equity stock in exchange for Exchangeable Shares of
the Acquisition Sub as provided in this Agreement. The Owners shall use all
reasonable best efforts to escrow all Holding Company Equity Stock sold
hereunder with an attorney or equivalent escrow agent designated by the
Acquisition Sub which escrowed Holding Company Equity Stock shall be duly
endorsed for transfer to the Acquisition Sub so that physical exchange of Stock
hereunder may take place coincidentally with the determination of the
Exchangeable Share total and the transmittal of the requisite number of
Exchangeable Shares to each Owner. Until surrendered for exchange in accordance
herewith, each certificate theretofore representing shares of Holding Company
Equity Stock shall from and after the Effective Time represent only the right to
receive the Consideration provided in this Agreement in exchange therefore. No
certificates representing fractional shares will be issued as a result of this
Agreement. Each holder of shares of Holding Company Equity Stock exchanged
pursuant to this Agreement who would otherwise have been entitled to receive a
fraction of an Exchangeable Share shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Premiere
Common Stock multiplied by the Actual Closing Value;
(b) In the event that any certificate which immediately prior to the
Closing Date represented Holding Company Equity Stock purchased hereunder shall
have
-8-
<PAGE>
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed, and upon
receipt of an appropriate bond of indemnity, the Acquisition Sub will issue in
exchange for such lost, stolen or destroyed certificate, certificates
representing Exchangeable Shares subject always to the representations,
warranties and covenants of such Owner in this Agreement with respect to title
to such Holding Company Equity Stock.
2.7 USA and Canadian Securities Issues: Purchase for Investment, Etc.,
-----------------------------------------------------------------
Each Owner represents and warrants the following to Premiere and for the benefit
of the Acquisition Sub:
(a) such Owner has accurately completed the Investor Questionnaire
required by Premiere prior to or contemporaneous with the execution of the
Transfer Agreement and the statements therein are true and correct and
acknowledges that Premiere has relied upon such statements in entering into this
Agreement;
(b) such Owner is acquiring the Acquisition Sub's Exchangeable shares
hereunder and the underlying Premiere Stock exchangeable for that stock
(collectively, the "Acquired Stock") for such Owner's own account and not with a
view to or for sale in connection with any public distribution thereof within
the meaning of the Securities Act;
(c) such Owner (i) has sufficient knowledge and experience in
financial and business matters to enable him, her or it to evaluate the merits
and risks of an investment in Acquired Stock, (ii) has the ability to bear the
economic risk of acquiring Acquired Stock for an indefinite period and to afford
a complete loss thereof and (iii) has had an opportunity to ask questions of and
to receive answers from the officers of Premiere and the Acquisition Sub and to
obtain additional information in writing as requested, which has been made
available to and examined by such Owner or such Owner's advisors; and
(d) such Owner (i) acknowledges that Acquired Stock has not been
registered under any securities laws and cannot be resold without registration
thereunder or exemption therefrom, (ii) agrees not to transfer all or any
Acquired Stock received by such Owner unless such transfer has been registered
or is exempt from registration under applicable securities laws and (iii)
acknowledges that the certificate(s) representing Acquired Stock shall bear the
following legend with respect to the restrictions on transfer under applicable
securities laws:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, and may not be offered, sold,
transferred or otherwise disposed of unless registered with the
Securities and Exchange Commission of the United States and the
securities regulatory authorities of applicable states or unless an
exemption from such registration is available."
-9-
<PAGE>
(e) Each Owner has not been provided with, has not requested, and
does not need to receive, a prospectus or an offering memorandum as defined in
the applicable securities legislation, or documents similar to the foregoing,
with respect to the transactions or the Acquired Stock. Accordingly, each Owner
acknowledges he will not obtain the statutory protections that would be
available to an investor in the Province of Ontario acquiring securities
pursuant to a prospectus or offering memorandum;
(f) The Owner's decision to execute this Agreement and the documents
referred to herein has not been based upon any verbal or written representation
as to fact or otherwise made on behalf of Premiere or of the Acquisition Sub
other than as set out herein;
(g) Such Owner acknowledges and agrees:
(i) Premiere is not, nor is it intended that the Acquisition
Sub be, a reporting issuer under the Securities Act
(Ontario) or under the securities legislation of any other
province or territory of Canada;
(ii) there is no market in Canada through which the Acquired
Stock may be sold and none is expected to develop in
Canada in the foreseeable future; and
(iii) the Acquired Stock will be highly illiquid and can only be
resold in the United States pursuant to subsection 2.7(d)
above; or in the Province of Ontario in reliance on (X) an
exemption front the prospectus requirements of the
Securities Act (Ontario), (Y) a prospectus which has been
duly filed With the Ontario Securities Commission or (Z) a
discretionary ruling obtained from the Ontario Securities
Commission; or in the other provinces and territories of
Canada pursuant to exemptions, if any, available in those
jurisdictions.
2.8 Accounting, Tax and Regulatory Matters. Each Owner and the Company,
--------------------------------------
jointly and severally, represents and warrants to Premiere that neither the
Company, any Owner nor any Affiliate thereof has taken or agreed to take any
action or has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying for pooling-of-interest
accounting treatment or as a reorganization within the meaning of Section 368(a)
of the Code, or (ii) materially impede or delay receipt of any consents referred
to in Section 5.6 of the Uniform Terms or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
-10-
<PAGE>
3. ADDITIONAL AGREEMENTS
---------------------
3.1 Conditions to Closing. The Company, the Owners and Premiere agree to
---------------------
use their commercially reasonable best efforts to satisfy the closing conditions
set forth in Articles IV and V of this Agreement by the date indicated therein
or the Closing Date, as applicable.
3.2 Termination. For greater certainty, the rights of termination set out
-----------
in Section 7.2 of the Uniform Terms shall be deemed to include in subsection
7.2(b) thereof the additional closing conditions set out in Article 4 hereof,
and be deemed to include in subsection 7.2(c) thereof the additional conditions
of close set out in Article 5 of this Agreement.
3.3 Additional Indemnification Item. Subject to Sections 8.2 through 8.6
-------------------------------
of the Uniform Terms, the Owners and, if the Transactions involve an Asset
Transfer, the Company, shall, subject also to Section 1.3 of this Agreement,
jointly and severally indemnify and hold harmless Premiere, and its officers,
directors, agents or affiliates, from and against any and all losses suffered or
incurred by any such party by reason of or arising out of any of the following:
(a) a breach of Section 2.19 of the Uniform Terms as it relates to
liability for sales tax (irrespective of whether disclosed on Schedule 2.19 or
in the Financial Statements);
3.4 Tax Matters. Each of the Company, the Owners and Premiere undertakes
-----------
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code for federal income tax purposes.
Notwithstanding the foregoing, the Owners understand that (i) Premiere makes no
representation or warranty regarding the treatment of this Agreement or the
Merger, (ii) the Closing is not subject to a condition that an Internal Revenue
Service ruling or tax opinion be obtained as to the federal income tax
consequences of this Agreement or the Merger, and (iii) the Company and the
Owners shall look to their respective advisors for advice concerning the tax
consequences of this Agreement and the Merger.
3.5 Registration Rights. At the Closing, Premiere and the Owners shall
-------------------
execute and deliver the Registration Rights Agreement.
3.6 Accounting Treatment.
--------------------
(a) The Company and each of the Owners has accurately completed the
Pooling Questionnaire required by Premiere prior to or contemporaneous with the
execution of this Agreement, and the statements therein are true and correct.
-11-
<PAGE>
(b) Premiere, the Company and each of the Owners agrees to use its
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not to qualify as a pooling of interests for accounting purposes.
Without limiting the foregoing, the Company and each of the Owners agrees not to
sell, transfer, or otherwise dispose of his, her or its interests in, or reduce
his, her or their risk relative to, any of the shares of Premiere Common Stock
received in connection with the Merger until such time as Premiere notifies the
Company and each such Owner that the requirements of ASRs 130 and 135 have been
met. The Company and each of the Owners understands that ASRs 130 and 135
relate to the publication of financial results of at least thirty (30) days of
post-Merger combined operations of Premiere and the Company. Premiere agrees
that it shall publish such results within forty-five (45) days after the end of
the first fiscal quarter of Premiere containing the required period of post-
merger combined operations and that it shall notify the Company and each of the
Owners promptly following such publication. Premiere shall be entitled to place
the following restrictive legend on the shares of Premiere Stock issued pursuant
to the Merger to enforce the foregoing restrictions:
The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and
may not be sold, nor may the owner thereof reduce his risks relative
thereto in any way, until such time as Premiere Technologies, Inc.
('Premiere") has published the financial results covering at least 30 days
of combined operations after the effective date of the merger through which
the business combination was effected.
3.7 Affiliate Agreements. The Company has disclosed in Schedule 3.7 all
-------------------- ------------
Persons whom it reasonably believes is an "affiliate" of the Company for
purposes of Rule 145 under the 1933 Act. The Company shall use its reasonable
efforts to cause each such Person to deliver to Premiere as soon as reasonably
practicable following the execution of this Agreement a written agreement,
substantially in the form attached hereto as Exhibit D.
3.8 Exchange Listing. Premiere shall use its reasonable efforts to list,
----------------
prior to the Effective Time, on the Nasdaq National Market the shares of
Premiere Stock underlying the Exchangeable Shares to be issued to the Owners
pursuant to the Transactions, and Premiere shall give all notices and make all
filings with the NASD required in connection with the Transactions.
3.9 Ancillary Documents/Reservation of Shares. Provided all other
-----------------------------------------
conditions of this Agreement have been satisfied or waived by the time of
closing:
(a) Premiere and the Acquisition Sub shall execute and deliver a
support agreement between Premiere and the Acquisition Sub containing the terms
and conditions set forth in Exhibit H hereto (the "Support Agreement"), together
with such other terms and conditions as may be agreed to by the parties hereto
acting reasonably;
(b) Premiere, the Acquisition Sub and a Canadian trust company, or
such other suitable entity as may be appropriate, to be selected by Premiere
shall execute
-12-
<PAGE>
and deliver a voting and exchange trust agreement containing the terms and
conditions set forth in Exhibit I hereto (the "Voting Trust Agreement"),
together with such other terms and conditions as may be agreed to by the parties
hereto acting reasonably;
(c) Premiere shall create the Special Premiere Voting Share in
substantially the form annexed as Exhibit J hereto, issued in the name of the
Trustee and deposit the same with the Trustee to be voted in accordance with the
Voting Trust Agreement;
(d) On or prior to the Effective Time, Premiere will reserve for
issuance such number of shares of Premiere Common Stock as shall be necessary to
give effect to the exchanges and conversions and call rights applicable to the
Exchangeable Shares in accordance with the attributes thereof and in accordance
with the Support Agreement.
4. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF PREMIERE
------------------------------------------------------
In addition to the conditions of Premiere contained in Article V of the
Uniform Terms, the obligation of Premiere to consummate the Transactions is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
4.1 Approval of Owners. The Owners and the Holding Companies shall have
------------------
approved the transfers hereunder in accordance with governing law and shall have
provided Premiere certified copies of such resolutions.
4.2 Grand Solution Documents. VTNLP, VTE, the NAP and each of the
------------------------
Franchisee Companies shall have executed and delivered the Grand Solution
Documents reflecting the terms described in Exhibit E hereto in form and
substance reasonably satisfactory to Premiere.
4.3 Audited Financial Statements. Premiere shall have received balance
----------------------------
sheets of the Companies as of January 31, 1996 and 1997 and related statements
of operations, cash flows, and changes in Owner's equity for the fiscal years
ended on such dates (the "Audited Financial Statements") prepared in accordance
with GAAP and Regulation S-X promulgated by the Commission, accompanied by an
unqualified audit opinion of Arthur Andersen LLP relating thereto. The Audited
Financial Statements shall not reflect any material change in the Company's
financial condition or results of operations from the condition and results
reported in the Financial Statements for the corresponding periods delivered by
the Company prior to the execution of this Agreement.
4.4 Pooling Letter. Premiere shall have received a letter, dated as of
--------------
the Effective Time, in form and substance reasonably acceptable to Premiere,
from Arthur Andersen LLP to the effect that the transfer will qualify for
pooling of interests accounting treatment. and no action shall have been taken
by any regulatory authority or any statute, rule, regulation or order enacted,
promulgated or issued by any regulatory authority, or any proposal made for any
such action by any regulatory authority which is reasonably likely to
-13-
<PAGE>
be put into effect, that would prevent Premiere from accounting for the business
combination to be effected by the transfer as a pooling of interests.
4.5 The Director of investigation and Research (the "Director") appointed
under the Competition Act (Canada) shall have advised Premiere in form and on
terms satisfactory to it that the Director shall not oppose or threaten to
oppose the purchase of any of the Holding Company Equity Stock on the basis
hereunder, nor make or threaten to make an application under Part VII of the
said act in respect of the purchase of the Holding Company Equity Stock.
5. SUPPLEMENTAL CONDITIONS TO OBLIGATIONS OF THE COMPANY
---------------------------------------------------------
AND THE OWNERS
--------------
In addition to the conditions of the Company and the Owners contained in
Article VI of the Uniform Term. the obligation of the Company and the Owners to
consummate the Transactions is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions:
5.1 Approval of Premiere and Acquisition Sub. The Board of Directors of
----------------------------------------
Premiere and the Board of Directors and the shareholder of Acquisition Sub shall
have approved the transfer in accordance with the requirement of applicable
state law. Premiere and Acquisition Sub shall have provided the Company
certified copies of such resolutions.
5.2 Registration Rights. Premiere and each Owner shall have executed and
-------------------
delivered a Registration Rights Agreement.
5.3 Ancillary Agreements. Premiere and the Acquisition Sub shall have
--------------------
executed and delivered the Support Agreement, Premiere, the Acquisition Sub and
an appropriate Trustee shall have executed and delivered the Voting Trust
Agreement, and Premiere shall have created the special Premium Voting Share and
issued the same in the name of, and deposited the same with, the Trustee.
6. MISCELLANEOUS
------------------
6.1 Notices. The addresses for notices in accordance with Section 10.1 of
-------
the Uniform Terms for the Company and the Owners are as follows:
If to the Company, or to any Owners:
Brooks Equipment Limited
2010 Notre Dame Avenue
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<PAGE>
Winnipeg, Manitoba
R3H OJ8
Attention: Mr. William P. Johnson
Telecopy: (204) 694-5606
6.2 Owner's Representative. The Owners' Representative for purposes of
----------------------
Section 10.2 of the Uniform Terms shall be D. Scott Allan who shall serve as the
Owner's Representative under the terms of said Section 10.2 of the Uniform
Terms.
6.3 Certain Definitions. In addition to the terms defined elsewhere
-------------------
herein and in the Uniform Terms, as used in this Agreement:
(a) "Anticipated Closing Date" shall mean April 30, 1997.
------------------------
(b) "Canadian Owners" means, collectively, the Eastern Owners and the
---------------
Western Owners;
(c) "C$" means the lawful current of Canada;
--
(d) "Companies" means the Western Companies;
---------
(e) "Effective Time" means that time on the Closing Date when all of the
--------------
transactions contemplated hereunder have been completed in accordance with the
terms hereof;
(f) "Equity Stock" when used in relation to the stock of any corporation
------------
means all equity securities of that corporation of any type, including but not
limited to common stock, preferred stock limited partnership interests, general
partnership interests, limited liability company interests, options to purchase
any of the foregoing and securities convertible into any of the foregoing;
(g) "Holding Companies" means 125976 Canada Inc. ("VTM");
-----------------
(h) "Holding Company Equity Stock" means the Equity-Stock of The Holding
----------------------------
Companies;
(i) "Joint Companies" means 1086236 Ontario Inc. and 1042546 Ontario Inc.;
---------------
(j) "Knowledge" of the Company shall mean the personal knowledge after due
inquiry of those facts that are known or should reasonably have been known after
due inquiry by the Primary Owners and the knowledge of any such Persons obtained
or which would have been obtained from a reasonable investigation.
-15-
<PAGE>
(k) "OBCA" means the Business Corporations Act (Ontario);
----
(1) "Operating Companies" means the Western Companies, excluding the
-------------------
Holding company (being VTM);
(m) "Outside Closing Date" shall mean June 30, 1997.
(n) "Owners" mean the Primary Owners together with Brooks;
------
(o) "Primary Owners" mean those parties of designated in the recitals of
--------------
parties to this Agreement;
(p) "Special Premiere Voting Share" means the one (1) share of Premiere
-----------------------------
Class Preferred Stock, US Dollar 0.001 par value, issued by Premiere to and
deposited with the Trustee which entitled the holder of record to a number of
votes at meetings of holders of Premiere Common Shares equal to that number of
votes that holders of the Exchangeable Shares outstanding from time to time
(other than exchangeable shares held by Premiere, its subsidiaries and
affiliates) would be entitled to if such Exchangeable Shares were exchanged for
Premiere Common Shares;
(q) "Trustee" means Trust company of Canada and any successor
trustee.
(r) "US$" means the lawful currency of the United States of America;
(s) "Vendor Company" means Brooks;
(t) "Western Companies" means VTM, 3325882 Manitoba, Inc., 601965
Alberta Ltd., 3266622 Manitoba, Inc., 3337821 Manitoba Inc. and 3266631
Manitoba, Inc.;
(u) "Western Owners" means Brooks Equipment Limited, Jim Fields and
Patrick Haney.
6.4 Exhibits. The following exhibits are annexed hereto and incorporated
--------
as part hereof:
A. Uniform Terms
AA. Canadianized Terms
B. Escrow Agreement
C. Registration Rights Agreement
D. Affiliation Agreement
E. Grand Solution Documents
F. Company Pooling of Interests Representations
G. Acquisition Sub Share Capital
H. Support Agreement
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<PAGE>
I. Voting Trust Agreement
J. Special Premiere Voting Share
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
/s/ J.C. Fields
______________________________ ------------------------------
Witness Jim Fields
/s/ Pat Haney
______________________________ ------------------------------
Witness Pat Haney
BROOKS EQUIPMENT LIMITED PREMIERE TECHNOLOGIES, INC.
Per: /s/ J.C. Fields Per: /s/ Patrick G. Jones
------------------------ ------------------------
Name: Jim Fields Name: Patrick G. Jones
Title: Title: Sr. V.P.
PREMIERE TECHNOLOGIES, INC.
on behalf of the party of
the third part hereunder, a
corporation to be incorporated
Per: /s/ Patrick G. Jones
------------------------
Name: Patrick G. Jones
Title: Sr. V.P.
-17-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Current Report on Form 8-K/A, into Premiere
Technologies, Inc.'s previously filed Registration Statements on Form S-8 (File
Nos. 333-17593, 333-11281 and 333-29787).
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 25, 1997
