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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): November 13, 1997
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PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant
as specified in its charter)
Georgia 0-27778 59-3074176
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 262-8400
N/A
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(Former name or former address, if changed since last report)
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Premiere Technologies, Inc. ("Premiere" or the "Company") hereby amends its
Current Report on 8-K dated November 13, 1997, and filed with the Securities and
Exchange Commission (the "Commission") on December 5, 1997, to amend and restate
the "Description of Business" filed as Exhibit 99.9 to this report.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
11.1 Statement Re: Computation of Net Income Per Share*
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Ernst & Young LLP*
23.3 Consent of Price Waterhouse*
27.1 Financial Data Schedule of Premiere Technologies, Inc.*
99.1 Press Release dated November 14, 1997*
99.2 Agreement and Plan of Merger dated as of November 13, 1997 (with
exhibits) by and among Premiere Technologies, Inc., Nets Acquisition
Corp. and Xpedite Systems, Inc.*
99.3 Share Purchase Agreement dated as of August 8, 1997, by and among
Xpedite Systems, Inc., Xpedite Systems Holdings (UK) Limited, and the
shareholders of Xpedite Systems Limited.*
99.4 Consolidated Financial Statements of Xpedite Systems, Inc., as
described in Item 5 of this Form 8-K.*
99.5 Consolidated Financial Statements of Xpedite Systems Limited, as
described in Item 5 of this Form 8-K.*
99.6 Pro Forma Condensed Combined Financial Information, as described in
Item 5 of this Form 8-K.*
99.7 Consolidated Financial Statements of Premiere Technologies, Inc., as
described in Item 5 of this Form 8-K.*
99.8 Management's Discussion and Analysis of Financial Condition and
Results of Operations of Premiere Technologies, Inc., as described in
Item 5 of this Form 8-K.*
99.9 Description of Business of Premiere Technologies, Inc., as described
in Item 5 of this Form 8-K.
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* Previously filed.
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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
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Patrick G. Jones
Senior Vice President of Finance
and Legal
Dated: December 23, 1997
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EXHIBIT INDEX
No. Description
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11.1 Statement Re: Computation of Net Income Per Share*
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Ernst & Young LLP*
23.3 Consent of Price Waterhouse*
27.1 Financial Data Schedule of Premiere Technologies, Inc.*
99.1 Press Release dated November 14, 1997*
99.2 Agreement and Plan of Merger dated as of November 13, 1997
(with exhibits) by and among Premiere Technologies, Inc.,
Nets Acquisition Corp. and Xpedite Systems, Inc.*
99.3 Share Purchase Agreement dated as of August 8, 1997, by and among
Xpedite Systems, Inc., Xpedite Systems Holdings (UK) Limited, and the
shareholders of Xpedite Systems Limited.*
99.4 Consolidated Financial Statements of Xpedite Systems, Inc.,
as described in Item 5 of this Form 8-K.*
99.5 Consolidated Financial Statements of Xpedite Systems Limited,
as described in Item 5 of this Form 8-K.*
99.6 Pro Forma Combined Condensed Financial Information, as
described in Item 5 of this Form 8-K.*
99.7 Consolidated Financial Statements of Premiere Technologies,
Inc., as described in Item 5 of this Form 8-K.*
99.8 Management's Discussion and Analysis of Financial Condition
and Results of Operations of Premiere Technologies, Inc., as
described in Item 5 of this Form 8-K.*
99.9 Description of Business of Premiere Technologies, Inc., as
described in Item 5 of this Form 8-K.
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* Previously filed.
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EXHIBIT 99.9
The following Description of Business includes product names, trade names,
service marks and trademarks of Premiere Technologies, Inc. and its
subsidiaries and other companies including, without limitation, Premiere
WorldLink, Orchestrate (SM), Voice-Tel (TM), VoiceCom (TM) and VoiceCom Access
One (SM).
All references in the following Description of Business to the "Voice-Tel
Acquisitions" refers to the Company's acquisitions of Voice-Tel Enterprises,
Inc. ("VTE"), its affiliate Voice-Tel Network Limited Partnership ("VTN") and
substantially all of its franchisees (the "Franchisees") (VTE, VTN and such
Franchisees are collectively referred to as the "Voice-Tel Entities" or "Voice-
Tel") which were completed during the second quarter of 1997.
All references in the following Description of Business to the "Merger
Agreement" refer to that certain Agreement and Plan of Merger (the "Merger
Agreement") among the Company, Xpedite Systems, Inc. ("Xpedite") and Nets
Acquisition Corp., a wholly-owned subsidiary of the Company ("Acquisition
Sub"). Subject to the terms and conditions of the Merger Agreement, Acquisition
Sub will merge with and into Xpedite (the "Xpedite Merger"), which will be the
surviving corporation in the Merger and, as a result thereof, will become a
wholly-owned subsidiary of the Company. There can be no assurance that the
Company will complete the Xpedite Merger.
BUSINESS
OVERVIEW
Premiere Technologies, Inc. ("Premiere" or the "Company") designs, develops,
markets and provides enhanced personal communications services. The Company's
network-based computer telephony technology links together two or more stand-
alone communications services, such as calling card long distance, voice mail,
e-mail, fax mail and paging, and allows access to these services through
telephones or computers. The Company bundles these stand-alone services to
allow users to store, manage, prioritize, deliver and distribute incoming and
outgoing information in an efficient and economical manner. Although Premiere
offers stand-alone communications services, it primarily targets users who
have multiple communications devices and a need to integrate them for greater
functionality and convenience.
INDUSTRY BACKGROUND
Managing the evolving enhanced personal communications environment has
become more complex as a result of increased service and device options,
rapidly changing technology standards and shortened product life cycles. The
proliferation of communications devices and the advent of multiple messaging
platforms have dramatically increased the average employee's accessibility and
the number of messages he or she manages. Employees today face a demanding
communications environment in which they must utilize a number of
communications systems and convert information from one medium to another. A
study by the Institute for the Future, the Gallup Organization, Pitney-Bowes
and San Jose State University, based on responses from more than 1000
employees of Fortune 1000 companies, found that workers send and receive an
average of 178 messages each day.
Today, many stand-alone communications services are provided through legacy
systems, including landline telephone systems, messaging devices and local area
networks ("LANs"), that reside in whole or in part at a customer's location. The
architecture of the customer premises equipment, or "CPE," that comprises such
systems is often closed in nature, which makes integration with other systems
and networks difficult and expensive. However, users are increasingly demanding
that their existing CPE be integrated with more open and intelligent worldwide
communications networks such as the Internet. The Company believes that, due to
the complexity of such integration, users will increasingly outsource their
personal communications requirements to third parties such as Premiere. Premiere
believes that customers will prefer the Company's network-based service solution
for personal communications to traditional CPE-based product solutions because
the Company's solution reduces customer costs of equipment ownership and
exposure to technology obsolescence.
THE PREMIERE SOLUTION
The core of the Premiere solution is its "intelligent network" which links,
or integrates, stand-alone communications services using technology developed
by the Company's research and development team. The intelligent network
consists of (i) a state-of-the-art proprietary platform that integrates
digital switching technology with enhanced personal communications features
and (ii) the Company's recently acquired private telecommunications network
which transmits voice and data utilizing the frame relay switching protocol.
The Company's modular and scaleable intelligent network incorporates an open-
system design, which allows the Company to easily expand capacity and provides
the Company with the flexibility to develop and customize its service
offerings. Premiere offers bundled services in a variety of packages and
tailors these packages to meet the requirements of strategic, marketing and co-
brand partners. Premiere's private frame relay network, with approximately 210
locations where the Company has voice messaging equipment ("points of presence"
or "POPs"), is accessible via local access in metropolitan and other geographic
areas which include approximately 90% of the United States, Canadian, and
Australian populations and approximately 50% of the New Zealand population via
local access. Premiere anticipates that its private frame relay network will be
accessible via local access by a significant portion of the United Kingdom
population in the near future. The Company plans to invest $40-$50 million in
capital expenditures over the next 12 months as part of its effort to integrate
its proprietary platform with its recently acquired private frame relay network.
Once integration is completed, the Company believes that its intelligent network
will allow the Company to offer its customers enhanced personal communications
services through either local or 800 access via telephone or computer.
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STRATEGY
Premiere's goal is to become the world's leading provider of network-based
enhanced personal communications services. The Company's strategy to achieve
this goal is to:
Increase Service Offerings and Cross-Media Functionality. The Company
believes that changes in technology continually create new business
opportunities for providers of enhanced personal communications services. The
Company continually strives to make its interfaces more user friendly and its
services functionally equivalent regardless of the customer's chosen access
device or message transport medium. For example, the Company has introduced such
features as text-to-speech e-mail delivery, a unified messaging interface
utilizing the World Wide Web ("Web") and an integrated Web-based contact
database manager. Possible future service features include, among others, speech
recognition.
Leverage Network Facilities. To date, the majority of the Company's services
have been accessed by 800 toll free service. The Company recently acquired an
international private frame relay network. Once this network is fully integrated
with the Company's proprietary platform, the Company plans to use the private
frame relay network and local messaging systems to provide users local access to
certain of its enhanced services, which access the Company believes will make
these services more attractive to a broader market. In addition, through
transitioning more of its subscribers to local access, Premiere expects to
realize a reduction in transmission costs.
Expand Customer Base and Distribution Channels. The Company believes that an
increasing number of businesses will transition their communications systems
from CPE-based products to network-based services. Premiere believes that a
substantial opportunity exists to meet the outsourcing needs of these
companies. The Company intends to use its direct sales force and national
accounts program as part of its effort to expand its customer base and to
improve cross-selling of its services. Premiere also plans to continue to
enter into strategic alliances and wholesale and licensing relationships in
order to reach additional customers that the Company believes are likely to be
extensive users of its services.
Pursue Strategic Acquisitions. Historically, the Company has engaged in
acquisitions in order to obtain new technology, build its infrastructure and
increase its sales force and customer base. The Company intends to continue to
examine acquisition and joint venture opportunities which may accelerate its
growth, add new customers, develop new technologies or penetrate new
geographic markets. There can be no assurance, however, that suitable
acquisition candidates will be identified or that any acquisition will be
consummated.
Expand International Presence. Premiere intends to deliver its services to
more international users through strategic partnerships, third-party
distribution agreements, direct sales efforts and relationships with existing
customers that have international operations. To accommodate these prospective
users, Premiere has opened a data and switching center in London and has also
begun development of a similar center in Toronto. Targeting the Pacific Rim,
Premiere expects to begin installation of a data and switching center in New
Zealand during 1998. These international centers are designed to reduce
transmission costs associated with system access from international locations
and to allow Premiere to more effectively pursue opportunities with
international customers and strategic partners. Additionally, the Company
expects to increase the international scope of its private frame relay network
by installing POPs in additional overseas locations, specifically targeting
the United Kingdom for local messaging in the near future.
SERVICES
Premiere's intelligent network supports four categories of services: mobile
communications; integrated messaging; Internet-based communications services;
and call center management and other services. Generally, customers may
subscribe to one or more of these categories within which they may select
certain desired features and functionality. Most customers choose one of
Premiere's bundled service offerings that are marketed directly under many
names including Premiere WorldLink, Voice-Tel, VoiceCom and VoiceCom Access
One. Premiere continually strives to develop new services and enhance the
functionality of current services through its internal research and
development staff and joint development efforts with leading hardware and
software vendors.
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Mobile Communications Services. Mobile communications services are
communications services which (i) route incoming calls to predefined locations
and (ii) allow users to make outbound calls while away from their home or
office. The Company offers its mobile communications services on a direct or a
wholesale basis to its customers. The following table describes available
mobile communications features.
MOBILE COMMUNICATIONS SERVICES
<TABLE>
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FEATURE DESCRIPTION
<S> <C>
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Calling Card Long Distance Subscribers can place worldwide long distance calls at
attractive rates.
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Call Connect/Call Inbound callers are routed by Premiere's platform to a
Screening predetermined phone number that is programmed by the
subscriber. The platform records an announcement of the
inbound caller and plays this announcement for the
subscriber. The subscriber can then either accept the call
or send it to voice mail. If the programmed phone number is
a subscriber's pager, he or she is able to call into the
platform and connect with the inbound caller upon receiving
notification of the call.
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Message Notification Subscribers can instruct the platform to notify them of
receipt of messages in their mailboxes by means of a message
sent to their pagers or by a call to a predesignated number.
Special pager codes are used to identify the type of message
(voice, fax or e-mail) that has been received.
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Personal 800 Numbers Premiere can provide subscribers a personal 800 number that
serves as a single point of access for callers to select
various messaging options or attempt to locate the
subscriber at predetermined phone numbers.
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Conference Calling Subscribers can initiate conference calls by commands
delivered through a telephone key pad.
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Information Services Subscribers can access news, weather, sports and financial
and other information updates provided by CNN or the Chicago
Tribune.
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Speed Dial Subscribers can create their own personal speed dial
directory which they can access each time they use the
platform.
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Electronic Bill Payment In connection with a relationship with CheckFree
Corporation, subscribers can pay bills electronically
through the platform.
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Travel & Concierge Subscribers can make lodging, airline, rental car, dining
and golf reservations and can obtain theater, concert and
sporting event tickets without leaving the platform or
dialing additional phone numbers. In addition, the platform
offers travel assistance services, including emergency
medical referrals, legal referrals and pre-trip destination
information.
</TABLE>
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Integrated Messaging. Premiere's integrated messaging services support all
three major forms of messaging: voice mail; fax mail; and e-mail. Premiere
offers integrated messaging services such as those described below.
INTEGRATED MESSAGING SERVICES
<TABLE>
<CAPTION>
FEATURE DESCRIPTION
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<S> <C>
Voice Mail Subscribers are provided with traditional voice mail
features allowing them to customize their mailbox greetings
and to receive, save and delete voice mail messages.
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Enhanced Voice Messaging Subscribers can obtain a locally accessed voice mail box
that provides the subscriber with network messaging to any
mailbox on the system in the United States, Canada,
Australia and New Zealand. Enhanced features include, among
others, distribution lists, return receipt and confidential
and urgent tagging.
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Fax Mail Subscribers can receive and store fax transmissions and
later instruct the platform to forward the faxes to a
specified location. Callers may also attach a voice
introduction.
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E-mail Subscribers are provided with an e-mail address by Premiere
or one of its partners. Messages can be read over the
telephone using proprietary text-to-speech functionality or
sent to a fax machine. Subscribers can also respond to an e-
mail over the telephone by choosing from a variety of
standard responses.
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Cross-Media Messaging Subscribers can convert messages from one format to another.
Premiere currently offers the following conversion options:
voice mail to an e-mail attachment; fax to an e-mail
attachment; e-mail to fax; and e-mail to voice.
</TABLE>
Internet-Based Communications Services. Premiere's primary Internet-based
service is Orchestrate, a Web-based interface into the Company's computer
telephony platform. Orchestrate is designed to allow subscribers to view and
interact with a universal inbox and contact manager that support the Company's
integrated messaging services, fax broadcast and conference call initiation
services. Orchestrate is also designed to provide its subscribers with a virtual
receptionist, a Web page that contains the user's contact information (e-mail
address, home/work phone number, pager number, text or audio greeting) and
subscriber defined links to other Web sites. Subscribers' Web pages are
automatically generated by the Premiere platform from input provided by
subscribers. Orchestrate operates using an Internet browser in connection with
any PC connected to the Internet and does not require subscribers to purchase
any additional specialized hardware or software. Orchestrate is operational and
has been available in limited release. The Company intends to begin marketing
Orchestrate to customers through certain of the Company's strategic partners
such as CompuServe and USA.NET in the first quarter of 1998. The Company
anticipates commencing direct marketing of the Orchestrate product through print
advertising and other channels in the second quarter of 1998. The Company
believes that its competitors have not yet developed a publicly available
network-based product which incorporates all of the functionalities of
Orchestrate, although the Company's competitors have developed products which
the Company believes offer some, but not all, of the bundled services offered
through Orchestrate.
In addition, the Company is developing additional Internet-based
communications services and features, including:
. Third-Party PIM Compatibility. Subscribers would be able to transfer
contact information from popular Personal Information Managers
("PIMs") into Orchestrate. Currently, the Company is testing the
integration of Orchestrate with the Symantec ACT PIM and intends to
integrate Orchestrate with other popular PIMs in the future.
. Enhanced Conference Call Control. Similar to features available to a
conference call bridge operator, subscribers would be able to control
conference calls in session from their PCs. Features are expected to
include muting and addition and deletion of selected callers.
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Call Center Management and Other Services. Premiere streamlines and enhances
call processing and call routing for financial institutions and other large
corporations. In a typical financial services application, such as the one
currently being implemented for NationsBank. Premiere's platform is used to
enhance call processing for checking, savings and other account information
available through toll free telephone access.
Through its recent acquisition of VoiceComHoldings,Inc. ("VoiceCom"),
Premiere also offers full service conference calling and voice response
programming. Conference calling is currently resold under the VoiceCom name
and is provided by a third-party service bureau. Voice response programming
consists of a variety of applications that use custom voice prompts and
commands input by the subscriber from the subscriber's telephone key pad to
retrieve certain information by phone or fax and to respond to automatic
messages or reminders sent by the voice response platform. Through the proposed
Xpedite Merger, Premiere Plans to offer enhanced electronic document
distribution services.
PREMIERE PLATFORM AND NETWORK
Premiere has designed its platform and network to provide its subscribers
with efficient and reliable service and to be easily expandable as network
usage increases. The modular and scaleable design of the platform and related
software allows expansion of network capacity without requiring replacement of
existing hardware or software or interrupting service. Premiere's open systems
design approach enables Premiere to utilize readily available third party
hardware and software in constructing its platform and facilitates the
integration of services and information provided by third parties into the
system. The platform delivers and distributes its services to users through
its voice and data switching centers and is currently being integrated with
the private frame relay network and locally deployed voice messaging POPs
acquired by the Company. This delivery infrastructure incorporates both third
party and proprietary equipment as well as leased transmission facilities.
Computer Telephony Platform. The computer telephony platform consists of
digital telecommunications switches which interface with high speed
client/server networks of personal computers, database servers, application
servers and Web servers. High speed client/server networks of personal
computers (called "Telnodes") are controlled by PCs utilizing the Company's
proprietary software (called "Network Managers"). Servers on the network are
responsible for performing functions requested by the Telnodes and Network
Managers and are also responsible for storing and providing access to data.
Web servers connected to the network firewall interface with the Internet and
allow Premiere to offer access to certain of its services from any PC
connected to the Internet. The network architecture is designed to be modular
and scaleable. To increase the capacity of the platform, the Company adds
additional Network Managers, Telnodes and servers and, at certain points, must
add additional modules to the digital switch, but is not required to replace
existing Network Managers, Telnodes and servers. This modular systems approach
also allows Premiere, at the request of licensees and strategic partners, to
provide custom applications for subscribers. The client/server network
utilizes a fault tolerant network operating system, and the network
configuration provides for data on each server to be mirrored on a separate
server, thereby providing redundancy for improved system reliability. Premiere
maintains the ability to generate power in the event of a prolonged power
outage, or if its uninterruptible power supply fails.
The platform is controlled by proprietary application and database access
software that was developed by the Company and is designed to be versatile and
adaptable to meet the demands of strategic partners, licensees or individual
subscribers. Applications written for custom or specific functions can be
quickly developed and implemented across the network and offered to all of the
Company's subscribers. Premiere maintains an internal development program in
order to continually enhance its software.
Switching and Transmission Facilities. Incoming and outgoing communications
to the platform are transmitted via fiber optic trunk lines, which are
provided by interexchange long distance service providers pursuant to
contractual relationships with the Company. Premiere obtains transmission
services from multiple carriers, thus enhancing Premiere's ability to avoid
service interruptions caused by technical problems at a single carrier.
Because each carrier's trunk lines physically terminate at Premiere's
facility, Premiere can readily alter the routing of its transmission traffic
in the event of technical difficulties.
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The Company opened an additional domestic switching facility in Dallas,
Texas in September 1996. This facility is designed to provide geographical
redundancy and increased capacity. The Dallas center is capable of handling
300 million transaction minutes per month, which is the same capacity as
Premiere's core hub in Atlanta, Georgia. In addition, the Company established
a data and switching center in London, England during 1996 and has begun
development of a similar center in Toronto, Canada during 1997. These
international centers are designed to reduce transmission costs associated
with system access from international locations and allow Premiere to more
effectively pursue opportunities with international customers and partners.
Private Frame Relay Network and Local Messaging POPs. Premiere's private frame
relay network connects messaging customers in dispersed locations through a
secure private wide area network that reaches approximately 90% of the U.S.
population and approximately 100% of the Canadian, Australian and New Zealand
populations via local access. Messages are captured and digitized at one of
approximately 210 local POPs using a Centigram voice processing system. Users
access these POPs through local direct inward dial numbers that are purchased
from the appropriate LEC. Network interface boxes located at the POP then
convert the digitized data from DDCMP protocol (the data processing protocol
standard of Centigram's system) to the TCP/IP protocol. Once converted to TCP/IP
format, the message's path is determined by a router, which directs the data to
one of the 13 network hubs. These network hubs are co-located in sites utilized
by WorldCom, Inc. ("WorldCom"). The Company's Cascade frame relay switches,
placed in the network hubs, then route the message data over leased frame relay
connections to other hub sites or POPs within a hub region for delivery to the
end user. The Company plans to integrate its private frame relay network and
local messaging POPs with its computer telephony platforms in order to offer
certain of its enhanced personal communications services on a local access
basis.
The Xpedite Network. Through the proposed Xpedite Merger, the Company plans to
acquire the Xpedite Network, which the Company believes will allow it to offer
Enhanced Fax Services and discounted international messaging services
("Discounted International Services") in a cost efficient manner. The Xpedite
Network is able to serve the electronic messaging needs of its customers through
the use of software and a document distribution system network of over 13,500
leased telecommunications lines and its "Nodal Partners." "Nodal Partners"
are independent entities that have purchased an electronic document distribution
system from Xpedite and which sell Discounted International Services. A "Node"
is an element of the Xpedite Network located at a geographically distinct POP
that allows access to or egress from the Xpedite Network via a local call.
The proprietary network software that has been developed by Xpedite allows its
Enhanced Fax Services customers access to the Xpedite Network via several
communications options including fax machines, the Internet, mainframe or mini
computers and LANs. Customers who use fax machines to access the Xpedite Network
for Enhanced Fax Services or Discounted International Services are connected to
the Xpedite Network through an "autodialer," which routes the document over a
lower-cost telecommunications line leased by Xpedite.
The low-cost structure of the Xpedite Network is achieved through the use of
leased telecommunications lines and Nodal Partners which allow Xpedite to
transmit a greater number of faxes through inexpensive local calls rather than
high priced long distance or international calls. The Xpedite Network is
intended to provide customers with a reliable alternative for long distance and
international document distribution at significant price discounts and cost
savings, particularly in overseas telecommunications markets that are highly
regulated and have limited competition. As it increases fax messaging traffic
over the Xpedite Network, Xpedite is able to exploit economies of scale which
result in lower costs per minute or per page and then pass a portion of these
costs savings on to customers, further stimulating demand for Xpedite's
services. Premiere plans to integrate the Xpedite Network with its private frame
relay network and computer telephony platform to accelerate growth of enhanced
fax and message delivery services worldwide.
Xpedite charges for its fax services both on a per minute and a per page basis,
with the bulk of its sales occurring on a per minute basis. A substantial
portion of Xpedite's fax traffic terminates in cities were Xpedite or its
affiliates have Nodes. Xpedite estimates that approximately 40% of its domestic
fax deliveries in 1996 were routed over the Xpedite Network. Xpedite purchases
long-distance services from MCI, Cable & Wireless PLC, LDDS (WorldCom) and a
number of PTTs around the world, among others, to carry fax traffic that is
routed to destinations where Xpedite does not have Nodes. In the future, Xpedite
expects its total telecommunications costs per minute of fax traffic to decrease
as an increasing amount of traffic is routed over the Xpedite Network.
Billing. Depending on the services to which the customer subscribes, Premiere
bills the customer either by its real-time electronic billing and information
system ("EBIS") or through an invoice. The Company bills customers at least
monthly and in certain instances more frequently if the customer exceeds certain
preset spending limits.
Premiere's EBIS is designed to allow instant activation of subscribers'
accounts, monitor subscribers' activity in real time and, while operating in
the background without interrupting subscribers' service, interface with
multiple financial institutions and electronically bill subscribers' credit
cards or bank accounts. Customers also receive a monthly statement that
provides a detailed accounting of their calling activity. The EBIS is
configurable for the billing requirements of various financial institutions
and currently interfaces electronically with approximately 3,000 banks and
other financial institutions.
Invoices are created by extracting call record data from either the platform
or local voice messaging equipment. This data is collected, consolidated and
processed to produce a customer invoice that can then be billed to either a
business, corporate department or an individual.
SALES, MARKETING AND DISTRIBUTION
Premiere markets its services through multiple distribution channels that
encompass: (i) direct marketing efforts where Premiere is responsible for lead
generation and sales; (ii) co-brand relationships in which Premiere offers its
services to the customers of other companies, such as financial institutions,
that are seeking to increase their revenue from and their goodwill with their
customer base by offering value-added services; (iii) strategic relationships
where Premiere may develop custom applications for its platform and market its
services jointly with its strategic partners; and (iv) licensing arrangements
where other companies market and sell Premiere's services under their names
without significant assistance from Premiere. In all distribution channels,
except licensing arrangements, Premiere enters into agreements pursuant to
which it agrees to pay commissions to or share revenues with the parties who
assist Premiere in marketing its services. The Premiere marketing staff is
primarily responsible for providing marketing support to the four channels
described above at varying levels of involvement, depending on the channel.
The marketing staff is also responsible for promoting the Premiere corporate
image in the marketplace.
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Direct Channels. Premiere markets its services directly under the Premiere
WorldLink, Voice-Tel, VoiceCom Access One and AFCOM names. Direct marketing and
sales efforts have traditionally focused on print advertising and direct
mailings targeted at mobile professionals or, with respect to AFCOM, direct
marketing done in conjunction with financial institutions located on military
bases. However, with its recent acquisitions, the Company acquired a nationwide
direct sales force with a national accounts program. The Company believes that
the direct sales force will enable it to broaden its base of business
customers.
The direct sales force has been recently organized by the Company into a
regional reporting structure and a centrally managed national accounts
program. Regional sales managers and their direct sales people have the
ability to generate sales leads for all of Premiere's products and services
within their defined geographic territories. These sales people target
primarily single location small to medium-sized businesses. Other types of
leads generated may be passed on to the appropriate group or channel (e.g.
national accounts program or wholesale channel). The centrally managed
national accounts program focuses on multi-location businesses that are better
served by dedicated representatives with ultimate responsibility across
different geographic regions. If appropriate, these national accounts sales
people form account teams that include regional sales people when greater
geographic coverage is needed or that include wholesale channel
representatives when necessary. The direct sales organization also has
traditionally marketed and continues to market to multilevel marketing
organizations, such as Amway Corporation ("Amway") and their independent
representatives and distributors.
Co-brand Relationships. Premiere has relationships with a number of other
companies, including First Union National Bank ("First Union") Discover Card
Services, Inc. ("Discover Card") and the Royal Bank of Scotland PLC, under
which Premiere provides its services to customers of those companies. The
other company generally offers its customers access to Premiere's services,
and Premiere pays subscriber and usage based fees to the other company with
respect to each subscriber who subscribes to a co-branded service. Premiere
believes that companies which enter into co-brand relationships with Premiere
are motivated by the ability to offer additional value to their customers,
reinforce brand equity through custom voice prompts that their customers hear
each time they access the service, communicate with their customers by
broadcasting voice, fax or e-mail messages, and derive additional revenue.
Marketing and fulfillment materials are generally issued under the Premiere
WorldLink name, with the other company also placing its logo on the materials.
Strategic Partners. The Company also markets its services by establishing
strategic relationships with parties including American Express Travel Related
Services, Inc. ("American Express") and CompuServe Incorporated ("Compuserve")
whose customers have an anticipated need for enhanced communications services
provided by Premiere. Strategic relationships are intended to provide the
Company's strategic partners with: (i) an efficient means of communicating
with their customers through Premiere's voice mail, e-mail and fax mail
features; (ii) increased visibility to their customers through customized
greetings and a private branded communications card; (iii) the ability to
provide customized services to their customers over Premiere's platform; and
(iv) an additional source of revenue. These relationships provide the Company
with the opportunity to develop specialized services for the strategic
partner's customers which, in certain circumstances, the Company can later
offer to its subscribers. In connection with these strategic relationships,
services are generally issued in the name of Premiere's strategic partner and
bear a logo and design of the strategic partner's choosing. The fulfillment
materials generally state that services are provided by Premiere.
Licensing and Wholesale Relationships. Companies such as WorldCom,
NationsBanc Services, Inc. ("NationsBank"), UniDial, Incorporated ("UniDial")
and Touch 1 Communications, Inc. ("Touch 1 Communications") have chosen to
outsource part or all of their personal communications services to Premiere.
Premiere licenses use of its platform, voice messaging network and call center
technology to these companies. Such relationships enable these companies to:
(i) provide enhanced services to their customers; (ii) generate additional
revenue without developing or investing in their own infrastructure; and (iii)
reduce costs and improve operational efficiencies through the use of more
advanced technologies than are internally available. The platform's and
network's open architecture allows customization of services for the licensee
or wholesale customer. Premiere generally provides its licensee or wholesale
customers with access to customer and billing
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records for marketing and billing purposes. Licensee and wholesale customers
generally are responsible for billing the end user and generally provide their
own transmission facilities for use with Premiere's services. Services are
private labeled by the licensee or wholesale customer with Premiere's
contribution transparent to the end user. Services are also generally provided
under agreements with 24- to 48-month terms which require the payment of a
minimum monthly fee if specified minimum targets are not met.
RESEARCH AND DEVELOPMENT
Premiere's research and development and engineering personnel are
responsible for developing, testing and supporting proprietary software
applications, as well as creating and improving enhanced system features and
services. Premiere's research and development strategy is to focus its efforts
on enhancing its proprietary software and integrating its software with
readily available software and hardware when feasible. Premiere maintains an
internal software development program pursuant to which the Company introduces
major and minor enhancements of its software.
As of September 30, 1997, Premiere employed 60 people in research and
development and engineering positions. Premiere's research and development
team continuously monitors and performs necessary improvements to the
operation of the computer telephony platform, the EBIS and other billing
systems and messaging systems and network connections to determine if software
or hardware modifications are necessary. Premiere's research and development
and engineering personnel also engage in joint development efforts with
Premiere's strategic partners and vendors.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Premiere believes that effective customer service is essential to attracting
and retaining subscribers. Premiere's customer service department is
responsible for educating and assisting subscribers in using Premiere's
services, for resolving billing related issues and, in consultation with
Premiere's technical support personnel, for resolving technical problems
subscribers may have in using Premiere's services. As of September 30, 1997,
Premiere employed a staff of approximately 262 people in customer service
positions. Premiere provides customer service through either Atlanta-based
call centers or regionally located representatives. Regionally located
representatives are primarily responsible for supporting Voice-Tel voice
messaging customers while Premiere's call centers provide 24 hours per day,
seven days per week coverage to assist customers using all other services.
Premiere employs separate personnel who are responsible for technical
support functions. These employees are responsible for performing more
technically demanding support activities, such as voice messaging and certain
other types of account provisioning and administration, consulting with
Premiere's strategic partners and licensees regarding technical issues and
resolving technical issues brought to their attention by the customer service
department. As of September 30, 1997, Premiere employed 65 people in technical
support positions, the majority of which were located in Atlanta.
COMPETITION
Premiere's competitive strategy is to seek to gain a competitive advantage
by being among the first companies to offer an integrated personal
communications solution, being an innovator in the integrated personal
communications services market and offering unique and innovative services to
its subscribers. The Company intends to capitalize on strategic relationships
with WorldCom, American Express and others in order to build its subscriber
base and to maintain and increase subscriber loyalty. The Company believes
that the principal competitive factors affecting the market for personal
communications services are price, quality of service, reliability of service,
degree of service integration, ease of use, service features and name
recognition. The Company believes that it competes effectively in these areas.
The market for the Company's services is intensely competitive, rapidly
evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's
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current and potential competitors have longer operating histories, greater
name recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Although the Company is aware of several companies that are marketing
enhanced calling cards, it is not aware of any major competitor that is
marketing an integrated personal communications service identical to the
service marketed by the Company. Many of the Company's competitors have
substantial resources and technical expertise and could likely develop such a
service if they chose to expend sufficient resources. The Company believes
that existing competitors are likely to expand their service offerings and
that new competitors are likely to enter the personal communications market
and to attempt to integrate such services, resulting in greater competition
for the Company. Such competition could materially adversely affect the
Company's business, financial condition and results of operations.
The Company attempts to differentiate itself from its competitors in part by
offering an integrated suite of enhanced personal communications services. Other
providers currently offer each of the individual services and certain
combinations of the services offered by the Company. The Company's worldwide
long distance services and features, including those acquired pursuant to the
Voice-Tel Acquisitions, compete directly with services provided by companies
such as AT&T Corp. ("AT&T"), MCI Communications Corp. ("MCI") and Sprint Corp.
("Sprint") as well as smaller interexchange long distance providers. The
Company's voice mail services, including those acquired in the Voice-Tel
Acquisitions and the VoiceCom acquisition, compete with voice mail services
provided by AT&T, certain regional Bell Operating Companies ("RBOCs") and other
service bureaus as well as by equipment manufacturers, such as Octel
Communications Corporation ("Octel"), Northern Telecom, Inc. ("Northern
Telecom"), Siemans Business Communications Systems, Inc. ("Siemans"), Centigram
Communications Corporation ("Centigram"), Boston Technology, Inc. ("Boston
Technology") and Digital Sound Corporation ("Digital Sound"). The Company's
enhanced travel, concierge, news and e-mail services compete with services
provided by America Online, Inc., Prodigy Services Co. and numerous Internet
service providers. The Company's paging services compete with paging services
offered by companies such as AT&T and MCI.
The Company's Orchestrate service, which the Company intends to begin
marketing during the first quarter of 1998, is expected to compete with products
offered by companies such as Octel, Microsoft Corp. ("Microsoft"), Novell, Inc.
("Novell"), Lucent Technologies, Inc. ("Lucent") and numerous smaller entities.
For example, Octel and Microsoft recently announced a service, called "Unified
Messenger," which places all voice mail, e-mail and fax messages in a single
mailbox accessible by computer or telephone. These competing products
incorporate some, but not all, of the bundled services offered through
Orchestrate. In addition, over the past few years, the number of companies
offering call center technology, including AT&T, MCI and Lucent, has grown
dramatically, primarily in response to major outsource initiatives as well as
significantly lower technology costs. The Company expects that other parties
will develop and implement information and telecommunications service platforms
similar to its platform, thereby increasing competition for the Company's
services.
Premiere recently entered into the Merger Agreement with Xpedite and
Acquisition Sub. Through the proposed Xpedite Merger, Premiere plans to offer
Enhanced Fax Services. Xpedite's fax communication services currently compete
with services provided by each of AT&T, MCI and Sprint, and many of the PTTs
around the world. Neither Premiere nor Xpedite can predict whether AT&T, MCI,
Sprint, any Internet service provider or PTT or any other competitor will expand
its fax communications services business, and there can be no assurance that
these or other competitors will not commence or expand their businesses.
Moreover, Xpedite's receiving queuing, routing and other systems logic and
architecture are not proprietary to Xpedite, and as a result,there can be no
assurance that such information will not be acquired or duplicated by Xpedite's
existing and potential competitors. Generally, Xpedite does not typically have
long-term contractual agreements with its customers, and there can be no
assurance that its customers will continue to transact business with Premiere in
the future. In addition, even if there is continued growth in the use of
electronic document distribution services, there can be no assurance that
potential customers will not elect to use their own equipment to fulfill their
needs for electronic document distribution services. There also can be no
assurance that customers will not elect to use alternatives to Xpedite's
electronic document distribution services, including the Internet, to carry such
customers' communications or that companies offering such alternatives will not
develop product features or pricing which are more attractive to customers than
those currently offered by Xpedite.
In addition, the Telecommunications Act of 1996, as amended (the "1996 Act")
allows local exchange carriers ("LECs"), including the RBOCs, to provide long
distance telephone service between Local Access and Transport Areas ("LATAs"),
which will likely significantly increase competition for long distance services.
The new legislation also grants the Federal Communications Commission (the
"FCC") the authority to deregulate other aspects of the telecommunications
industry, which in the future may, if authorized by the FCC, facilitate the
offering of an integrated suite of personal communications services by regulated
entities, including the RBOCs, in competition with the Company. Such increased
competition could have a material adverse effect on the Company's business,
financial condition and results of operations.
Telecommunications companies compete for consumers based on price, with
major long distance carriers conducting extensive advertising campaigns to
capture market share. There can be no assurance that a decrease in the rates
charged for communications services by the major long distance carriers or
other competitors, whether caused by general competitive pressures or the
entry of the RBOCs and other LECs into the long distance market, would not
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company expects that information and telecommunications services markets
will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than the Company's technology. The Company does not have the
contractual right to prevent its subscribers from changing to a competing
network, and the Company's subscribers may generally terminate their service
with the Company at will.
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LEGISLATIVE MATTERS
The 1996 Act was intended to increase competition in the long distance and
local telecommunications markets. The 1996 Act opens competition in the local
services market and, at the same time, contains provisions intended to protect
consumers and businesses from unfair competition by incumbent LECs, including
the RBOCs. The 1996 Act allows RBOCs to provide long distance service outside
of their local service territories but bars them from immediately offering in-
region inter-LATA long distance services until certain conditions are
satisfied. An RBOC must apply to the FCC to provide in-region inter-LATA long
distance services and must satisfy a set of pro-competitive criteria intended
to ensure that RBOCs open their own local markets to competition before the
FCC will approve such application. Further, while the FCC has final authority
to determine whether an RBOC application is granted, the FCC must consult with
the Department of Justice to determine if, among other things, the entry of
the RBOC would be in the public interest, and with the relevant state to
determine that the pro-competitive criteria have been satisfied. The Company
is unable to determine how the FCC will rule on any such applications.
The 1996 Act provides a framework for the Company's operating subsidiaries
that provide long distance telecommunication services ("Operating Subsidiaries")
and other long distance carriers to compete with LECs by reselling local
telephone service, by interconnecting to LEC network facilities at various
points in the network, or by building new local service facilities. In the
future, the Operating Subsidiaries may decide to lease unbundled network
elements, which could also be used as a platform to provide access to the
Company's services, or to build local service facilities. The Operating
Subsidiaries' decision to enter the local services market is dependent on the
economic viability of the options and on the regulatory environment, which will
likely vary by state.
GOVERNMENT REGULATION
The Operating Subsidiaries provide both telecommunications and information
services. Consequently, the Operating Subsidiaries are subject to extensive
federal and state regulation in the United States. Various international
authorities may also seek to regulate the services provided by the Operating
Subsidiaries.
Tariffs and Detariffing. The Operating Subsidiaries are classified by the
FCC as non-dominant carriers for their domestic interstate and international
common carrier telecommunications services. Common carriers that provide
domestic interstate and international telecommunications services must
maintain tariffs on file with the FCC describing rates, terms and conditions
of service. While the tariffs of non-dominant carriers, such as the Operating
Subsidiaries, are subject to FCC review, they are presumed to be lawful upon
filing with the FCC. Currently, the Operating Subsidiaries either have applied
for and received, or are in the process of applying for and receiving, all
necessary authority from the FCC to provide domestic interstate and
international telecommunications services. However, at this time, only Premiere
Communications Inc. ("PCI") has been granted authority by the FCC to provide
domestic interstate and international telecommunications services.
In October 1996, the FCC issued an order detariffing long distance services
which prohibited non-dominant long distance carriers from filing tariffs for
domestic, interstate, long distance services in the future. The FCC's
scheduled detariffing rules were to become effective September 22, 1997. The
detariffing rules were appealed by several parties, and in February 1997, the
U.S. Court of Appeals for the District of Columbia Circuit issued a temporary
stay preventing the rules from taking effect pending judicial review. The
Company and the Operating Subsidiaries are currently unable to predict what
impact the outcome of the FCC's detariffing proceeding will have on the
Company or the Operating Subsidiaries.
Local Interconnection and Resale. In August 1996, the FCC adopted an order
(the "Interconnection Order") which established a minimum set of rules
relating to the manner in which all telecommunications carriers would be able
to interconnect with the LECs' networks. The Interconnection Order addressed
several important interconnection issues, including unbundled network element
purchase, resale discounts, and negotiation and arbitration procedures between
LECs and long distance carriers.
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Several states, companies, associations and other entities appealed the
Interconnection Order. On July 18, 1997, the U.S. Court of Appeals for the
Eighth Circuit overturned many of the rules established by the FCC's
Interconnection Order governing, among other things, the pricing of
interconnection, resale and unbundled network elements. The Court's decision
substantially limits the FCC's jurisdiction and expands the state regulators'
jurisdiction to set and enforce rules governing the development of local
competition. The Company is currently considering entering the local exchange
market as a so-called competitive local exchange carrier ("CLEC"). If the
Company becomes a CLEC, it will face rules that are likely to vary
substantially from state to state. A patchwork of state regulations could make
competitive entry by the Operating Subsidiaries in some markets more difficult
and expensive than in others and could increase the costs of regulatory
compliance associated with local entry.
The FCC has announced its intent to appeal the Court's ruling to the U.S.
Supreme Court and other parties are also expected to appeal the Court's
decision. Due to this uncertainty, the Company and the Operating Subsidiaries
are unable to predict what impact the Court's decision will have on the
Operating Subsidiaries' ability to offer competitive local service, and no
assurance can be given that the Court's decision will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Universal Service Reform. On May 8, 1997, the FCC released an order
establishing a significantly expanded federal telecommunications subsidy
regime. For example, the FCC established new subsidies for schools and
libraries with an annual cap of $2.25 billion and for rural health care
providers with an annual cap of $400 million. Providers of interstate
telecommunications service, such as the Operating Subsidiaries, as well as
certain other entities, must pay for the federal programs. The Operating
Subsidiaries' share of the schools, libraries and rural health care funds will
be based on their share of the total industry for telecommunications services
and on certain defined telecommunications end user revenues. The Operating
Subsidiaries' share of all other federal subsidy funds will be based on their
share of total interstate (including certain international) telecommunications
services and on certain defined telecommunications end user revenues. Several
parties have appealed the May 8, 1997 order, and those appeals have been
consolidated in the U.S. Court of Appeals for the Fifth Circuit. No assurance
can be given that the FCC's universal service order will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Access Charge Reform. On May 16, 1997, the FCC released an Access Charge
Reform Order, which revised rules governing the interstate switched access
charge rate structure. The new rules are intended to eliminate implicit
subsidies and to establish rate structures that better reflect the manner in
which costs are incurred. The new rules substantially increase the costs that
price cap LECs recover through monthly, non-traffic sensitive access charges
and substantially decrease the costs that price cap LECs recover through
traffic sensitive access charges. The manner in which the FCC implements its
approach to lowering access charge levels will have an effect on the prices
the Operating Subsidiaries pay for originating and terminating interstate
traffic. Portions of the Access Charge Reform Order have been appealed. In
light of the uncertainty regarding ultimate disposition of the Access Charge
Reform proceeding by the FCC and the courts, the Company is unable to predict
what impact the FCC's revised access charge scheme will have on the Operating
Subsidiaries' access charge cost structure.
Payphone Compensation. In September 1996, the FCC issued an order adopting
rules to implement the 1996 Act's requirements establishing "a per call
compensation plan to ensure all payphone service providers are fairly
compensated for each and every completed call using their payphone." This
order included a specific fee to be paid to each payphone service provider by
long distance carriers and intra-LATA toll providers (including LECs) on all
"dial around" calls, including debit card and calling card calls. On July 1,
1997, the U.S. Court of Appeals for the D.C. Circuit overturned some of the
FCC rules for the implementation plan.
On October 7, 1997, the FCC issued a second order, revising the per-call,
compensation amount to be paid to payphone service providers. Specifically,
the FCC decreased the compensation amount to $0.284 per call. The Operating
Subsidiaries began paying this per-call amount on October 7, 1997. This
compensation amount will remain in effect until October 6, 1999, when a
market-based rate will become effective. Although the Operating Subsidiaries
expect to incur additional costs to receive "dial around" calls that originate
from payphones, the FCC has permitted long distance carriers, such as the
Operating Subsidiaries, to pass such costs through to their customers.
In addition, the court found unlawful both the methodology used to determine
the long distance carriers' payment obligations and the absence of any
compensation for some types of payphones and services. These issues have been
remanded to the FCC. Although the Operating Subsidiaries expect to incur
additional costs to receive "dial around" calls that originate from payphones,
the Company is unable to predict what impact the
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payphone rules will have on the Operating Subsidiaries' costs for such calls
until the FCC adopts revised payphone compensation rates based on the circuit
court's ruling.
State Regulation. Most state public service and public utility commissions
("PUCs") require carriers that wish to provide intrastate common carrier
services to be authorized to provide such services. The Operating Subsidiaries
either have applied for and received, or are in the process of applying for and
receiving, all necessary authorizations to provide intrastate long distance
services.
The Operating Subsidiaries are generally not subject to price regulation or
to rate of return regulation for their intrastate services. In most states,
however, the Operating Subsidiaries are required to file tariffs setting forth
the terms, conditions and prices for their intrastate services. In some state
jurisdictions, the tariff can list a rate range for intrastate services. The
Operating Subsidiaries may be subject to additional regulatory burdens in some
states, such as compliance with quality of service requirements or remittance
of contributions to support state sponsored universal service. The Operating
Subsidiaries' ability to incur long-term indebtedness is subject to prior PUC
approval in some state jurisdictions. In addition, some state PUCs regulate
the issuance of securities and the transfer of control of entities subject to
their jurisdiction. These state regulations may have attached to the Company's
recent acquisitions of one or more of the Operating Subsidiaries. Currently,
the Company is reviewing whether and to what extent additional regulatory
compliance is required in this regard.
Other. In conducting its business, the Company is subject to various laws
and regulations relating to commercial transactions generally, such as the
Uniform Commercial Code and is also subject to the electronic funds transfer
rules embodied in Regulation E promulgated by the Federal Reserve. Congress
has held hearings regarding, and various agencies are considering, whether to
regulate providers of services and transactions in the electronic commerce
market. For example, the Federal Reserve recently completed a study, directed
by Congress, regarding the propriety of applying Regulation E to stored value
cards. The Department of Treasury recently promulgated proposed rules applying
record keeping, reporting and other requirements to a wide variety of entities
involved in electronic commerce. It is possible that Congress, the states or
various government agencies could impose new or additional requirements on the
electronic commerce market or entities operating therein. If enacted, such
laws, rules and regulations could be imposed on the Company's business and
industry and could have a material adverse effect on the Company's business,
financial condition or results of operations. The Company's proposed
international activities also will be subject to regulation by various
international authorities and the inherent risk of unexpected changes in such
regulation.
PROPRIETARY RIGHTS AND TECHNOLOGY
The Company's ability to compete is dependent in part upon its proprietary
technology. The Company relies primarily on a combination of intellectual
property laws and contractual provisions to protect its proprietary rights and
technology. These laws and contractual provisons provide only limited protection
of the Company's proprietary rights and technology. The Company's proprietary
rights and technology include confidential information and trade secrets which
the Company attempts to protect through confidentiality and nondisclosure
provisions in its licensing, services, reseller and distribution agreements. The
Company typically attempts to protect its confidential information and trade
secrets through these contractual provisions for the terms of the applicable
agreement and, to the extent permitted by applicable law, for some negotiated
period of time following termination of the agreement, typically one to two
years at a minimum. In addition, Premiere has three patent applications pending
and nine trademark or service mark registrations pending. Premiere has two
registered service marks. Voice-Tel has been issued two U.S. patents and has one
U.S. patent application pending. Voice-Tel also has five registered U.S.
trademarks or service marks and approximately 40 foreign trademark or service
mark registrations or pending applications. VoiceCom has two registered U.S.
trademarks and one registered foreign trademark. Despite the Company's efforts
to protect its proprietary rights and technology, through intellectual property
laws and contractual provisions, there can be no assurance that others will not
be able to copy or otherwise obtain and use the Company's proprietary technology
without authorization, or independently develop technologies that are similar or
superior to the Company's technology. However, the Company believes that, due to
the rapid pace of technological change in the information and telecommunications
service industry, factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements and the
timeliness and quality of support services are more important to establishing
and maintaining a competitive advantage in the industry.
Many patents, copyrights and trademarks have been issued in the general
areas of information and telecommunications services and computer telephony.
The Company believes that in the ordinary course of its
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business third parties will claim that the Company's current or future
products or services infringe the patent, copyright or trademark rights of
such third parties. The Company is aware of other companies that use the terms
"WorldLink" or "Premiere" in describing their products and services, including
telecommunications products and services. Certain of those companies hold
registered trademarks which incorporate the names "WorldLink" or "Premiere."
The Company has received correspondence from a provider of prepaid calling
cards which claims that the Company's use of the term "WorldLink" infringes
upon its trademark rights. In addition, the Company has received
correspondence from a major bank, which is among the holders of registered
trademarks incorporating the term "WorldLink," inquiring as to the nature of
the Company's use of the term "WorldLink" as part of its mark "Premiere
WorldLink." Based on, among other things, the types of businesses in which the
other companies are engaged and the low likelihood of confusion, the Company
believes these claims to be without merit.
In October 1996, VTE received a letter from a third party claiming that
certain aspects of VTE's products and services may be infringing upon one or
more of the third party's patents. The Company has reviewed the patent claims
of the third party and does not believe that the Company's products or
services infringe on the claims of the third party. No patent infringement
claims against the Company have been filed by the third party at this time.
Should the third party file patent infringement claims against the Company,
the Company believes that it would have meritorious defenses to any such
claims. However, due to the inherent uncertainties of litigation, the Company
is unable to predict the outcome of any potential litigation with the third
party, and any adverse outcome could have a material adverse effect on the
Company's business, results of operations or financial condition. Even if the
Company were to ultimately prevail, the Company's business could be adversely
affected by the diversion of management attention and litigation costs.
Because of this risk, the Company withheld in escrow approximately 176,000
shares of Common Stock from the purchase price of VTE and VTN. This escrow
arrangement terminates in April 2000. There can be no assurance that such
escrow will be sufficient to fully cover the Company's exposure in the event
of litigation or an adverse outcome to the potential infringement claims.
In February 1997, the Company entered into a long-term nonexclusive license
agreement with AudioFAX IP LLC ("AudioFax") settling a patent infringement suit
filed by AudioFAX in June 1996. In the third quarter of 1996, the Company took a
one-time charge for the estimated legal fees and other costs that the Company
expected to incur to resolve this matter. In September 1997, VoiceCom also
entered into a long-term non-exclusive license agreement with AudioFAX.
In May 1997, Premiere received a letter from a manufacturer and marketer of
certain telecommunications equipment asserting that Premiere is offering
certain "calling card and related enhanced services," "single number service"
and "call connecting services" covered by three patents held by that company
and inviting Premiere to obtain a license. Premiere has preliminarily reviewed
the subject patents and, based on that review, presently believes that its
products and services currently being marketed do not infringe two of the
patents. Premiere intends, however, to conduct a further review of these two
patents in order to determine whether it would be helpful to its future
products and services to license the patents. The third patent relates to
certain call reorigination technology. Premiere is conducting a further review
of this patent to determine if its call reorigination system would infringe
any valid rights under this patent. If Premiere ultimately determines that it
is infringing this patent, it could seek to license the technology or
discontinue using it and employ an alternate technology. There can be no
assurance that Premiere would be able to license the technology on
commercially reasonable terms or that it could easily and inexpensively
migrate to a new call reorigination technology. Premiere's call reorigination
service is only one service that it offers, and management does not believe
that this service is critical to the marketing of Premiere's overall suite of
services. Consequently, Premiere does not believe that its inability to
license the technology or migrate to a new technology would have a material
adverse effect on its business, financial condition and results of operations.
No claim has been asserted beyond this letter, but no assurance can be given
that the third party will not commence an infringement action against
Premiere. If a patent infringement claim is brought against Premiere, there
can be no assurance that Premiere would prevail and any adverse outcome could
have a material adverse effect on Premiere's business, financial condition and
results of operations.
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In May 1997, the Company received a letter from counsel for a provider of
goods and services in the telecommunications field objecting to the Company's
use of the phrase "personal assistant" based on that company's federally
registered "personal assistant" service mark. On June 18, 1997, counsel for
the Company responded to the objections, noting that the Company did not
intend to use, nor would it use in the future, the words "personal assistant"
as a trademark or service mark, but instead would merely use these words to
describe the nature of its product. The Company has not heard anything further
from the potential claimant and believes that the matter has been resolved.
In July 1997, the Company received a letter from counsel for a French
publishing company objecting to the Company's use of the "Premiere" trademark.
Based on, among other things, the type of business in which the French company
is engaged and the low likelihood of confusion, the Company believes that
these claims are without merit. Due to the inherent uncertainties of
litigation, however, the Company is unable to predict the outcome of any
potential litigation with the French company, and any adverse outcome could
have a material effect on the Company's business, financial condition and
results of operations. Even if the Company were to prevail in such a
challenge, the Company's business could be adversely affected by the diversion
of management attention and litigation costs.
No assurance can be given that actions or claims alleging patent, copyright
or trademark infringement will not be brought against the Company with respect
to current or future products or services, or that, if such actions or claims
are brought, the Company will ultimately prevail. Any such claiming parties
may have significantly greater resources than the Company to pursue litigation
of such claims. Any such claims, whether with or without merit, could be time
consuming, result in costly litigation, cause delays in introducing new or
improved products and services, require the Company to enter into royalty or
licensing agreements, or cause the Company to discontinue use of the
challenged technology, tradename or service mark at potentially significant
expense to the Company associated with the marketing of a new name or the
development or purchase of replacement technology, all of which could have a
material adverse effect on the Company's business, financial condition and
results of operation.
EMPLOYEES
As of December 1, 1997, the Company employed 922 persons on a full-time
basis and 29 persons on a part-time basis. None of the Company's employees are
members of a labor union or are covered by a collective bargaining agreement.
PROPERTIES
Premiere's corporate headquarters occupy approximately 103,400 square feet
of office space in Atlanta, Georgia under a lease expiring August 31, 2007.
Voice-Tel's headquarters occupy approximately 30,000 square feet of office
space in Cleveland, Ohio under a lease expiring in October 1999. VoiceCom's
headquarters occupy approximately 26,400 square feet of office space in
Atlanta, Georgia under a lease expiring April 30, 2001. The Company also has
data and switching centers in Atlanta, Georgia, Dallas, Texas, London, England
and has begun development of a similar center in Toronto, Canada. The Company
believes that its current office space is sufficient to meet its present needs
and does not anticipate any difficulty securing additional space, as needed,
on terms acceptable to the Company.
LEGAL PROCEEDINGS
On January 21, 1997, Eric Bott, E.B. Elliott and Cost Recovery Systems, Inc.
("CRS") filed a complaint against the Company, PCI and the Company's president,
Boland T. Jones, in the Superior Court of Fulton County, Georgia ("Civil
Action"). As of December 2, 1997, the Company, PCI and Mr. Jones entered into a
settlement agreement with Mr. Bott which settled and disposed of Mr. Bott's
claims in connection with this litigation. On December 12, 1997, Mr. Elliott and
CRS filed a Second Amended Complaint against Premiere and Boland T. Jones in
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the Civil Action. The first count seeks an accounting of commissions that Mr.
Elliott and CRS allege may be due to them under a sales commission agreement
between CRS and Premiere. The second count seeks options for 72,000 shares of
Premiere Common Stock that Mr. Elliott and CRS claim are due to them, or damages
in the alternative. The third count seeks to recover the Plaintiffs' reasonable
attorneys' fees. In the Second Amended Complaint, the remaining plaintiffs have
dropped their prior request for punitive damages. The Company believes it has
meritorious defenses to Mr. Elliott's and CRS' remaining allegations, but due to
the inherent uncertainties of the litigation process, the Company is unable to
predict the outcome of this litigation. If the outcome of this litigation is
adverse to the Company, it could have a material adverse effect on the Company's
business, financial condition and results of operations. The settlement with Mr.
Bott will not have a material adverse effect on the Company's business financial
condition and results of operations.
On August 6, 1996, CNC, a licensing customer of the Company, was placed into
bankruptcy under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). On August 23, 1996, CNC filed a motion to intervene in a
separate lawsuit brought by a CNC creditor in the United States District Court
for the Southern District of New York against certain guarantors of CNC's
obligations and to file a third-party action against numerous entities,
including such CNC creditor and PCI for alleged negligent misrepresentations of
fact in connection with an alleged fraudulent scheme designed to damage CNC. The
court has not ruled on CNC's request. Based upon the bankruptcy examiner's
findings and the subsequently appointed bankruptcy trustee's investigation of
potential actions directed at PCI, including an avoidable preference claim under
the Bankruptcy Code of an amount up to approximately $950,000, the trustee and
PCI have reached a tentative agreement on all issues between the parties,
including dismissal of the above referenced lawsuit, subject to Bankruptcy Court
approval. The terms of the proposed settlement have been incorporated into a
proposed plan of reorganization filed by the trustee with the Bankruptcy Court.
Based upon hearings before the Bankruptcy Court, the trustee filed a motion
requesting approval of the settlement on November 18, 1997. Due to the inherent
uncertainties of the judicial system, the Company is not able to predict with
certainty whether the above-described settlement will be approved by the
Bankruptcy Court. If the settlement is not approved and the trustee successfully
pursues possible litigation against the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of CNC, and his company, Platinum Network, Corp. ("Platinum")
(Al-Khatib and Platinum are collectively referred to herein as "Plaintiffs"),
filed a complaint against PCI, WorldCom Network Services, Inc. f/k/a WilTel,
Inc., Bernard J. Ebbers, David F. Meyers, Robert Vetera, Joseph Cusick, William
Trower, Don Wilmouth, Digital Communications of America, Inc., Boland Jones,
Patrick Jones, and John Does I-XX (the "Defendants") in the Eastern District of
New York, United States District Court (the "Al-Khatib lawsuit"). In their
complaint, Plaintiffs contend that, during 1996, PCI, certain officers of PCI
and the other Defendants engaged in a fraudulent scheme to restrain trade in the
debit card market nationally and in the New York debit card sub-market. The
Plaintiffs' complaint alleges that by engaging in the aforementioned scheme and
by making misrepresentations of fact in connection with the scheme, PCI and the
other Defendants caused the Plaintiffs to suffer harm. The Plaintiffs are
seeking at least $250 million in compensatory damages and $500 million in
punitive damages from PCI and the other Defendants. PCI has not yet filed its
response to the complaint in the Al-Khatib lawsuit. PCI believes that it has
meritorious defenses to the Plaintiffs' allegations and will vigorously defend
the same. Due to the inherent uncertainties of the judicial system, the Company
is not able to predict the outcome of the Al-Khatib lawsuit. If the Al-Khatib
lawsuit is not resolved in the Company's favor, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
On September 20, 1996, Peter Lucina ("Lucina") filed a complaint against the
Company, Donald B. Gasgarth ("Gasgarth") and Patrick G. Jones ("Jones") in the
United States District Court for the Eastern District of Illinois. As of
December 3, 1997, the Company, Gasgarth and Jones entered into a settlement
agreement with Lucina which settled and disposed of Lucina's claims in
connection with this litigation, and this settlement was approved by the Court
on December 15, 1997. This settlement will not have a material adverse effect on
the Company's business, financial condition and results of operations.
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Due to the inherent uncertainties of the litigation process and the judicial
system, the Company is unable to predict the outcome of the foregoing
litigation matters. If the outcome of one or more of such matters is adverse
to the Company, it could have a natural adverse effect on the Company's
business, financial condition and results of operations.
FORWARD-LOOKING STATEMENT AND ASSOCIATED RISKS
When used in this Description of Business and elsewhere by management or the
Company from time to time, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements
concerning the Company's operations, economic performance and financial
condition, including in particular, the Company's business strategy and means to
implement the strategy, the Company's goals, the amount of capital expenditures
and the likelihood of the Company's success in developing and expanding its
business. These statements are based on a number of assumptions and estimates
which are inherently subject to significant risks and uncertainties, many of
which are beyond the control of the Company and reflect future business
decisions which are subject to change. A variety of factors could cause actual
results to differ materially from those anticipated in the Company's
forward-looking statements. These factors include, without limitation, the
Company's ability to successfully complete and integrate acquisitions in
existing and new markets (including, without limitation, the integration of VTE
and certain VTE affiliates and independent franchisees and the integration of
VoiceCom), to manage the Company's growth and to respond to rapid technological
change and risk of obsolescence of the Company's products, services and
technology. Consequently, all of the forward-looking statements made in this
Description of Business are qualified by these cautionary statements, and
readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions of such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof, or thereof, as the case may be, or to reflect the
occurrence of unanticipated events.
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