<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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
------------------
PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant
as specified in its charter)
Georgia 0-27778 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 offices) (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 5. OTHER EVENTS.
Premiere Technologies, Inc. (the "Company" or "Premiere") entered into an
Agreement and Plan of Merger, dated as of November 13, 1997 (the "Merger
Agreement"), with Xpedite Systems, Inc. ("Xpedite") and Nets Acquisition Corp.,
a wholly-owned subsidiary of Premiere ("Acquisition Sub"). Subject to the terms
and conditions of the Merger Agreement, Acquisition Sub will merge with and into
Xpedite (the "Merger"), which will be the surviving corporation in the Merger
and, as a result thereof, will become a wholly-owned subsidiary of Premiere. A
copy of a news release relating to the Merger is being filed as Exhibit 99.1 to
this report, and such news release is incorporated herein by reference. A copy
of the Merger Agreement is being filed as Exhibit 99.2 to this report, and such
Merger Agreement is incorporated herein by reference.
Under the terms of the Merger Agreement, shares of Xpedite common stock
will be exchanged for a number of shares of Premiere common stock based on an
exchange ratio equal to $34 divided by the average trading price of Premiere
common stock prior to closing. The maximum exchange ratio under the Merger
Agreement is 1.25 shares of Premiere common stock for each share of Xpedite
common stock and the minimum exchange ratio is 0.867 shares of Premiere common
stock for each share of Xpedite common stock. The Merger Agreement may be
terminated under certain circumstances by the board of directors of Xpedite if
the actual average trading price of Premiere common stock is less than $24 per
share, unless Premiere elects to increase the exchange ratio as provided in the
Merger Agreement. Consummation of the merger is conditioned on, among other
things, approval of the shareholders of both Xpedite and Premiere and compliance
with applicable anti-trust notification requirements.
Pursuant to the Merger Agreement, Premiere, Xpedite and certain Xpedite
stockholders (the "Locked-Up Stockholders") entered into certain Stockholder
Agreements dated as of November 13, 1997 (the "Stockholder Agreements"). The
Stockholder Agreements provide, among other things, that the Locked-Up
Stockholders will vote the shares of Xpedite common stock owned by them as of
the record date of the Xpedite special meeting of stockholders in favor of the
Merger. The total of 3,621,953 shares of Xpedite common stock initially subject
to the Stockholder Agreements includes 3,115,062 issued and outstanding shares
beneficially owned by the Locked-Up Stockholders and 506,891 shares subject to
outstanding stock options and warrants held by the Locked-Up Stockholders.
In addition to the Merger Agreement, Xpedite has also entered into a Share
Purchase Agreement, dated as of August 8, 1997 (the "XSL Purchase Agreement"),
among Xpedite, Xpedite Systems Holdings (UK) Limited, a newly formed and wholly
owned subsidiary of Xpedite ("XSL Acquisition Corp."), and the shareholders of
Xpedite Systems Limited, an English corporation ("XSL"), pursuant to which XSL
Acquisition Corp. has agreed to purchase all the share capital of XSL for a
purchase price of $87.0 million, subject to certain adjustments (the "XSL
Acquisition"). The closing of the XSL Acquisition is a condition to the closing
of the Merger. However, the closing of the Merger is not a condition to the
closing of the XSL Acquisition. The closing of the XSL Acquisition is expected
to occur on or before December 31, 1997. A copy of the XSL Purchase Agreement is
being filed as Exhibit 99.3 to this report, and such XSL Purchase Agreement is
incorporated herein by reference.
Premiere hereby files (a) the consolidated financial statements of Xpedite
and the consolidated financial statements of Xpedite Systems Limited, an English
corporation ("XSL"), required by Rule 3-05 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "Commission") as Exhibits 99.4 and 99.5,
respectively, incorporated herein by reference and (b) the pro forma financial
information required by Article 11 of Regulation S-X promulgated by the
Commission as Exhibit 99.6, incorporated herein by reference.
As described in Premiere's Quarterly Report on Form 10-Q for the period
ended September 30, 1997, Premiere acquired VoiceCom Systems, Inc. ("VoiceCom")
in September 1997. The acquisition of VoiceCom has been accounted for as a
pooling-of-interests. Accordingly, the Company is filing restated financial
statements prepared in accordance with Regulation S-X and restated Management's
Discussion and Analysis of Financial Condition and Results of Operations in
accordance with Regulation S-K for the three years ended December 31, 1996 and
as of December 31, 1996 and 1995, giving effect to the VoiceCom acquisition, as
Exhibits 99.7 and 99.8, respectively, incorporated herein by reference. In
addition, the Company is filing a revised Description of Business as Exhibit
99.9 to this report, incorporated herein by reference, to reflect the
acquisitions of Voice-Tel Enterprises, Inc., its affiliate Voice-Tel Network
Limited Partnership and substantially all of its franchisees during the second
quarter of 1997, and the VoiceCom acquisition during the third quarter of 1997.
-2-
<PAGE>
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.
-3-
<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: December 4, 1997
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<PAGE>
EXHIBIT INDEX
No. Description
--- -----------
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.
<PAGE>
Exhibit 11.1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996
(in thousands)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------
December 31, December 31, December 31,
1994(1)(2) 1995 1996(2)
-------------------- ------------ -------------
<S> <C> <C> <C>
PRIMARY (3)
Net Income applicable to common stock:
Net income $ - $ 4,171 $ 3,458
Preferred dividends(3) - (308) (29)
Interest income (4) - 359 0
------------- -------- ---------
Net income applicable to common stock $ - $ 4,222 $ 3,429
============= ======== =========
Weighted average shares outstanding for primary:
Weighted average shares outstanding - 19,868 27,670
Other shares upon assumed exercise of stock
options and warrants, net (5) - 8,850 1,543
------------- -------- ---------
Weighted average shares - 28,718 29,213
============= ======== =========
Primary net income per share $ - $ 0.15 $ 0.12
============= ======== =========
FULLY DILUTED
Net Income applicable to common stock:
Net income $ - $ 4,171 $ -
Interest expense from preferred shares - 370 -
------------- -------- ---------
Net income applicable to common stock $ - $ 4,541 $ -
============= ======== =========
Weighted average shares outstanding for fully diluted:
Weighted average shares outstanding - 19,868 -
Other shares upon assumed exercise of stock
options and warrants, net (5) - 8,850 -
Convertible preferred - 3,096 -
------------- -------- ---------
Weighted average shares - 31,814 -
============= ======== =========
Fully diluted net income per share - $ 0.14 $ -
============= ======== =========
</TABLE>
- -----------------------------
(1) For the year ended December 31,1994, net income per share was not calculated
under the modified treasury stock method as the results were antidilutive.
Accordingly, basic net income per share was used for the year ended December
31, 1994.
(2) Fully diluted net income per share is anti-dilutive. Accordingly, fully
diluted net income per share is not presented.
(3) Dividends on cumulative convertible preferred stock are deducted to arrive
at net income applicable to common stock as the preferred stock is not a
common stock equivalent and is therefore not considered as if converted for
primary net income per share.
(4) Reflects adjustment to interest expense, net of related income tax effect,
on excess proceeds due to 20% limitation on assumed acquisition of shares
under the modified treasury stock method. Assumed proceeds from stock
options include an income tax benefit as the options are not qualified
options under the Internal Revenue Code.
(5) Options and warrants are assumed exercised using the modified treasury stock
method, except where the effect is anti-dilutive.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Current Report on Form 8-K into
Premiere Technologies, Inc.'s previously filed Registration Statements (File
Nos. 333-17593, 333-11281, 333-29787, 333-36557, 333-39577 and 333-39693).
/s/ Arthur Andersen LLP
Atlanta, Georgia
December 2, 1997
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-17593, Form S-8 No. 333-11281, Form S-8 No. 333-39693,
Form S-8 No. 333-29787, Form S-3 No. 333-36557 and Form S-3 No. 333-39577), of
Premiere Technologies, Inc. and in the related prospectuses of our reports dated
February 27, 1997, with respect to the consolidated financial statements and
schedule of Xpedite Systems, Inc. for the three years ended December 31, 1996
included in the current report (Form 8-K) of Premiere Technologies, Inc., filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 1, 1997
<PAGE>
EXHIBIT 23.3
XPEDITE SYSTEMS LIMITED
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report dated 16 September 1997 on
the consolidated financial statements of Xpedite Systems Limited as of 31
December 1996 and for the 3 years then ended, included in this Current Report on
Form 8-K into Premiere Technologies, Inc's previously filed Registration
Statements (File Nos 333-17593, 333-11281, 333-29787, 333-36557, 333-39577 and
333-39693).
/s/ Price Waterhouse
PRICE WATERHOUSE
Leeds, England
2 December 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5 Exhibit 27.1
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<CASH> 15,936 8,243 0
<SECURITIES> 67,334 3,516 0
<RECEIVABLES> 14,604 12,937 0
<ALLOWANCES> 1,371 967 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 111,528 33,091 0
<PP&E> 89,563 66,910 0
<DEPRECIATION> 42,707 32,067 0
<TOTAL-ASSETS> 201,541 78,131 0
<CURRENT-LIABILITIES> 66,508 49,184 0
<BONDS> 0 0 0
0 0 0
0 3,907 0
<COMMON> 316 198 0
<OTHER-SE> 147,029 26,953 0
<TOTAL-LIABILITY-AND-EQUITY> 201,541 78,131 0
<SALES> 197,474 147,543 119,136
<TOTAL-REVENUES> 197,474 147,543 119,136
<CGS> 55,601 43,868 33,907
<TOTAL-COSTS> 55,601 43,868 33,907
<OTHER-EXPENSES> 135,008 96,672 98,461
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,498 4,812 4,658
<INCOME-PRETAX> 4,889 4,186 (17,373)
<INCOME-TAX> 1,372 15 (909)
<INCOME-CONTINUING> 3,517 4,171 (16,464)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 59 0 (945)
<CHANGES> 0 0 0
<NET-INCOME> 3,458 4,171 (15,519)
<EPS-PRIMARY> .12 .15 (1.18)
<EPS-DILUTED> 0 .14 0
</TABLE>
<PAGE>
EXHIBIT 99.1
FRIDAY, NOVEMBER 14, 7:00 AM EASTERN TIME
COMPANY PRESS RELEASE
PREMIERE TECHNOLOGIES SIGNS AGREEMENT WITH XPEDITE
AND DOUBLES SIZE OF COMPANY
PREMIERE MAKES BIG MOVE TO BECOME FULL SERVICE
GLOBAL PROVIDER OF PERSONAL COMMUNICATIONS SERVICES
Atlanta, Nov. 14/PRNewswiere/--Premiere Technologies, Inc. (Nasdaq: PTEK) today
announced that it has signed definitive agreements to acquire Xpedite Systems,
Inc.(Nasdaq: XPED) for $34 a share in a stock-for-stock merger qualifying as a
"pooling of interests" for accounting purposes and as a tax-free reorganization.
The transaction is accretive. Combined sales on an annualized basis for
Premiere including Xpedite are expected to exceed $400 million, doubling the
size of Premiere for the second time this year. The merger is expected to close
in the first quarter of 1998.
"This is a fantastic opportunity and another landmark acquisition for Premiere,"
said Boland T. Jones, Chairman and CEO of Premiere Technologies. "As we
continue to pursue our goal to become the dominant provider of personal
communications services, we are committed to filling in our lines of business
with market leaders such as Xpedite."
The combination of Xpedite and Premiere will produce a network with points of
presence in over 35 countries worldwide. The opportunities to achieve
significant long-term synergies stem from Xpedite's robust sales and marketing
organization. The two companies combined will have multiple distribution
channels and a direct sales force of over 550 people located on four continents.
"We are very excited about the opportunities that will be created with the
integration of our enhanced faxing technology with Premiere's platform. The
additional personal communications services provided by Premiere will add
tremendous value to the services we offer our client base. Integrating our
respective core competencies, technologies, and geographic reach, will create
the first fully integrated worldwide personal communications provider," said Roy
B. Andersen, Jr., President and Chief Executive Officer of Xpedite. In
connection with the merger, Mr. Andersen is expected to join Premiere's
corporate board.
Jones added, "Xpedite is the crown jewel of the enhanced fax industry.
Xpedite's scaleable and innovative fax engine is one of the world's largest
output mechanisms for moving information via fax. Like the Voice-Tel
acquisition, which allowed us to quickly dominate the voice messaging line of
personal communications services, this acquisition will immediately afford
Premiere a similar opportunity in the enhanced fax services industry. We are
fortunate to have been able to attract a merger partner like Xpedite--a
<PAGE>
market leader with a solid infrastructure and superior management team. We look
forward to working with our new colleagues."
"The Xpedite acquisition is another manifestation of the business strategy we
have been articulating for some time," concluded Mr. Jones. "Each of our lines
of business represents its own multi-billion dollar industry opportunity. We
plan to continue to grow not only by internal means but also through strategic
acquisitions, such as this one, that enable us to consolidate strong players
under the Premiere Technologies umbrella. Our ultimate goal is to be able to
offer all of our personal communications services on a totally integrated basis,
with each of them being equally accessible by telephone and PC anywhere in the
world, anytime."
Under the terms of the definitive agreement, shares of Xpedite Common Stock
would be converted into a number of shares of Premiere's Common Stock equal to
$34 divided by the average trading price of Premiere Common Stock prior to
closing, with a maximum exchange ratio of 1.25 shares of Premiere Common Stock
for each Xpedite share and a minimum exchange ratio of 0.867 shares of Premiere
Common Stock for each Xpedite share. The merger may be terminated under certain
circumstances by the Board of Directors of Xpedite if the average trading price
of Premiere Common Stock is less than $24 per share. Consummation of the merger
would be conditioned on, among other things, approval of the shareholders of
both Xpedite and Premiere; consummation of Xpedite's pending acquisition of
Xpedite Systems, Limited, its United Kingdom affiliate, pursuant to the terms of
the existing purchase agreement; and compliance with the applicable anti-trust
notification requirements.
Concurrently with the execution of the definitive agreement, certain
stockholders of Xpedite, who collectively beneficially own more than 35% of the
outstanding shares of Xpedite Common Stock, have entered into individual
stockholder agreements with Premiere pursuant to which each of them has agreed
to vote his or its shares, among other things, in favor of the Merger.
Premiere Technologies, Inc. is a leading provider of integrated personal
communications services including mobile communications, integrated messaging
and Internet-based services to individuals and corporations. As a pioneer in
computer telephony, Premiere is an integrator of traditional telecom systems and
services with Internet-related technologies. Premiere's highly flexible,
scaleable platform and massive frame-relay network for digital voice and data
transmission provide the infrastructure for Premiere to connect millions of
subscribers around the world to its various service offerings. Premiere
currently markets its products under the names Premiere WorldLink and
Orchestrate along with the many services offered through recently acquired
Voice-Tel and VoiceCom. Premiere licenses its platform technologies to other
telecommunications companies and to large corporations. Premiere Technologies,
founded in 1991, is based in Atlanta.
Statements made in this press release, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such
-2-
<PAGE>
forward-looking statements are made based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Premiere's actual results may differ materially from the results
anticipated in these forward-looking statements as a result of a variety of
factors, including those identified in Premiere's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, and its Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission.
-3-
<PAGE>
<PAGE>
Exhibit 99.2
===============================================================================
AGREEMENT AND PLAN OF MERGER
by and among
PREMIERE TECHNOLOGIES, INC.,
NETS ACQUISITION CORP.
and
XPEDITE SYSTEMS, INC.
Dated as of November 13, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I. [INTENTIONALLY OMITTED]....................................... 1
ARTICLE II. THE MERGER................................................... 1
SECTION 2.01. THE MERGER............................................ 1
SECTION 2.02. CLOSING............................................... 1
SECTION 2.03. CERTIFICATE OF INCORPORATION.......................... 2
SECTION 2.04. BY-LAWS............................................... 2
SECTION 2.05. DIRECTORS............................................. 2
SECTION 2.06. OFFICERS.............................................. 2
SECTION 2.07. EFFECTIVE TIME........................................ 2
ARTICLE III. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES................... 2
SECTION 3.01. EFFECT ON COMPANY COMMON STOCK........................ 2
SECTION 3.02. CONVERSION OF ACQUISITION SUB COMMON STOCK............ 3
SECTION 3.03. FRACTIONAL SHARES..................................... 4
SECTION 3.04. EXCHANGE PROCEDURES................................... 4
SECTION 3.05. STOCK TRANSFER BOOKS.................................. 5
SECTION 3.06. NO FURTHER OWNERSHIP RIGHTS IN COMPANY
COMMON STOCK.......................................... 5
SECTION 3.07. LOST, STOLEN OR DESTROYED CERTIFICATES................ 5
SECTION 3.08. COMPANY STOCK OPTIONS AND WARRANTS.................... 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
SECTION 4.01. ORGANIZATION AND STANDING............................. 6
SECTION 4.02. AUTHORITY AND STATUS.................................. 7
SECTION 4.03. CAPITALIZATION........................................ 7
SECTION 4.04. NO CONFLICT, REQUIRED FILINGS AND CONSENTS............ 8
SECTION 4.05. COMPLIANCE; PERMITS................................... 9
SECTION 4.06. SEC FILINGS; FINANCIAL STATEMENTS..................... 10
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS.................. 10
SECTION 4.08. NO UNDISCLOSED LIABILITIES............................ 11
</TABLE>
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<TABLE>
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SECTION 4.09. ABSENCE OF LITIGATION................................. 11
SECTION 4.10. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS......... 11
SECTION 4.11. LABOR MATTERS......................................... 12
SECTION 4.12. INFORMATION SUPPLIED.................................. 12
SECTION 4.13. TITLE TO PROPERTY..................................... 13
SECTION 4.14. TAXES................................................. 13
SECTION 4.15. ENVIRONMENTAL MATTERS................................. 14
SECTION 4.16. INSURANCE............................................. 15
SECTION 4.17. OPINION OF FINANCIAL ADVISOR.......................... 15
SECTION 4.18. BROKERS............................................... 15
SECTION 4.19. BOOKS AND RECORDS..................................... 15
SECTION 4.20. CERTAIN PAYMENTS...................................... 15
SECTION 4.21. INTELLECTUAL PROPERTY................................. 16
SECTION 4.22. CONTRACTS............................................. 16
SECTION 4.23. INFORMATION SYSTEMS................................... 16
SECTION 4.24. REGULATION OF BUSINESS................................ 17
SECTION 4.25. TAX MATTERS........................................... 17
SECTION 4.26. STATE TAKEOVER LAWS................................... 17
SECTION 4.27. STOCKHOLDER VOTING AGREEMENTS......................... 17
SECTION 4.28. BOARD RECOMMENDATION.................................. 17
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.. 17
SECTION 5.01. ORGANIZATION AND STANDING............................. 17
SECTION 5.02. AUTHORITY AND STATUS.................................. 18
SECTION 5.03. CAPITALIZATION........................................ 18
SECTION 5.04. NO CONFLICT, REQUIRED FILINGS AND CONSENTS............ 19
SECTION 5.05. COMPLIANCE; PERMITS................................... 20
SECTION 5.06. SEC FILINGS; FINANCIAL STATEMENTS..................... 20
SECTION 5.07. ABSENCE OF CERTAIN CHANGES OR EVENTS.................. 21
SECTION 5.08. NO UNDISCLOSED LIABILITIES............................ 21
SECTION 5.09. ABSENCE OF LITIGATION................................. 21
</TABLE>
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SECTION 5.10. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS......... 22
SECTION 5.11. LABOR MATTERS......................................... 22
SECTION 5.12. INFORMATION SUPPLIED.................................. 23
SECTION 5.13. TITLE TO PROPERTY..................................... 23
SECTION 5.14. TAXES................................................. 23
SECTION 5.15. ENVIRONMENTAL MATTERS................................. 24
SECTION 5.16. INSURANCE............................................. 25
SECTION 5.17. OPINION OF FINANCIAL ADVISOR.......................... 25
SECTION 5.18. BROKERS............................................... 25
SECTION 5.19. BOOKS AND RECORDS..................................... 25
SECTION 5.20. CERTAIN PAYMENTS...................................... 25
SECTION 5.21. INTELLECTUAL PROPERTY................................. 25
SECTION 5.22. CONTRACTS............................................. 26
SECTION 5.23. INFORMATION SYSTEMS................................... 26
SECTION 5.24. REGULATION OF BUSINESS................................ 26
SECTION 5.25. NO BUSINESS........................................... 26
SECTION 5.26. TAX MATTERS........................................... 26
SECTION 5.27. BOARD RECOMMENDATION.................................. 26
ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER....................... 27
SECTION 6.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. 27
SECTION 6.02. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER...... 29
SECTION 6.03. NO SOLICITATION....................................... 30
ARTICLE VII. ADDITIONAL AGREEMENTS....................................... 31
SECTION 7.01. HSR ACT; ETC.......................................... 31
SECTION 7.02. PREPARATION OF THE PROSPECTUS/PROXY STATEMENT......... 31
SECTION 7.03. STOCKHOLDER APPROVAL.................................. 32
SECTION 7.04. ACCESS TO INFORMATION; CONFIDENTIALITY................ 33
SECTION 7.05. CONSENTS; APPROVALS................................... 34
SECTION 7.06. INDEMNIFICATION AND INSURANCE......................... 34
SECTION 7.07. EMPLOYMENT AND BENEFIT MATTERS........................ 35
</TABLE>
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SECTION 7.08. NOTIFICATION OF CERTAIN MATTERS....................... 35
SECTION 7.09. FURTHER ACTION........................................ 36
SECTION 7.10. PUBLIC ANNOUNCEMENTS.................................. 36
SECTION 7.11. CONVEYANCE TAXES...................................... 36
SECTION 7.12. NASDAQ LISTING........................................ 36
SECTION 7.13. NO ACQUISITION SUB BUSINESS........................... 36
SECTION 7.14. NEGOTIATIONS WITH MINORITY AFFILIATE.................. 36
SECTION 7.15. ACCOUNTING AND TAX MATTERS............................ 37
SECTION 7.16. REGISTRATION RIGHTS................................... 37
ARTICLE VIII. CONDITIONS TO THE MERGER................................... 37
SECTION 8.01. CONDITIONS TO OBLIGATION OF EACH PARTY
TO EFFECT THE MERGER.................................. 37
SECTION 8.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT........ 38
SECTION 8.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY.... 39
ARTICLE IX. TERMINATION.................................................. 40
SECTION 9.01. TERMINATION........................................... 40
SECTION 9.02. EFFECT OF TERMINATION................................. 42
SECTION 9.03. FEES AND EXPENSES..................................... 44
ARTICLE X. GENERAL PROVISIONS............................................ 44
SECTION 10.01. EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS, ETC....................... 44
SECTION 10.02. NOTICES.............................................. 45
SECTION 10.03. CERTAIN DEFINITIONS.................................. 46
SECTION 10.04. AMENDMENT............................................ 47
SECTION 10.05. WAIVER............................................... 47
SECTION 10.06. HEADINGS............................................. 47
SECTION 10.07. SEVERABILITY......................................... 47
SECTION 10.08. ENTIRE AGREEMENT..................................... 48
SECTION 10.09. ASSIGNMENT........................................... 48
SECTION 10.10. PARTIES IN INTEREST.................................. 48
SECTION 10.11. FAILURE OR INDULGENCE NOT WAIVER;
REMEDIES CUMULATIVE.................................. 48
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 10.12. GOVERNING LAW........................................ 48
SECTION 10.13. COUNTERPARTS......................................... 48
SECTION 10.14. CONSENT TO JURISDICTION.............................. 48
</TABLE>
INDEX OF EXHIBITS
EXHIBIT A Form of Affiliate Letter
EXHIBIT B Form of Company Stockholder Agreement
EXHIBIT C Registration Rights
INDEX OF SCHEDULES*
SCHEDULE 4.01(b) Certificate of Incorporation and By-Laws of the Company
SCHEDULE 4.03(a) Capitalization
SCHEDULE 4.03(b) Conversion Rights
SCHEDULE 4.03(c) Minority Affiliates
SCHEDULE 4.04(a) Contracts
SCHEDULE 4.04(b) Defaults
SCHEDULE 4.04(c) Conflicts
SCHEDULE 4.05(a) Compliance with Laws and Agreements
SCHEDULE 4.05(b) Permits
SCHEDULE 4.06 Company SEC Reports
SCHEDULE 4.07(a)-(g) Absence of Certain Changes
SCHEDULE 4.08 Liabilities
SCHEDULE 4.09 Litigation
SCHEDULE 4.10 ERISA Matters
SCHEDULE 4.11 Labor Matters
SCHEDULE 4.13 Title to Property
SCHEDULE 4.14 Taxes
SCHEDULE 4.15 Environmental Matters
SCHEDULE 4.18 Brokers
SCHEDULE 4.21 Intellectual Property Rights
SCHEDULE 4.22(a) Change of Control Provisions
SCHEDULE 4.22(b) Affiliate Contracts
SCHEDULE 5.01(b) Articles of Incorporation and By-Laws of Parent and
Acquisition Sub
SCHEDULE 5.03(a) Capitalization
SCHEDULE 5.03(b) Conversion Rights
SCHEDULE 5.04(a) Contracts
SCHEDULE 5.04(b) Defaults
SCHEDULE 5.04(c) Conflicts
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<PAGE>
SCHEDULE 5.05(a) Compliance with Laws and Agreements
SCHEDULE 5.05(b) Permits
SCHEDULE 5.06 Parent SEC Reports
SCHEDULE 5.07(a)-(f) Absence of Certain Changes
SCHEDULE 5.08 Liabilities
SCHEDULE 5.09 Litigation
SCHEDULE 5.10 ERISA Matters
SCHEDULE 5.11 Labor Matters
SCHEDULE 5.13 Title to Property
SCHEDULE 5.14 Taxes
SCHEDULE 5.15 Environmental Matters
SCHEDULE 5.18 Brokers
SCHEDULE 5.21 Intellectual Property Rights
SCHEDULE 5.22 Change of Control Provisions
SCHEDULE 6.01 Conduct of Business by the Company
SCHEDULE 6.02 Conduct of Business by Parent
SCHEDULE 7.08 Benefit Plans
* The registrant has omitted all schedules and similar attachments to the Merger
Agreement. The registrant agrees to furnish copies of all such schedules and
similar attachments to the Commission upon request.
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<PAGE>
INDEX OF DEFINITIONS
DEFINITION SECTION
"1996 Company Balance Sheet"................ Section 4.08
"1996 Parent Balance Sheet"................. Section 5.08
"Acquisition Proposal"...................... Section 6.03(a)
"Acquisition Sub Common Stock".............. Section 3.02
"Acquisition Sub"........................... Introduction
"affiliate"................................. Section 10.03(a)
"Agreement"................................. Introduction
"Alternative Transaction"................... Section 9.01
"Antitrust Division"........................ Section 7.01
"Average Closing Price"..................... Section 3.01(a)
"beneficial owner".......................... Section 10.03(b)
"Benefit Plan".............................. Section 7.07
"Blue Sky Laws"............................. Section 4.04(d)
"business day".............................. Section 10.03(c)
"Certificate of Merger"..................... Section 2.07
"Certificate"............................... Section 3.04(b)
"Closing Date".............................. Section 2.02
"Closing"................................... Section 2.02
"Code"...................................... Section 3.04(f)
"Company Common Stock"...................... Section 3.01(a)
"Company Employee Plans".................... Section 4.10
"Company Permits"........................... Section 4.05(b)
"Company SEC Reports"....................... Section 4.06(a)
"Company Stock Option Plans"................ Section 3.08(a)
"Company Stockholder Agreements"............ Section 4.27
"Company Stockholders Meeting".............. Section 4.12
"Company"................................... Introduction
"Confidentiality Letter".................... Section 7.04
"control"................................... Section 10.03(d)
"Determination Date"........................ Section 3.01(a)
"Effective Time"............................ Section 2.07
"Environmental Laws"........................ Section 4.15
"ERISA"..................................... Section 4.10
"Exchange Act".............................. Section 4.04(a)
"Exchange Agent"............................ Section 3.04(a)
"Exchange Ratio"............................ Section 3.01(a)
"Excluded Shares"........................... Section 3.01(b)
"FTC"....................................... Section 7.01
"GCL"....................................... Section 2.01
"generally accepted accounting principles".. Section 10.03(e)
"HSR Act"................................... Section 4.04(d)
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<PAGE>
"Indemnified Parties"....................... Section 7.06(b)
"Intellectual Property Rights".............. Section 4.21
"IRS"....................................... Section 4.10
"Large Stockholder"......................... Section 7.16
"Laws"...................................... Section 4.04(c)
"Liens"..................................... Section 4.03(a)
"Material Adverse Effect"................... Section 10.03(f)
"Maximum Average Closing Price"............. Section 3.01(a)
"Merger Consideration"...................... Section 3.04(b)
"Merger".................................... Introduction
"Minimum Average Closing Price"............. Section 3.01(a)
"Minority Affiliate"........................ Section 4.03(c)
"NASDAQ".................................... Section 3.01(a)
"Option".................................... Section 3.08(a)
"Parent Common Stock"....................... Section 3.01(a)
"Parent Employee Plans"..................... Section 5.10
"Parent Expenses"........................... Section 9.02(b)
"Parent Fee"................................ Section 9.02(b)
"Parent Permits"............................ Section 5.05(b)
"Parent SEC Reports"........................ Section 5.06(a)
"Parent Stockholders Meeting"............... Section 5.12
"Parent".................................... Introduction
"PBGC"...................................... Section 4.10
"person".................................... Section 10.03(g)
"Prior Agreement"........................... Section 4.04(b)
"Prospectus/Proxy Statement"................ Section 4.12
"S-4 Registration Statement"................ Section 4.12
"SEC"....................................... Section 4.06
"Securities Act"............................ Section 4.04(d)
"Shares".................................... Section 3.01(a)
"Significant Subsidiary".................... Section 4.01(a)
"Subsidiary"................................ Section 4.01(a)
"Surviving Corporation Common Stock"........ Section 3.02
"Surviving Corporation"..................... Section 2.01
"Tax Opinion"............................... Section 8.01(d)
"Tax Returns"............................... Section 4.14(a)
"Tax" or "Taxes"............................ Section 4.14(a)
"Third Party"............................... Section 9.01
"Threshold Price"........................... Section 9.01(h)
"UK Purchase Agreement"..................... Section 8.02(c)
"Xpedite Germany............................ Section 6.01
"Xpedite"................................... Introduction
"XSL"....................................... Section 8.02(c)
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of November 13,
1997, is entered into by and among PREMIERE TECHNOLOGIES, INC., a Georgia
corporation ("PARENT"), NETS ACQUISITION CORP., a Delaware corporation
("ACQUISITION SUB"), and XPEDITE SYSTEMS, INC., a Delaware corporation (the
"COMPANY" or "XPEDITE").
WHEREAS, the respective Boards of Directors of Parent, Acquisition Sub
and the Company, and, in the case of Acquisition Sub, the sole stockholder of
Acquisition Sub, have approved the merger of Acquisition Sub with and into the
Company (the "MERGER") upon the terms and subject to the conditions set forth
herein; and
WHEREAS, Parent, Acquisition Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and of the representations, warranties, covenants and
agreements hereinafter contained, Parent, Acquisition Sub and the Company agree
as follows:
ARTICLE I.
[INTENTIONALLY OMITTED]
ARTICLE II.
THE MERGER
----------
SECTION 2.01. THE MERGER. In accordance with the provisions of this
----------
Agreement and the General Corporation Law of the State of Delaware, as amended
(the "GCL"), at the Effective Time (as defined in SECTION 2.07), Acquisition Sub
shall be merged with and into the Company, and the Company shall be the
surviving corporation in the Merger (hereinafter sometimes called the "SURVIVING
CORPORATION"). At the Effective Time, the separate existence of Acquisition Sub
shall cease.
SECTION 2.02. CLOSING. The closing of the Merger (the "CLOSING")
-------
will take place as soon as practicable after the satisfaction or waiver of the
conditions set forth in ARTICLE VIII (the "CLOSING DATE") at the offices of
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, NY 10022,
unless another date or place is agreed to in writing by the parties hereto
(taking into account the provisions of SECTION 9.01(i)).
<PAGE>
SECTION 2.03. CERTIFICATE OF INCORPORATION. As of the Effective
----------------------------
Time, the Certificate of Incorporation of the Company immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until thereafter amended as provided by law or in such Certificate
of Incorporation.
SECTION 2.04. BY-LAWS. The By-Laws of Acquisition Sub as in effect
-------
at the Effective Time shall be the By-Laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
SECTION 2.05. DIRECTORS. The directors of Acquisition Sub at the
---------
Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
SECTION 2.06. OFFICERS. The officers of the Company at the Effective
--------
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
SECTION 2.07. EFFECTIVE TIME. The Merger shall become effective at
--------------
the time of filing of a certificate of merger reflecting the Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
accordance with the provisions of Section 251 of the GCL. The Certificate of
Merger shall be filed with the Secretary of State of the State of Delaware on
the Closing Date. The time when the Merger becomes effective is herein referred
to as the "EFFECTIVE TIME."
ARTICLE III.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
--------------------------------------------------
SECTION 3.01. EFFECT ON COMPANY COMMON STOCK.
------------------------------
(a) Except as otherwise provided herein, each share of common stock, par
value $.01 per share of the Company (each, a "SHARE" or collectively, the
"SHARES" or the "COMPANY COMMON STOCK") actually issued and outstanding
immediately prior to the Effective Time (except for the Excluded Shares) shall,
at the Effective Time, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for that multiple
of a share (rounded to the nearest one-thousandth of a share) of the common
stock, par value $.01 per share, of Parent ("PARENT COMMON STOCK") obtained by
dividing $34.00 by the Average Closing Price (as defined below) (as the same may
be adjusted pursuant to this Agreement, the "EXCHANGE RATIO"). "AVERAGE CLOSING
PRICE" shall mean the
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average of the daily last sale prices for the shares of Parent Common Stock for
the twenty (20) consecutive trading days on which such shares are actually
traded as over-the-counter securities and quoted on the Nasdaq National Market
("NASDAQ") (as reported by The Wall Street Journal or, if not reported thereby,
any other authoritative source selected by Parent and the Company) ending at the
close of trading on the trading day immediately preceding the date of the
Company Stockholders Meeting (the "DETERMINATION DATE")); provided, that for
purposes of this SECTION 3.01, the Average Closing Price shall be deemed to
equal $27.20 (the "MINIMUM AVERAGE CLOSING PRICE") in the event the actual
Average Closing Price is less than the Minimum Average Closing Price and shall
be deemed to equal $39.20 (the "MAXIMUM AVERAGE CLOSING PRICE") in the event the
actual Average Closing Price is greater than the Maximum Average Closing Price.
(b) Each share of Company Common Stock held in the Company's treasury
immediately prior to the Effective Time (the "EXCLUDED SHARES") shall, at the
Effective Time, by virtue of the Merger, be canceled without payment of any
consideration therefor and without any conversion thereof.
(c) In the event Parent changes the number of shares of Parent Common Stock
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend, or similar recapitalization with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
thereof (in the case of a stock split or similar recapitalization for which a
record date is not established) shall be after the Exchange Ratio has been
finally determined and prior to the Effective Time, the Exchange Ratio shall be
appropriately adjusted to reflect the effects of such stock split, stock
dividend or recapitalization. In the event Parent changes the number of shares
of Parent Common Stock issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the date on which the Exchange Ratio is finally determined, the Average Closing
Price, the Minimum Average Closing Price, the Maximum Average Closing Price and
the Threshold Price (as hereinafter defined) shall be appropriately adjusted to
reflect the effects of such stock split, stock dividend or recapitalization.
SECTION 3.02. CONVERSION OF ACQUISITION SUB COMMON STOCK. Each share of
------------------------------------------
common stock, par value $.01 per share, of Acquisition Sub (the "ACQUISITION SUB
COMMON STOCK") issued and outstanding at the Effective Time shall, at the
Effective Time by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and exchangeable for one fully paid and
nonassessable share of the common stock of the Surviving Corporation ("SURVIVING
CORPORATION COMMON STOCK"). From and after the Effective Time, each outstanding
certificate theretofore representing shares of Acquisition Sub Common Stock
shall be deemed for all purposes to evidence ownership of, and to represent the
number of shares of, Surviving Corporation Common Stock into which such shares
of Acquisition Sub Common Stock shall have been converted.
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<PAGE>
SECTION 3.03. FRACTIONAL SHARES. Notwithstanding any other provision of
-----------------
this Agreement, 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 Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent Common
Stock multiplied by the market value of one share of Parent Common Stock at the
Effective Time. The market value of one share of Parent Common Stock at the
Effective Time shall be the last sale price of such common stock on NASDAQ (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a stockholder in respect of any fractional shares.
SECTION 3.04. EXCHANGE PROCEDURES.
-------------------
(a) Prior to the Effective Time, the Company and Parent jointly shall
select a bank or trust company to act as exchange agent in the Merger (the
"EXCHANGE AGENT").
(b) As soon as reasonably practicable after the Effective Time, Parent
shall mail or cause the Exchange Agent to mail to each holder of record entitled
to the Merger Consideration, (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "CERTIFICATES") shall pass, only upon proper delivery of
the Certificates to the Surviving Corporation, and shall be in such form and
have such other provisions as the Surviving Corporation reasonably may specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for consideration provided in SECTION 3.01 (the "MERGER CONSIDERATION")
to which such holder is entitled. Upon the proper surrender of a Certificate to
the Exchange Agent, together with such letter of transmittal and any additional
documentation as Parent may reasonably require, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration,
together with all undelivered dividends or distributions in respect of the
shares of Parent Common Stock so issuable (without interest thereon), and the
Certificate so surrendered shall forthwith be canceled. If any Merger
Consideration is to be paid to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment of
such Merger Consideration that the Certificate so surrendered shall be promptly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of Parent that such tax has been
paid or is not applicable.
(c) Until surrendered in accordance with the provisions of this SECTION
3.04, from and after the Effective Time, each Certificate (other than
Certificates representing Excluded Shares) shall represent for all purposes only
the right to receive, upon such surrender, the Merger Consideration into which
the Shares represented by such Certificates shall have been converted pursuant
to SECTION 3.01, and shall cease to have any rights with respect to the shares
of Company Common Stock formerly represented thereby, except as otherwise
provided herein or by law.
-4-
<PAGE>
(d) Notwithstanding the foregoing, none of Parent, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
retained Company Common Stock (or dividends or distributions with respect
thereto) for any amount delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(f) Parent shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "CODE"), or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Parent.
SECTION 3.05. STOCK TRANSFER BOOKS. At the Effective Time, the stock
--------------------
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
SECTION 3.06. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
---------------------------------------------------
Merger Consideration delivered upon the surrender of a certificate representing
Shares in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such Shares, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this ARTICLE III.
SECTION 3.07. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
pay in exchange for such lost, stolen or destroyed Certificates, upon the making
of an affidavit of that fact by the holder thereof and delivery of bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or any stockholder of Parent, the
Surviving Corporation or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed, the Merger Consideration
attributable to such Certificates as may be required pursuant to SECTION 3.04.
SECTION 3.08. COMPANY STOCK OPTIONS AND WARRANTS.
----------------------------------
(a) At the Effective Time, each option and warrant granted by the Company
to purchase shares of Company Common Stock, which is outstanding immediately
prior thereto (an "OPTION" or, collectively, the "OPTIONS"), granted by the
Company under the Company's 1992, 1993 or 1996 Incentive Stock Option Plans or
the Officers' Contingent Stock Option Plan (collectively, the "COMPANY STOCK
OPTION PLANS") or the Non-Employee Directors' Warrant Plan or otherwise, which
are outstanding at the Effective Time, whether or not
-5-
<PAGE>
exercisable, shall be converted into and become rights with respect to Parent
Common Stock, and Parent shall assume each Option, in accordance with the terms
of the Company Stock Option Plan and stock option or warrant agreement by which
it is evidenced, except that from and after the Effective Time, (i) Parent and
its Compensation Committee shall be substituted for the Company and the
Committee of the Company's Board of Directors (including, if applicable, the
entire Board of Directors of the Company) administering such the Company Stock
Option Plan, (ii) each Option assumed by Parent may be exercised solely for
shares of Parent Common Stock (or cash, if so provided under the terms of such
Option), (iii) the number of shares of Parent Common Stock subject to such
Option shall be equal to the number of whole shares (rounded down to the nearest
whole share) of Company Common Stock subject to such Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, and (iv) the per share
exercise price under each such Option shall be adjusted by dividing the per
share exercise price under each such Option by the Exchange Ratio and rounding
up to the nearest cent. Notwithstanding the provisions of clauses (iii) and (iv)
of the first sentence of this SECTION 3.08(a), each Option which is an
"incentive stock option" shall be adjusted as required by Section 424 of the
Code, and the regulations promulgated thereunder, so as not to constitute a
modification, extension or renewal of such Option, within the meaning of Section
424(h) of the Code.
(b) Prior to the Effective Time, the Company shall use its reasonable best
efforts to obtain all necessary consents or releases from holders of Options
under any of the Company Stock Option Plans or the Non-Employee Directors'
Warrant Plan or otherwise and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section
(except for such action that may require the approval of the Company's
stockholders).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Parent as follows:
SECTION 4.01. ORGANIZATION AND STANDING.
-------------------------
(a) Each of the Company and its Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, and has the full corporate power
and authority to carry on its business in the places as it is now being
conducted and to own and lease the properties and assets which it now owns or
leases, except where the failure of same will not in any case result in a
Material Adverse Effect. The Company and each of its Subsidiaries is now duly
qualified to transact business and in good standing as a foreign corporation in
all jurisdictions in which the character of the property owned or leased by it
and the nature of the business conducted by it require such qualification,
except where failure to be qualified could not reasonably be expected to have a
Material Adverse Effect. For purposes of this Agreement, a "SUBSIDIARY" of any
person is any corporation, partnership, joint venture or other legal entity of
which a majority of all outstanding shares of capital stock or other equity
interests (the holders of which are ordinarily and generally entitled to vote
for the
-6-
<PAGE>
election of the board of directors or other governing body thereof) is owned,
directly or indirectly, by such person (either alone or through or together with
any other Subsidiary).
(b) True, correct and complete copies of the Certificate of Incorporation,
certified by the Secretary of State of the State of Delaware, and By-Laws of the
Company are attached hereto as SCHEDULE 4.01(b).
SECTION 4.02. AUTHORITY AND STATUS.
--------------------
(a) The Company has requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
(b) This Agreement has been approved by the Board of Directors of the
Company in accordance with the GCL and except for the approval of the
stockholders of the Company, no other corporate proceeding on the part of the
Company is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock approving this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.
(c) This Agreement has been duly and validly executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws in effect now or hereafter relating to creditors'
rights generally, and by equitable principles (whether considered in a
proceeding at law or in equity).
SECTION 4.03. CAPITALIZATION.
--------------
(a) The authorized capital stock of the Company consists of (i) fifteen
million (15,000,000) shares of common stock, par value $.01 per share, of which
8,997,105 Shares were issued and outstanding and 72,000 Shares were held in the
Company's treasury as of October 31, 1997; (ii) one million (1,000,000) shares
of preferred stock, par value $.01 per share, of which none are outstanding or
held in the Company's treasury as of October 31, 1997; and (iii) as of October
31, 1997, 777,851 and 136,832 Shares reserved for future issuance pursuant to
outstanding stock options and warrants under the Company Stock Option Plans and
the Non-Employee Directors' Warrant Plan together with certain other warrant
awards, respectively. All of the issued and outstanding capital stock of the
Company is validly issued, fully paid and non-assessable. All of the
outstanding capital stock of each of the Company's Subsidiaries is owned
directly or indirectly by the Company free and clear of all security interests,
liens, pledges, claims, charges, escrows, encumbrances, mortgages, indentures or
easements (collectively, "LIENS") of any nature, except as disclosed on SCHEDULE
4.03(a).
(b) Except as set forth in SECTION 4.03(a) or on SCHEDULE 4.03(b), there
are no other shares of capital stock of the Company or any of its Subsidiaries,
or securities convertible
-7-
<PAGE>
into or exchangeable or exercisable for shares of capital stock of the Company
or any of its Subsidiaries, outstanding, and there are no outstanding options,
warrants, rights, contracts, commitments, understandings, arrangements or claims
of any character by which the Company or any of its Subsidiaries is or may
become bound to issue, transfer, sell, repurchase or otherwise acquire or retire
any shares of capital stock or other ownership interest of the Company or any of
its Subsidiaries, or any securities convertible into or exchangeable or
exercisable for any such shares or other ownership interest.
(c) SCHEDULE 4.03(c) sets forth a complete and accurate list of entities
(each, a "MINORITY AFFILIATE"), other than the Company's Subsidiaries, of which
the Company owns equity securities (as defined in Rule 3a-11 promulgated under
the Exchange Act (as hereinafter defined)), including, as to each Minority
Affiliate, its name, its jurisdiction of incorporation, formation or
organization and its capitalization (including the identity of each stockholder
or owner of equity securities or other securities and the number of shares or
other securities held thereby). None of the Company or any of its Subsidiaries
has entered into any commitment, contract or agreement to provide equity
financing to any other person or entity.
SECTION 4.04. NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
------------------------------------------
(a) The exhibit index to the Company's most recently filed Annual Report on
Form 10-K, and Quarterly Reports on Form 10-Q and any Current Reports on
Form 8-K filed since such Annual Report on Form 10-K, as supplemented by
SCHEDULE 4.04(a), include each agreement, contract or other instrument
(including all amendments thereto) to which the Company or any of its
Subsidiaries is a party or by which any of them is bound and which would be
required pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and the rules and regulations thereunder to be filed as an
exhibit to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a
Current Report on Form 8-K. The Company has made available to Parent on or prior
to the date hereof true, correct and complete copies in all material respects of
each such agreement, contract, instrument and amendment.
(b) Except as disclosed in SCHEDULE 4.04(b), (i) neither the Company nor
any of its Subsidiaries has breached, is in default under, or has received
written notice of any breach of or default under, any of the agreements,
contracts or other instruments referred to in SECTION 4.04(a), (ii) to the best
knowledge of the Company, no other party to any of the agreements, contracts or
other instrument referred to in SECTION 4.04(a) has breached or is in default of
any of its obligations thereunder, and (iii) each of the agreements, contracts
and other instruments referred to in SECTION 4.04(a) is in full force and
effect, except in any such case for breaches, defaults or failures to be in full
force and effect that do not constitute a Material Adverse Effect.
(c) Except as set forth in SCHEDULE 4.04(c), the execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby will
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of
the Company or the organizational documents of any of its Subsidiaries, (ii)
conflict with or violate in any material respect any federal, foreign, state,
local or provincial law, rule, regulation, order, judgment or decree
(collectively, "LAWS")
-8-
<PAGE>
applicable to the Company or any of its Subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any
material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or
materially impair the Company's or any of its Subsidiaries' rights or materially
alter the rights or obligations of any third party under, or give to others any
material rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material Lien on any of the properties or assets of
the Company or any of its Subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or its or any of
their respective properties is bound or affected. The only obligations of the
Company under that certain Agreement and Plan of Merger, dated as of August 8,
1997, by and between Xpedite Acquisition Corp. and the Company (the "PRIOR
AGREEMENT"), are the obligations set forth in Sections 7.04, 9.02 and 9.03 of
the Prior Agreement.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
material consent, approval, authorization or permit of, or filing with or
notification to, any domestic or foreign governmental or regulatory authority
except for applicable requirements, if any, of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), the Exchange Act, state securities laws ("BLUE
SKY LAWS"), the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the premerger
notification requirements of the European Community and other requirements of
foreign jurisdictions and the filing and recordation of the Certificate of
Merger or other documents as required by the GCL.
SECTION 4.05. COMPLIANCE; PERMITS.
-------------------
(a) Except as disclosed in SCHEDULE 4.05(a), neither the Company nor any of
its Subsidiaries is in conflict with, or in default or violation in any material
respect of, (i) any Law applicable to the Company or any of its Subsidiaries or
by which its or any of their respective properties is bound or affected or (ii)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise, tariff or other instrument or obligation to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or its or any of their respective properties is bound or affected,
except, in the case of clause (ii), for any such conflicts, defaults or
violations which do not constitute a Material Adverse Effect.
(b) Except as disclosed in SCHEDULE 4.05(b), the Company and its
Subsidiaries hold all permits, licenses, franchises, easements, variances,
exemptions, consents, certificates, authorizations, orders and approvals from
domestic and foreign governmental and regulatory authorities which are material
to the operation of the business of the Company and its Subsidiaries taken as a
whole as it is now being conducted (collectively, the "COMPANY PERMITS"), and
the Company and its Subsidiaries are in compliance in all material respects with
the terms of the Company Permits.
-9-
<PAGE>
SECTION 4.06. SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) The Company has filed all forms, reports and documents required to be
filed with the United States Securities and Exchange Commission (the "SEC") and
has made available to Parent (i) its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, (ii) all other reports or registration statements
filed by the Company with the SEC since January 1, 1997, (iii) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) since January 1, 1997, and (iv) all amendments and supplements to all
such reports and registration statements filed by the Company with the SEC
((i)(iv) collectively, the "COMPANY SEC REPORTS"). Except as disclosed in
SCHEDULE 4.06, the Company SEC Reports (a) were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (b) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of the Company's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents the consolidated financial position of the
Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows and stockholder equity for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
------------------------------------
in SCHEDULE 4.07(a) through SCHEDULE 4.07(g) or Company SEC Reports filed prior
to the date of this Agreement, since December 31, 1996, the Company has
conducted its business in the ordinary course and there has not occurred: (a)
any Material Adverse Effect; (b) any amendments or changes in the Certificate of
Incorporation or By-Laws of the Company or similar organizational documents of
its Subsidiaries; (c) any damage to, destruction or loss of any asset of the
Company or any of its Subsidiaries (whether or not covered by insurance) that
constitutes a Material Adverse Effect or that would constitute a Material
Adverse Effect if not covered by insurance; (d) any material change by the
Company in its accounting methods, principles or practices except as required by
any change in generally accepted accounting principles; (e) any material
revaluation by the Company of any of its or any of its Subsidiaries' assets,
including, without limitation, writing off notes or accounts receivable other
than in the ordinary course of business; (f) any sale, pledge, disposition of or
encumbrance upon any assets of the Company or any of its Subsidiaries (except
(i) sales of assets in the ordinary course of business and in a manner
consistent with past practice, (ii) dispositions of obsolete or worthless assets
and (iii) sales of other assets not in excess of $100,000 in the aggregate); or
(g) any other action or event that would have required the consent of Parent
pursuant to SECTION 6.01 had such event occurred after the date of this
Agreement.
-10-
<PAGE>
SECTION 4.08. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
--------------------------
SCHEDULE 4.08, neither the Company nor any of its Subsidiaries has any material
liabilities (absolute, accrued, contingent or otherwise), except liabilities (a)
in the aggregate adequately provided for in the Company's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1996 included in the Company's 1996 Annual Report on Form 10-K (the "1996
COMPANY BALANCE SHEET"), (b) incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected on the
1996 Company Balance Sheet, (c) incurred since December 31, 1996 in the ordinary
course of business consistent with past practice or (d) incurred in connection
with this Agreement.
SECTION 4.09. ABSENCE OF LITIGATION. Except as set forth in SCHEDULE
---------------------
4.09, there are no claims, actions, suits, proceedings or investigations pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that if determined adversely
to the Company, would be reasonably likely to constitute a Material Adverse
Effect.
SECTION 4.10. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS. Except in
---------------------------------------------
each case as set forth in SCHEDULE 4.10, (i) there has been no "prohibited
transaction," as such term is defined in Section 406 of the Employee Retirement
Income Security Act of 1975, as amended ("ERISA") and Section 4975 of the Code,
with respect to any employee pension plans (as defined in Section 3(2) of ERISA,
any material employee welfare plans (as defined in Section 3(1) of ERISA), or
any material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements (collectively, the "COMPANY
EMPLOYEE PLANS") which could result in any liability of the Company or any of
its Subsidiaries; (ii) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal
Revenue Service (the "IRS") or Secretary of the Treasury), and the Company and
each of its Subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iii) each Company Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code is the subject of a
favorable determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (iv) all contributions
required to be made to any Company Employee Plan pursuant to Section 412 of the
Code, or the terms of any Company Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (v) with respect to each
Company Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the 30-day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no
withdrawal
-11-
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(including a partial withdrawal) has occurred with respect to any multiemployer
plan within the meaning set forth in Section 3(37) of ERISA that has resulted
in, or could reasonably be expected to result in, any withdrawal liability for
the Company or any of its Subsidiaries; (vii) neither the Company nor any of its
Subsidiaries has incurred, or reasonably expects to incur, any liability under
Title IV of ERISA (other than liability for premium payments to the PBGC, and
contributions not in default to the respective plans, arising in the ordinary
course), (viii) none of the Company or any of its Subsidiaries is a party to any
employment, consulting or similar agreement; and (ix) none of the Company or any
of its Subsidiaries is or will be liable for any severance or other payments to
any of its employees as a result of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 4.11. LABOR MATTERS. Except as set forth in SCHEDULE 4.11: (i)
-------------
there are no claims or proceedings pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened, between the Company or any of its
Subsidiaries and any of their respective employees, which claims or proceedings
constitute a Material Adverse Effect; (ii) neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its
Subsidiaries, nor does the Company or any of its Subsidiaries know of any
activities or proceedings of any labor union to organize any such employees; and
(iii) neither the Company nor any of its Subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of its Subsidiaries.
SECTION 4.12. INFORMATION SUPPLIED. The information supplied or to be
--------------------
supplied by the Company for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed by Parent with the SEC in
connection with the Merger, including the definitive joint proxy statement and
prospectus (the "PROSPECTUS/PROXY STATEMENT") constituting a part thereof (the
"S-4 REGISTRATION STATEMENT"), will not, at the time the S-4 Registration
Statement becomes effective under the Securities Act, and (ii) the
Prospectus/Proxy Statement and any amendments or supplements thereto, will not,
on the date the Prospectus/Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders in connection with the
meeting of the Company stockholders to consider the Merger (the "COMPANY
STOCKHOLDERS MEETING"), at the time of the Company Stockholders Meeting, or at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
the Company or any of its Subsidiaries or any of their respective affiliates,
officers or directors should be discovered by the Company which should be set
forth in a supplement to the Prospectus/Proxy Statement, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
any of its representatives which is contained or incorporated by reference in
any of the foregoing documents.
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<PAGE>
SECTION 4.13. TITLE TO PROPERTY. Except as set forth in SCHEDULE 4.13,
-----------------
the Company and each of its Subsidiaries have good and defensible title to all
of their properties and assets, free and clear of all material liens, charges
and encumbrances, except liens for taxes not yet due and payable and such liens
or other imperfections of title, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of the Company or any of its Subsidiaries;
and, all leases pursuant to which the Company or any of its Subsidiaries lease
from others material amounts of real or personal property, are in good standing,
valid and effective in accordance with their respective terms, and there is not,
to the knowledge of the Company, under any of such leases, any existing material
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default).
SECTION 4.14. TAXES.
-----
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "TAX RETURNS" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in SCHEDULE 4.14, (i) the Company and its
Subsidiaries have filed all United States federal income Tax Returns and all
other material Tax Returns required to be filed by them, (ii) the Company and
its Subsidiaries have paid and discharged all Taxes due in connection with or
with respect to the periods or transactions covered by such Tax Returns and have
paid all other Taxes as are due, except such as are being contested in good
faith by appropriate proceedings (to the extent that any such proceedings are
required) and with respect to which the Company is maintaining adequate
reserves, and (iii) there are no other material Taxes that would be due if
asserted by a taxing authority, except with respect to which the Company is
maintaining reserves to the extent currently required. Except as does not
involve or would not result in material liability to the Company or any of its
Subsidiaries: (i) there are no tax liens on any assets of the Company or any
Subsidiary thereof; and (ii) neither the Company nor any of its Subsidiaries has
been granted a waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax. The accruals and reserves
for Taxes (including deferred taxes) reflected in the 1996 Company Balance Sheet
are in all material respects adequate to cover all Taxes required to be accrued
through the date thereof (including interest and penalties, if any, thereon and
Taxes being contested) in accordance with generally accepted accounting
principles applied on a consistent basis, and the accrual and reserves for
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Taxes (including deferred taxes) reflected in the books and records of the
Company as at the last day of the Company's most recently completed fiscal month
end are in all material respects adequate to cover all Taxes required to be
accrued through such date (including interest and penalties, if any, thereon and
Taxes being contested) in accordance with generally accepted accounting
principles applied on a consistent basis.
(c) Other than as disclosed in SCHEDULE 4.14, (i) all Tax Returns filed
with respect to Tax years of the Company and each of the Subsidiaries through
the Tax year ended December 31, 1992 have been examined and closed or are Tax
Returns with respect to which the applicable period for assessment under
applicable law, after giving effect to extensions or waivers, has expired; (ii)
to the knowledge of the Company, there is no claim, audit, action, suit,
proceeding, or investigation now pending against or with respect to the Company
or any Subsidiary in respect of any Tax; (iii) there are no written requests for
rulings or determinations in respect of any Tax pending between the Company or
any Subsidiary and any taxing authority; (iv) neither the Company nor any
Subsidiary will be required to include any adjustment in taxable income for any
Tax period following the Closing under Section 481(c) of the Code (or any
similar provision of the Tax laws of any jurisdiction) as a result of a change
in method of accounting for a Tax period prior to the Closing or pursuant to the
provisions of any agreement entered into with any taxing authority with regard
to the Tax liability of the Company or any Subsidiary for any Tax period prior
to the Closing; (v) all material Taxes that the Company or any Subsidiary is, or
was, required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the appropriate taxing authority;
(vi) the Company is not a U.S. real property holding corporation, as defined
under Section 897(c)(2) of the Code; and (vii) there is no contract, agreement,
plan or arrangement covering any person that, individually or collectively, as a
consequence of the transactions contemplated by this Agreement could give rise
to the payment of any amount that would not be deductible by the Company or any
Subsidiary by reason of Section 280G of the Code.
SECTION 4.15. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE
---------------------
4.15, the Company and each of its Subsidiaries: (i) have obtained all material
approvals which are required to be obtained under all applicable federal, state,
foreign or local laws or any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("ENVIRONMENTAL LAWS") by the Company or its Subsidiaries or their respective
agents; (ii) are in compliance in all material respects with all terms and
conditions of such required approvals, and also are in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws; (iii) as of the date hereof, are not
aware of nor have received notice of any past or present violations of
Environmental Laws or any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued compliance with Environmental Laws or which would give rise to any
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<PAGE>
material common law or statutory liability, or otherwise form the basis of any
claim, action, suit or proceeding, against the Company or any of its
Subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its Subsidiaries (or
any of their respective agents) thereunder.
SECTION 4.16. INSURANCE. The Company maintains fire and casualty, general
---------
liability, business interruption, product liability, professional liability and
sprinkler and water damage insurance policies with reputable insurance carriers,
which provide full and adequate coverage for all normal risks incident to the
business of the Company and its Subsidiaries and their respective properties and
assets and are in character and amount similar to that carried by entities
engaged in similar business and subject to the same or similar perils or
hazards.
SECTION 4.17. OPINION OF FINANCIAL ADVISOR. The Company has been advised
----------------------------
by its financial advisor, Merrill Lynch & Co., that in its opinion, as of the
date hereof, the Merger Consideration set forth herein is fair to the holders of
shares of Company Common Stock from a financial point of view.
SECTION 4.18. BROKERS. Except as set forth in SCHEDULE 4.18, no broker,
-------
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or its Subsidiaries or affiliates. The fees and expenses of the
entities listed on SCHEDULE 4.18 will be paid by the Company. The Company has
heretofore furnished to Acquisition Sub a complete and correct copy of all
agreements between the Company and the entities listed on SCHEDULE 4.18 pursuant
to which such entities would be entitled to any payment relating to the
transactions contemplated hereunder.
SECTION 4.19. BOOKS AND RECORDS. The books of account, minute books,
-----------------
stock record books, and other records of the Company and its Subsidiaries, all
of which have been made available to Parent, are complete and correct in all
material respects and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not the Company and its Subsidiaries are subject to
that Section), including the maintenance of an adequate system of internal
controls. At the Closing, all of those books and records will be in the
possession of the Company and its Subsidiaries.
SECTION 4.20. CERTAIN PAYMENTS. Since June 17, 1992, none of the Company
----------------
or any of its Subsidiaries or any director, officer, agent, or employee of, or
any other person associated with or acting for or on behalf of, the Company or
any of its Subsidiaries, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kick-back, or other payment to
any person, private or public, regardless of form, whether in money, property,
or services in violation of any Laws, or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the Company or
any of its Subsidiaries.
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<PAGE>
SECTION 4.21. INTELLECTUAL PROPERTY. The Intellectual Property Rights (as
---------------------
hereinafter defined) of the Company and its Subsidiaries are listed in SCHEDULE
4.21. Except as set forth in SCHEDULE 4.21, each of the Company and each of its
Subsidiaries owns or possesses adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets, applications for
trademarks and for service marks, know-how and other proprietary rights and
information (collectively, "INTELLECTUAL PROPERTY RIGHTS") used or held for use
in connection with its business as currently conducted or as contemplated to be
conducted, and, to the knowledge of the Company, there is no assertion or claim
challenging the ownership or validity of any of the foregoing. Except as set
forth in SCHEDULE 4.21, the conduct of the business of the Company and its
Subsidiaries as currently conducted does not conflict with any Intellectual
Property Rights of any third party. To the knowledge of the Company, there are
no infringements of any Intellectual Property Rights used or held for use in
connection with the business of the Company and its Subsidiaries.
SECTION 4.22. CONTRACTS.
---------
(a) Except as set forth on SCHEDULE 4.22(a), none of the Company or any of
its Subsidiaries is a party to or is bound by any employment agreement,
telecommunications agreement, vendor agreement, credit agreement, mortgage or
indenture, or any material joint venture agreement which (i) provides that the
terms thereof or any or all of the benefits or burdens thereunder will be
affected or altered (including, without limitation, by means of acceleration)
by, or are contingent upon, or (ii) will be subject to termination or
cancellation as a result of, the execution of this Agreement or the consummation
of the transactions contemplated hereby.
(b) Except as set forth on SCHEDULE 4.22(b), (i) none of the Company or any
of its Subsidiaries is a party to any agreement with any beneficial owner of 5%
or more of the capital stock of, or any executive officer or director of, the
Company or any of its Subsidiaries or any "associate" (as such term is defined
in Rule 12b-2 under the Exchange Act) of any such person, (ii) no officer or
director of the Company or any of its Subsidiaries or any associate of any such
person has any material interest in any material contract or property (real or
personal, tangible or intangible), used in or pertaining to the business of the
Company or any of its Subsidiaries and (iii) none of the Company or any of its
Subsidiaries is a party to any agreement with any of the Company's Minority
Affiliates or XSL.
SECTION 4.23. INFORMATION SYSTEMS. The Company's computer and software
-------------------
systems (including backup systems) are fully operational, and, to the best of
the Company's knowledge, there has been no material malfunction or other
material problem with such systems.
SECTION 4.24. REGULATION OF BUSINESS. To the best knowledge of the
----------------------
Company's management, there has not been any change or proposed change in any
Laws which has resulted in or is reasonably likely to result in the regulation
of the business of the Company or any of its Subsidiaries by the Federal
Communications Commission or any other foreign, federal,
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<PAGE>
state or local governmental agency or other governing body, the compliance with
which would have a material cost to the Company or an adverse impact on the
business of the Company.
SECTION 4.25. TAX MATTERS. Neither the Company nor any of its
-----------
Subsidiaries 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
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
SECTION 4.26. STATE TAKEOVER LAWS. Each of the Company and its
-------------------
Subsidiaries has taken all necessary action to exempt the transactions
contemplated by this Agreement from, or if necessary to challenge the validity
or applicability of, any applicable "moratorium," "fair price," "business
combination," "control share," or other anti-takeover Laws, including Section
203 of the GCL.
SECTION 4.27. STOCKHOLDER VOTING AGREEMENTS. Each of the directors of the
-----------------------------
Company and those holders of 5% or more of the outstanding shares of Company
Common Stock listed in EXHIBIT B has executed and delivered to Parent an
agreement in substantially the form of EXHIBIT B (the "COMPANY STOCKHOLDER
AGREEMENTS").
SECTION 4.28. BOARD RECOMMENDATION. The Board of Directors of the
--------------------
Company, at a meeting duly called and held, has by unanimous vote of the
directors present (who constituted all of the directors then in office, other
than Roy B. Andersen, Jr., who did not attend or vote at such meeting due to a
potential conflict of interest) (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger, and the Stockholder
Agreements and the transactions contemplated thereby, taken together, are fair
to and in the best interests of the stockholders and (ii) resolved to recommend
that the holders of the shares of the Company Common Stock adopt this Agreement.
ARTICLE V.
REPRESENTATIONS AND
WARRANTIES OF PARENT AND ACQUISITION SUB.
----------------------------------------
Parent and Acquisition Sub hereby represent and warrant to the Company as
follows:
SECTION 5.01. ORGANIZATION AND STANDING.
-------------------------
(a) Each of Parent and its Subsidiaries, including, but not limited to,
Acquisition Sub, is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation, and has the
full corporate power and authority to carry on its business in the places as it
is now being conducted and to own and lease the properties and assets which it
now owns or leases, except where the failure of same will not in any case result
in a Material Adverse Effect. Each of Parent and its Subsidiaries, including,
but not limited to, Acquisition Sub, is now duly qualified to transact business
and in good standing as a foreign
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<PAGE>
corporation in all jurisdictions in which the character of the property owned or
leased by it and the nature of the business conducted by it require such
qualification, except where failure to be qualified could not reasonably be
expected to have a Material Adverse Effect.
(b) True, correct and complete copies of the Articles of Incorporation, as
amended, certified by the Secretary of State of the State of Georgia, and the
Amended and Restated By-Laws of Parent and the Certificate of Incorporation,
certified by the Secretary of State of the State of Delaware, and By-Laws of
Acquisition Sub, in each case as of the date hereof, are attached hereto as
SCHEDULE 5.01(b).
SECTION 5.02. AUTHORITY AND STATUS.
--------------------
(a) Each of Parent and Acquisition Sub has requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(b) This Agreement has been approved by the respective Boards of Directors
of Parent and Acquisition Sub and by the sole stockholder of Acquisition Sub in
accordance with the GCL and, except for the approval of the issuance of shares
of Parent Common Stock by the stockholders of Parent, no other corporate
proceeding on the part of either Parent or Acquisition Sub is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by each
of Parent and Acquisition Sub and is a valid and binding agreement of each of
Parent and Acquisition Sub, enforceable against each of them in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws in
effect now or hereafter relating to creditors' rights generally, and by
equitable principles (whether considered in a proceeding at law or in equity).
SECTION 5.03. CAPITALIZATION.
--------------
(a) The authorized capital stock of Parent consists of (i) 150,000,000
shares of common stock, par value $.01 per share, of which 32,235,160 shares
(which includes 402,748 shares of exchangeable non-voting shares of Voice-Tel
Canada Limited, a Subsidiary of Parent) were issued and outstanding as of
November 2, 1997; (ii) 5,000,000 shares of preferred stock, par value $.01 per
share, of which one share, which has been designated "Series B Voting Preferred
Stock," par value $.01 per share, was outstanding as of November 2, 1997; and
(iii) 10,389,362 shares of Parent Common Stock reserved as of November 2, 1997,
for future issuance pursuant to outstanding stock options under Parent's stock
option plans or other arrangements. All of the issued and outstanding capital
stock of Parent is validly issued, fully paid and non-assessable, and all of the
shares of Parent Common Stock issuable pursuant to this Agreement is validly
issued and, when issued in accordance with the provisions of this Agreement,
will be fully paid and non-assessable. All of the outstanding capital stock of
each of Parent's Subsidiaries is owned directly or indirectly by Parent free and
clear of all Liens of any nature, except as disclosed on SCHEDULE 5.03(a).
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(b) Except as set forth in SECTION 5.03(a) or on SCHEDULE 5.03(b), there
are no other shares of capital stock of Parent, or securities convertible into
or exchangeable or exercisable for shares of capital stock of Parent or any of
Parent's Subsidiaries, outstanding, and there are no outstanding options,
warrants, rights, contracts, commitments, understandings, arrangements or claims
of any character by which Parent or any of Parent's Subsidiaries is or may
become bound to issue, transfer, sell, repurchase or otherwise acquire or retire
any shares of capital stock or other ownership interest of Parent or any of
Parent's Subsidiaries, or any securities convertible into or exchangeable or
exercisable for any such shares or other ownership interest.
SECTION 5.04. NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
------------------------------------------
(a) The exhibit index to Parent's most recently filed Annual Report on Form
10-K, and Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K
filed since such Annual Report on Form 10-K, as supplemented by SCHEDULE
5.04(a), include each agreement, contract or other instrument (including all
amendments thereto) to which Parent or any of its Subsidiaries is a party or by
which any of them is bound as of the date of this Agreement, and which would be
required pursuant to the Exchange Act and the rules and regulations thereunder
to be filed as an exhibit to an Annual Report on Form 10-K, a Quarterly Report
on Form 10-Q or a Current Report on Form 8-K. Parent has made available to the
Company on or prior to the date hereof true, correct and complete copies in all
material respects of each such agreement, contract, instrument and amendment.
(b) Except as disclosed in SCHEDULE 5.04(b), (i) neither Parent nor any of
its Subsidiaries has breached, is in default under, or has received written
notice of any breach of or default under, any of the agreements, contracts or
other instruments referred to in SECTION 5.04(a), (ii) to the best knowledge of
Parent, no other party to any of the agreements, contracts or other instrument
referred to in SECTION 5.04(a) has breached or is in default of any of its
obligations thereunder, and (iii) each of the agreements, contracts and other
instruments referred to in SECTION 5.04(a) is in full force and effect, except
in any such case for breaches, defaults or failures to be in full force and
effect that do not constitute a Material Adverse Effect.
(c) Except as set forth in SCHEDULE 5.04(c), the execution and delivery of
this Agreement by Parent and Acquisition Sub does not, and the performance of
this Agreement by Parent and Acquisition Sub and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws of Parent or the organizational documents
of any of its Subsidiaries, (ii) conflict with or violate in any material
respect any Laws applicable to Parent or any of its Subsidiaries or by which its
or any of their respective properties is bound or affected, or (iii) result in
any material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or
materially impair Parent's or any of its Subsidiaries' rights or materially
alter the rights or obligations of any third party under, or give to others any
material rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material Lien on any of the properties or assets of
Parent or any of its Subsidiaries pursuant to, any material note, bond,
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mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its Subsidiaries is a
party or by which Parent or any of its Subsidiaries or its or any of their
respective properties is bound or affected.
(d) The execution and delivery of this Agreement by Parent and Acquisition
Sub does not, and the performance of this Agreement by Parent and Acquisition
Sub will not, require any material consent, approval, authorization or permit
of, or filing with or notification to, any domestic or foreign governmental or
regulatory authority except for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the pre-merger notification
requirements of the HSR Act, the premerger notification requirements of the
European Community and other requirements of foreign jurisdictions and the
filing and recordation of the Certificate of Merger or other documents as
required by the GCL.
SECTION 5.05. COMPLIANCE; PERMITS.
-------------------
(a) Except as disclosed in SCHEDULE 5.05(a), neither Parent nor any of its
Subsidiaries is in conflict with, or in default or violation in any material
respect of, (i) any Law applicable to Parent or any of its Subsidiaries or by
which its or any of their respective properties is bound or affected or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, tariff or other instrument or obligation to which Parent or any of
its Subsidiaries is a party or by which Parent or any of its Subsidiaries or its
or any of their respective properties is bound or affected, except, in the case
of clause (ii), for any such conflicts, defaults or violations which do not
constitute a Material Adverse Effect.
(b) Except as disclosed in SCHEDULE 5.05(b), Parent and its Subsidiaries
hold all permits, licenses, franchises, easements, variances, exemptions,
consents, certificates, authorizations, orders and approvals from domestic and
foreign governmental and regulatory authorities which are material to the
operation of the business of Parent and its Subsidiaries taken as a whole as it
is now being conducted (collectively, the "PARENT PERMITS"), and Parent and its
Subsidiaries are in compliance in all material respects with the terms of Parent
Permits.
SECTION 5.06. SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC and has made available to the Company (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 1996, (ii) all other reports or
registration statements filed by Parent with the SEC since January 1, 1997,
(iii) all proxy statements relating to Parent's meetings of stockholders
(whether annual or special) since January 1, 1997, and (iv) all amendments and
supplements to all such reports and registration statements filed by Parent with
the SEC ((i)(iv) collectively, the "PARENT SEC REPORTS"). Except as disclosed
in SCHEDULE 5.06, the Parent SEC Reports (a) were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (b) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
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<PAGE>
circumstances under which they were made, not misleading. None of Parent's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents the consolidated financial position of Parent
and its Subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows and stockholder equity for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
SECTION 5.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
------------------------------------
in SCHEDULE 5.07(a) through SCHEDULE 5.07(f) or Parent SEC Reports filed prior
to the date of this Agreement, since December 31, 1996, Parent has conducted its
business in the ordinary course and there has not occurred: (a) any Material
Adverse Effect; (b) any amendments or changes in the Articles of Incorporation
or By-Laws of Parent; (c) any damage to, destruction or loss of any asset of
Parent or any of its Subsidiaries (whether or not covered by insurance) that
constitutes a Material Adverse Effect or that would constitute a Material
Adverse Effect if not covered by insurance; (d) any material change by Parent in
its accounting methods, principles or practices except as required by any change
in generally accepted accounting principles; (e) any revaluation by Parent or
any of its Subsidiaries of any of its or any of its Subsidiaries' assets,
including, without limitation, writing off notes or accounts receivable other
than in the ordinary course of business; or (f) any other action or event that
would have required the consent of the Company pursuant to SECTION 6.02 had such
event occurred after the date of this Agreement.
SECTION 5.08. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
--------------------------
SCHEDULE 5.08, the Parent SEC Reports, or on any other SCHEDULE referred to in
this Article 5, neither Parent nor any of its Subsidiaries has any material
liabilities (absolute, accrued, contingent or otherwise), except liabilities (a)
in the aggregate adequately provided for in Parent's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1996 included in Parent's 1996 Annual Report on Form 10-K as amended by Parent's
Current Report on Form 8-K, dated September 26, 1997 (the "1996 PARENT BALANCE
SHEET"), (b) incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected on the 1996 Parent
Balance Sheet, (c) incurred since December 31, 1996 in the ordinary course of
business consistent with past practice or (d) incurred in connection with this
Agreement.
SECTION 5.09. ABSENCE OF LITIGATION. Except as set forth in SCHEDULE
---------------------
5.09, there are no claims, actions, suits, proceedings or investigations pending
or, to the knowledge of Parent, threatened against Parent or any of its
Subsidiaries, or any properties or rights of Parent or any of its Subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, that if determined adversely to Parent,
would be reasonably likely to constitute a Material Adverse Effect.
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<PAGE>
SECTION 5.10. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS. Except in
---------------------------------------------
each case as set forth in SCHEDULE 5.10, (i) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any employee pension plans (as defined in Section
3(2) of ERISA, any material employee welfare plans (as defined in Section 3(1)
of ERISA), or any material bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements (collectively, the
"PARENT EMPLOYEE PLANS") which could result in any liability of Parent or any of
its Subsidiaries; (ii) all Parent Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, PBGC, IRS or Secretary of the Treasury), and Parent and
each of its Subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of Parent Employee Plans; (iii) each Parent Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; (iv) all contributions required to be
made to any Parent Employee Plan pursuant to Section 412 of the Code, or the
terms of any Parent Employee Plan or any collective bargaining agreement, have
been made on or before their due dates; (v) with respect to each Parent Employee
Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the 30-day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event described
in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no withdrawal
(including a partial withdrawal) has occurred with respect to any multiemployer
plan within the meaning set forth in Section 3(37) of ERISA that has resulted
in, or could reasonably be expected to result in, any withdrawal liability for
Parent or any of its Subsidiaries; and (vii) neither Parent nor any of its
Subsidiaries has incurred, or reasonably expects to incur, any liability under
Title IV of ERISA (other than liability for premium payments to the PBGC, and
contributions not in default to the respective plans, arising in the ordinary
course).
SECTION 5.11. LABOR MATTERS. Except as set forth in SCHEDULE 5.11: (i)
-------------
there are no claims or proceedings pending or, to the knowledge of Parent or any
of its Subsidiaries, threatened, between Parent or any of its Subsidiaries and
any of their respective employees, which claims or proceedings constitute a
Material Adverse Effect; (ii) neither Parent nor any of its Subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its Subsidiaries, nor does Parent or
any of its Subsidiaries know of any activities or proceedings of any labor union
to organize any such employees; and (iii) neither Parent nor any of its
Subsidiaries has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of Parent or
any of its Subsidiaries.
SECTION 5.12. INFORMATION SUPPLIED. The information supplied or to be
--------------------
supplied by Parent for inclusion or incorporation by reference in (i) the S-4
Registration
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<PAGE>
Statement will not, at the time the S-4 Registration Statement becomes effective
under the Securities Act, and (ii) the Prospectus/Proxy Statement and any
amendments or supplements thereto, will not, on the date the Prospectus/Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
stockholders in connection with the meeting of Parent stockholders to consider
the issuance of shares of Parent Common Stock pursuant to this Agreement (the
"PARENT STOCKHOLDERS MEETING"), at the time of Parent Stockholders Meeting, or
at the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Parent Stockholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Parent or any of its Subsidiaries or any of their respective affiliates,
officers or directors should be discovered by Parent which should be set forth
in a supplement to the Prospectus/Proxy Statement, Parent shall promptly inform
the Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained or incorporated by reference in any of the
foregoing documents.
SECTION 5.13. TITLE TO PROPERTY. Except as set forth in SCHEDULE 5.13,
-----------------
Parent and each of its Subsidiaries have good and defensible title to all of
their properties and assets, free and clear of all material liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto, or
impairs the operations of Parent or any of its Subsidiaries; and, all leases
pursuant to which Parent or any of its Subsidiaries lease from others material
amounts of real or personal property, are in good standing, valid and effective
in accordance with their respective terms, and there is not, to the knowledge of
Parent, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default).
SECTION 5.14. TAXES.
-----
(a) Other than as disclosed in SCHEDULE 5.14, (i) Parent and its
Subsidiaries have filed all United States federal income Tax Returns and all
other material Tax Returns required to be filed by them, (ii) Parent and its
Subsidiaries have paid and discharged all Taxes due in connection with or with
respect to the periods or transactions covered by such Tax Returns and have paid
all other Taxes as are due, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
and with respect to which Parent is maintaining adequate reserves, and (iii)
there are no other material Taxes that would be due if asserted by a taxing
authority, except with respect to which Parent is maintaining reserves to the
extent currently required. Except as does not involve or would not result in
material liability to Parent or any of its Subsidiaries: (i) there are no tax
liens on any assets of Parent or any Subsidiary thereof; and (ii) neither Parent
nor any of its Subsidiaries has been granted a waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. The accruals and reserves for Taxes (including deferred taxes)
reflected
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<PAGE>
in the 1996 Parent Balance Sheet are in all material respects adequate to cover
all Taxes required to be accrued through the date thereof (including interest
and penalties, if any, thereon and Taxes being contested) in accordance with
generally accepted accounting principles applied on a consistent basis, and the
accrual and reserves for Taxes (including deferred taxes) reflected in the books
and records of Parent as at the last day of Parent's most recently completed
fiscal month end are in all material respects adequate to cover all Taxes
required to be accrued through such date (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with generally accepted
accounting principles applied on a consistent basis.
(b) Other than as disclosed in SCHEDULE 5.14, (i) all Tax Returns filed
with respect to Tax years of Parent and each of the Subsidiaries through the Tax
year ended December 31, 1992 have been examined and closed or are Tax Returns
with respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired; (ii) to the knowledge
of Parent, there is no claim, audit, action, suit, proceeding, or investigation
now pending against or with respect to Parent or any Subsidiary in respect of
any Tax; (iii) there are no written requests for rulings or determinations in
respect of any Tax pending between Parent or any Subsidiary and any taxing
authority; (iv) neither Parent nor any Subsidiary will be required to include
any adjustment in taxable income for any Tax period following the Closing under
Section 481(c) of the Code (or any similar provision of the Tax laws of any
jurisdiction) as a result of a change in method of accounting for a Tax period
prior to the Closing or pursuant to the provisions of any agreement entered into
with any taxing authority with regard to the Tax liability of Parent or any
Subsidiary for any Tax period prior to the Closing; and (v) all material Taxes
that Parent or any Subsidiary is, or was, required by law to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the appropriate taxing authority.
SECTION 5.15. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE
---------------------
5.15, Parent and each of its Subsidiaries: (i) have obtained all material
approvals which are required to be obtained under all Environmental Laws by
Parent or its Subsidiaries or their respective agents; (ii) are in compliance in
all material respects with all terms and conditions of such required approvals,
and also are in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) as of
the date hereof, are not aware of nor have received notice of any past or
present violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with Environmental Laws or which
would give rise to any material common law or statutory liability, or otherwise
form the basis of any claim, action, suit or proceeding, against Parent or any
of its Subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by Parent or its Subsidiaries (or any of
their respective agents) thereunder.
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<PAGE>
SECTION 5.16. INSURANCE. Parent maintains fire and casualty, general
---------
liability, business interruption, and professional liability insurance policies
with reputable insurance carriers, which provide full and adequate coverage for
all normal risks incident to the business of Parent and its Subsidiaries and
their respective properties and assets and are in character and amount similar
to that carried by entities engaged in similar business and subject to the same
or similar perils or hazards.
SECTION 5.17. OPINION OF FINANCIAL ADVISOR. Parent has been advised by
----------------------------
its financial advisor, Prudential Securities Incorporated, that in its opinion,
as of the date hereof, the Merger Consideration set forth herein is fair to
Parent from a financial point of view.
SECTION 5.18. BROKERS. Except as set forth in SCHEDULE 5.18, no broker,
-------
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or its Subsidiaries or affiliates. The fees and expenses of the entities
listed on SCHEDULE 5.18 will be paid by Parent.
SECTION 5.19. BOOKS AND RECORDS. The books of account, minute books,
-----------------
stock record books, and other records of Parent are complete and correct in all
material respects and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not Parent is subject to that Section), including the
maintenance of an adequate system of internal controls.
SECTION 5.20. CERTAIN PAYMENTS. Since June 17, 1992, none of Parent or
----------------
any of its Subsidiaries or any director, officer, agent, or employee of, or any
other person associated with or acting for or on behalf of, Parent or any of its
Subsidiaries, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kick-back, or other payment to any person,
private or public, regardless of form, whether in money, property, or services
in violation of any Laws, or (b) established or maintained any fund or asset
that has not been recorded in the books and records of Parent or any of its
Subsidiaries.
SECTION 5.21. INTELLECTUAL PROPERTY. Except as set forth in SCHEDULE
---------------------
5.21, each of Parent and each of its Subsidiaries owns or possesses adequate
licenses or other valid rights to use all Intellectual Property Rights used or
held for use in connection with its business as currently conducted or as
contemplated to be conducted, and, to the knowledge of Parent, there is no
assertion or claim challenging the ownership or validity of any of the
foregoing. Except as set forth in SCHEDULE 5.21 and SCHEDULE 5.09, the conduct
of the business of Parent and its Subsidiaries as currently conducted does not
conflict with any Intellectual Property Rights of any third party. To the
knowledge of Parent, there are no infringements of any Intellectual Property
Rights used or held for use in connection with the business of Parent and its
Subsidiaries.
SECTION 5.22. CONTRACTS. Except as set forth on SCHEDULE 5.22, none of
---------
Parent or any of its Subsidiaries is a party to or is bound by any employment
agreement, telecommunications agreement, vendor agreement, credit agreement,
mortgage or indenture, or
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any material joint venture agreement which (i) provides that the terms thereof
or any or all of the benefits or burdens thereunder will be affected or altered
(including, without limitation, by means of acceleration) by, or are contingent
upon, or (ii) will be subject to termination or cancellation as a result of, the
execution of this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 5.23. INFORMATION SYSTEMS. Parent's computer and software systems
-------------------
(including backup systems) are fully operational, and, to the best of Parent's
knowledge, there has been no material malfunction or other material problem with
such systems.
SECTION 5.24. REGULATION OF BUSINESS. To the best knowledge of Parent's
----------------------
management, and except as set forth in the Parent SEC Reports, there has not
been any change or proposed change in any Laws which has resulted in or is
reasonably likely to result in the regulation of the business of Parent or any
of its Subsidiaries by the Federal Communications Commission or any other
foreign, federal, state or local governmental agency or other governing body,
the compliance with which would have a material cost to Parent or an adverse
impact on the business of Parent.
SECTION 5.25. NO BUSINESS. Acquisition Sub was formed solely for the
-----------
purpose of effecting the Merger, and has undertaken no business other than in
connection with the transactions contemplated by this Agreement.
SECTION 5.26. TAX MATTERS. Neither Parent nor any of its Subsidiaries 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 prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
SECTION 5.27. BOARD RECOMMENDATION. The Board of Directors of Parent, at
--------------------
a meeting duly called and held, has by unanimous vote of the directors present
(who constituted all of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger and the
other transactions contemplated hereby, taken together, are fair to and in the
best interests of the stockholders and (ii) resolved to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock
pursuant to this Agreement.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
--------------------------------------
SECTION 6.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
-----------------------------------------------------
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing and except
as required by the UK Purchase Agreement, (i) the Company shall conduct its
business and shall cause the businesses of its
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Subsidiaries to be conducted only in, and the Company and its Subsidiaries shall
not take an action except in, the ordinary course of business and in a manner
consistent with past practice, and (ii) the Company shall use all reasonable
effort to preserve substantially intact the business organization of the Company
and its Subsidiaries, to keep available the services of the present officers,
employees and consultants of the Company and its Subsidiaries and to preserve
the present relationships of the Company and its Subsidiaries with customers,
suppliers and other persons with which the Company or any of its Subsidiaries
has significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement or as required by the UK Purchase
Agreement or as described on SCHEDULE 6.01, neither the Company nor any of its
Subsidiaries shall, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws
of the Company or similar organizational documents of any of its Subsidiaries;
(b) issue, sell, dispose of, or, except in connection with any financings
in connection with the transactions contemplated by the UK Purchase Agreement
and the acquisition of a majority interest in Xpedite Germany, pledge or
encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of
any shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including, without limitation, any phantom
interest) in the Company or any of its Subsidiaries (except for the issuance of
shares of Company Common Stock issuable pursuant to stock options which were
granted under the Company Stock Option Plans and are outstanding on the date
hereof, in accordance with the terms of the Company Stock Option Plans);
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its Subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, (iii) sales of other assets not in excess of
$100,000 in the aggregate, and (iv) in connection with any financings related to
the consummation of the transactions contemplated by the UK Purchase Agreement
or the acquisition of a majority interest in Xpedite Systems, GmbH ("Xpedite
Germany"));
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned Subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities or property in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, any of its
securities or any securities of its Subsidiaries, including, without limitation,
shares of Company Common Stock or any option, warrant or right, directly or
indirectly, to acquire shares of Company Common Stock, or provide that upon the
exercise or conversion of any such option, warrant or right the holder thereof
shall receive cash, or propose to do any of the foregoing;
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(e) except in connection with the consummation of the transactions
contemplated by the UK Purchase Agreement and the acquisition of a majority
interest in Xpedite Germany and any financings related thereto (i) acquire (by
merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division or any equity interest
therein; (ii) incur any indebtedness for borrowed money or issue any debt
securities, except for short-term, working capital and commercial paper
borrowings not in excess of $1,000,000 in the aggregate for the Company and its
Subsidiaries, taken as a whole at any one time outstanding incurred in the
ordinary course of business consistent with past practice and except for the
intercompany indebtedness between the Company and any of its wholly owned
Subsidiaries or between such wholly owned Subsidiaries, or assume, guarantee or
endorse or otherwise as an accommodation become responsible for, the obligations
of any person or, except in the ordinary course of business consistent with past
practice, make any loans or advances; (iii) enter into or amend any material
contract or agreement; (iv) authorize any capital expenditures or purchase of
fixed assets, in the aggregate, in excess of $1,000,000 per month for the
Company and its Subsidiaries taken as a whole; (v) make any loan to, or
investment in, any Minority Affiliate or XSL, other than business transactions
with Minority Affiliates or XSL in the ordinary course of business; or (vi)
enter into or amend any contract, agreement, commitment or arrangement to effect
any of the matters prohibited by this SECTION 6.01;
(f) (i) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees of
the Company or its Subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice and except for
increases in salary or wages as provided for in employment agreements; (ii)
grant any severance or termination pay to, or enter into or amend any employment
or severance agreement with any director, officer or other employee of the
Company or any of its Subsidiaries; or (iii) establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, take any action to change accounting
policies or procedures (including, without limitation, procedures with respect
to revenue recognition, payments of accounts payable and collection of accounts
receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise or amend any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements contained in the Company SEC Reports filed prior to
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the date of this Agreement or incurred in the ordinary course of business and
consistent with past practice;
(j) offer employment to any person as an officer of the Company, or promote
any existing employee to such office;
(k) settle or agree to a final settlement of any litigation against the
Company or any of its Subsidiaries for an amount in excess of $450,000;
(l) amend or grant waivers or approvals in its discretion under the UK
Purchase Agreement (other than converting the purchase price and other dollar
denominated provisions contained therein to Pounds Sterling provisions at an
agreed upon conversion rate); or
(m) take, or agree in writing or otherwise to take, any of the actions
described in SECTIONS 6.01(a) through (l) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 6.02. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Parent
------------------------------------------------
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless the Company shall otherwise agree in writing, continue to
conduct its business, and cause its Subsidiaries to continue to conduct their
respective businesses, in a manner designed in its reasonable judgment, to
enhance the long-term value of the Parent Common Stock and the business
prospects of Parent and its Subsidiaries and to the extent consistent therewith
use all reasonable best efforts to preserve intact the core businesses and
goodwill of Parent and its Subsidiaries with their respective present officers,
employees, consultants, customers, suppliers and other persons with which Parent
or any of its Subsidiaries has significant business relations; provided, that
the foregoing shall not prevent Parent or any of its Subsidiaries from acquiring
any assets or other businesses or from discontinuing or disposing of any of
their respective assets or businesses if such action is, in the judgment of
Parent, desirable in the conduct of the business of Parent and such
Subsidiaries. By way of amplification and not limitation, except as contemplated
by this Agreement or as described on SCHEDULE 6.02, Parent shall not, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose to do, any of the following without the prior written consent of the
Company:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws
of Parent in any manner adverse to the holders of Company Common Stock as
compared to the current holders of Parent Common Stock;
(b) except as may be required as a result of a change in law or in
generally accepted accounting principles, take any action to change accounting
policies or procedures (including,
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without limitation, procedures with respect to revenue recognition, payments of
accounts payable and collection of accounts receivable); or
(c) take, or agree in writing or otherwise to take, any of the actions
described in SECTIONS 6.02(a) or (b) above, or any action which would make any
of the representations or warranties of Parent contained in this Agreement
untrue or incorrect or prevent Parent or Acquisition Sub from performing or
cause Parent or Acquisition Sub not to perform their respective covenants
hereunder.
SECTION 6.03. NO SOLICITATION.
---------------
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
Subsidiaries, (i) solicit, initiate or encourage or take any other action to
facilitate the institution of any inquiries or proposals regarding any merger,
reorganization, consolidation, business combination, recapitalization,
liquidation, dissolution, sale of all or any significant portion of assets, sale
of shares of capital stock (including without limitation by way of a tender or
exchange offer) or similar transactions involving the Company or any
Subsidiaries of the Company other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "ACQUISITION PROPOSAL"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information or assistance to any person in connection with any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal.
Nothing contained in this SECTION 6.03(a) shall prevent the Board of Directors
of the Company from considering, negotiating, discussing, approving and
recommending to the stockholders of the Company a bona fide Acquisition Proposal
not solicited in violation of this Agreement, PROVIDED that the Board of
Directors of the Company determines in good faith (after consultation with and
based upon the advice of outside counsel) that it is required to do so in order
to discharge properly its fiduciary duties to the Company's stockholders; and
PROVIDED, FURTHER, that the Company shall keep Parent informed, on a reasonably
current basis, as to the status and details of any such consideration,
negotiations or discussions. Nothing contained in this SECTION 6.03 shall
prohibit the Board of Directors of the Company from complying with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its Subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any Subsidiary by any
person or entity that informs the Board of Directors of the Company or such
Subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, shall indicate
whether the Company is providing or intends to provide the person making the
Acquisition Proposal with access to information concerning the Company as
provided in SECTION 6.03(c) and, if reasonably practicable, shall be made prior
to furnishing any such information to, or entering into negotiations or
discussions with, such person.
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(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of Directors
determines in good faith and upon the advice of outside counsel that it is
required to cause the Company to act as provided in this SECTION 6.03(c) in
order to discharge properly the directors' fiduciary duties to the Company's
stockholders, then, PROVIDED that such person has executed a confidentiality
agreement substantially similar to the one then in effect among the Company and
Parent the Company may provide such person with access to information regarding
the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its Subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this SECTION 6.03.
ARTICLE VII.
ADDITIONAL AGREEMENTS
---------------------
SECTION 7.01. HSR ACT; ETC. As promptly as practicable after the date of
------------
the execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act and the legal requirements of the
European Community and any other foreign jurisdictions requiring notification in
connection with the Merger and the transactions contemplated hereby. The
Company and Parent shall respond as promptly as practicable to any inquires
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "ANTITRUST DIVISION") for additional
information or documentation and shall respond as promptly as practicable to all
inquires and requests received from any State Attorney General or other
governmental authority (foreign or domestic) in connection with antitrust
matters.
SECTION 7.02. PREPARATION OF THE PROSPECTUS/PROXY STATEMENT.
---------------------------------------------
(a) As promptly as practicable after the execution of this Agreement,
Parent shall prepare and file with the SEC the Prospectus/Proxy Statement and
the S-4 Registration Statement and the Company shall cooperate in the
preparation and filing of the Prospectus/Proxy Statement and S-4 Registration
Statement and shall furnish all information concerning it and the holders of its
capital stock as Parent may reasonably request in connection with such actions.
Parent and the Company shall use their reasonable best efforts to respond to all
SEC comments, to have the S-4 Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing and to cause the
Prospectus/Proxy Statement to be mailed to Parent's and the Company's respective
stockholders at the earliest practicable date. Parent shall use its reasonable
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best efforts to take any action required to be taken under the applicable Blue
Sky Laws in connection with the issuance of the shares of Parent Common Stock
upon consummation of the Merger
(b) The Company has disclosed in SCHEDULE 7.02(b) all persons whom it
reasonably believes is or will be an "affiliate" of the Company for purposes of
Rule 145 under the Securities Act. The Company shall use its reasonable best
efforts to cause each such person to deliver to Parent not later than 30 days
after the date of this Agreement, a written agreement, substantially in the form
of EXHIBIT A, providing that such person will not sell, pledge, transfer, or
otherwise dispose of the shares of the Company Common Stock held by such person
except as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of Parent Common Stock to
be received by such person upon consummation of the Merger except in compliance
with applicable provisions of the Securities Act and the rules and regulations
thereunder and, if the Merger is accounted for by the pooling-of-interests
method of accounting, until such time as financial results covering at least 30
days of combined operations of Parent and the Company have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies. If the Merger is accounted for using the pooling-of-interests method
of accounting, shares of Parent Common Stock issued to such affiliates of the
Company in exchange for shares of the Company Common Stock shall not be
transferable until such time as financial results covering at least 30 days of
combined operations of Parent and the Company have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the written
agreement referred to in this SECTION 7.02(b) (and Parent shall be entitled to
place restrictive legends upon certificates for shares of Parent Common Stock
issued to affiliates of the Company pursuant to this Agreement to enforce the
provisions of this SECTION 7.02(b)).
SECTION 7.03. STOCKHOLDER APPROVAL.
--------------------
(a) As soon as practicable after the S-4 Registration Statement is
effective, the Company shall call and hold the Company Stockholders Meeting in
accordance with applicable laws for the purpose of voting upon the adoption of
this Agreement. In connection with the Company Stockholders Meeting, the Board
of Directors of the Company shall recommend to its stockholders the approval of
the matters submitted for approval at such meeting (subject to the Board of
Directors of the Company, after having consulted with and considered the advice
of outside counsel, reasonably determining in good faith that the making of such
recommendation, or the failure to withdraw or modify its recommendation, would
constitute a breach of fiduciary duties of the members of such Board of
Directors to the Company's stockholders under applicable law), and the Board of
Directors and officers of the Company shall use their reasonable best efforts to
obtain such stockholders' approval (subject to the Board of Directors of the
Company, after having consulted with and considered the advice of outside
counsel, reasonably determining in good faith that the taking of such actions
would constitute a breach of fiduciary duties of the members of such Board of
Directors to the Company's stockholders under applicable law). At the Company
Stockholders Meeting, Parent shall cause all of the shares of Company Common
Stock for which it holds proxies to vote to be voted in favor of adoption of
this Agreement.
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(b) As soon as practicable after the S-4 Registration Statement is
effective, Parent shall call and hold the Parent Stockholders Meeting in
accordance with applicable laws for the purpose of voting upon the approval of
the issuance of shares of Parent Common Stock pursuant to this Agreement. In
connection with the Parent Stockholders Meeting, the Board of Directors of
Parent shall recommend to its stockholders the approval of the matters submitted
for approval (subject to the Board of Directors of Parent, after having
consulted with and considered the advice of outside counsel, reasonably
determining in good faith that the making of such recommendation, or the failure
to withdraw or modify its recommendation, would constitute a breach of fiduciary
duties of the members of such Board of Directors to Parent's stockholders under
applicable law), and the Board of Directors and officers of Parent shall use
their reasonable best efforts to obtain such stockholders' approval (subject to
the Board of Directors of Parent, after having consulted with and considered the
advice of outside counsel, reasonably determining in good faith that the taking
of such actions would constitute a breach of fiduciary duties of the members of
such Board of Directors to Parent's stockholder under applicable law).
SECTION 7.04. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
--------------------------------------
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable best
efforts to be released), the Company and Parent shall each (and shall cause each
of their Subsidiaries, and in the case of the Company, use commercially
reasonable efforts to cause its Minority Affiliates and XSL, to) afford to the
officers, employees, accountants, counsel and other representatives of the
other, reasonable access, during the period prior to the Effective Time, to all
its properties, books, contracts, commitments and records and, during such
period, the Company and Parent each shall (and shall cause each of their
Subsidiaries, and in the case of the Company, use commercially reasonable
efforts to cause its Minority Affiliates and XSL, to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business (including, in the case of
the Company, the business of the Minority Affiliates and XSL), properties and
personnel as either Parent or the Company may reasonably request. From and after
the date of this Agreement through the Effective Time, the Company shall provide
to Parent monthly consolidated statements of operations and cash flows and
monthly consolidated balance sheets for the Company and its Subsidiaries and, if
the Company receives such statements from its Minority Affiliates or XSL, from
such Minority Affiliates or XSL, within 30 days following the end of each
calendar month during such period. Each party shall keep such information
confidential in accordance with the terms of the confidentiality letter, dated
October 26, 1997 (the "CONFIDENTIALITY LETTER") between Parent and the Company.
The Company shall use its reasonable best efforts to exercise its rights under
confidentiality agreements entered into with persons which were considering an
Alternative Transaction (as defined in SECTION 9.01 with respect to the Company
to preserve the confidentiality of the information relating to the Company and
its Subsidiaries and Minority Affiliates and XSL provided to such persons and
their affiliates and representatives.
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SECTION 7.05. CONSENTS; APPROVALS. The Company and Acquisition Sub shall
-------------------
each use their reasonable best efforts to obtain all consents, waivers,
approvals, authorizations or orders (including, without limitation, all United
States and foreign governmental and regulatory rulings and approvals), and the
Company and Parent shall make all filings (including, without limitation, all
filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by the Company and Parent and the consummation by them of the
transactions contemplated hereby, in each case as promptly as practicable. The
Company and Parent shall furnish promptly all information required to be
included in the Prospectus/Proxy Statement or for any application or other
filing to be made pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions contemplated by
this Agreement.
SECTION 7.06. INDEMNIFICATION AND INSURANCE.
-----------------------------
(a) The By-Laws of the Surviving Corporation shall contain the provisions
with respect to indemnification set forth in the By-Laws of the Company on the
date hereof, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Certificate of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and, after
the Effective Time, the Surviving Corporation shall, to the fullest extent
permitted under applicable law or under the Surviving Corporation's Certificate
of Incorporation or By-Laws as in effect at the Effective Time, indemnify and
hold harmless, each present and former director, officer or employee of the
Company or any of its Subsidiaries (collectively, the "INDEMNIFIED PARTIES")
against any cost or expense (including attorney's fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, (x) arising out of or
pertaining to the transactions contemplated by this Agreement or (y) otherwise
with respect to any acts or omissions occurring at or prior to the Effective
Time, to the same extent as provided in the Company's Certificate of
Incorporation or By-Laws or any applicable contract or agreement as in effect on
the date hereof, in each case for a period of six years after the date hereof.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably satisfactory to the Surviving Corporation, (ii) after the Effective
Time, the Surviving Corporation shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received, and (iii) the
Surviving Corporation will cooperate in the defense of any such matter; PROVIDED
that the Surviving Corporation shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld);
and PROVIDED, FURTHER, that in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such
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claims. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(c) Parent and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of six years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been made available to Parent) on terms comparable to those now
applicable to directors and officers of the Company; PROVIDED that in no event
shall Parent or the Surviving Corporation be required to expend in excess of
150% of the annual premium currently paid by the Company for such coverage; and
PROVIDED, FURTHER, that if the premium for such coverage exceeds such amount,
Parent or the Surviving Corporation shall purchase a policy with the greatest
coverage available for such 150% of the annual premium.
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by the Indemnified
Parties.
SECTION 7.07. EMPLOYMENT AND BENEFIT MATTERS. The Surviving Corporation
------------------------------
shall for a period of one (1) year following the Effective Time maintain the
contractual benefit programs identified in SCHEDULE 7.07 (each, a "BENEFIT
PLAN"); PROVIDED that nothing herein shall affect the Surviving Corporation's
rights to modify or terminate any such Benefit Plan at or after the end of such
one (1) year period.
SECTION 7.08. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
-------------------------------
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence and nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement to become materially untrue or inaccurate, or (ii)
any failure of the Company or Parent, as the case may be, materially to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; PROVIDED that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and PROVIDED, FURTHER, that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of SECTIONS 8.02(a) and 8.03(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 7.09. FURTHER ACTION. Upon the terms and subject to the
--------------
conditions hereof each of the parties hereto shall use their reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
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Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement.
SECTION 7.10. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
--------------------
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, but following
consultation with the other party and the use of reasonable best efforts to
agree on a mutually satisfactory text, which shall not be unreasonably withheld;
PROVIDED that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may upon the advice of
outside counsel be required by law or the rules and regulations of NASDAQ, as
the case may be.
SECTION 7.11. CONVEYANCE TAXES. Parent and the Company shall cooperate in
----------------
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed at or before the Effective Time.
SECTION 7.12. NASDAQ LISTING. Parent shall use its reasonable best
--------------
efforts to list, prior to the Effective Time, on the NASDAQ the shares of Parent
Common Stock to be issued to the holders of the Company Common Stock pursuant to
the Merger, and Parent shall, on a timely basis, give all notices and make all
filings with the NASD required in connection with the transactions contemplated
herein.
SECTION 7.13. NO ACQUISITION SUB BUSINESS. Prior to the Effective Time,
---------------------------
Acquisition Sub shall not undertake any business other than as necessary to
consummate the transactions contemplated by this Agreement.
SECTION 7.14. NEGOTIATIONS WITH MINORITY AFFILIATE. Parent and/or the
------------------------------------
Company shall be entitled to commence and conduct (including without limitation
the formulation of the terms and conditions of) negotiations with Xpedite
Germany with respect to the acquisition by the Company of all or substantially
all the outstanding capital stock or assets of Xpedite Germany (which
acquisition shall not be conditioned upon the consummation of the Merger).
SECTION 7.15. ACCOUNTING AND TAX MATTERS. Each of the parties undertakes
--------------------------
and agrees to use its reasonable best 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 or as a "reorganization" within the
meaning of Section 368(a) of the Code for federal income tax purposes.
SECTION 7.16. REGISTRATION RIGHTS. Each person (including its
-------------------
"affiliates" and "associates," as defined under the Securities Act) who is
precluded by Rule 145 under the Securities Act from selling or disposing of all
of the shares of Parent Common Stock received by such person in the Merger
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within one calendar quarter in the absence of an effective registration
statement therefor, or another exemption from registration, under the Securities
Act (each, together with such affiliates and associates, a "LARGE STOCKHOLDER")
shall be entitled to registration rights for such shares as set forth in
EXHIBIT C.
ARTICLE VIII.
CONDITIONS TO THE MERGER
------------------------
SECTION 8.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER
-----------------------------------------------------------
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL OF THE MERGER. This Agreement and the Merger
----------------------------------
shall have been approved and adopted by the requisite vote of the stockholders
of the Company and the issuance of shares of Parent Common Stock in the Merger
shall have been approved by the requisite vote of the stockholders of Parent;
(b) HSR ACT, ETC. The waiting period applicable to the consummation of the
------------
Merger under the HSR Act and under any legal requirement of the European
Community shall have expired or been terminated, and any material requirements
of other foreign jurisdictions applicable to the consummation of the Merger
shall have been satisfied;
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No statute, rule,
----------------------------------------
regulation, executive order, decree, ruling, temporary restraining order,
preliminary or permanent injunction or other order shall have been enacted,
entered, promulgated, enforced or issued by any court or governmental authority
of competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(d) TAX OPINION. Each party shall have received a written opinion of
-----------
counsel from Alston & Bird LLP, in form reasonably satisfactory to such parties
(the "TAX OPINION"), to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, (ii) the
exchange in the Merger of the Company Common Stock for Parent Common Stock will
not give rise to gain or loss to the stockholders of the Company with respect to
such exchange (except to the extent of any cash received), and (iii) none of the
Company, Acquisition Sub or Parent will recognize gain or loss as a consequence
of the Merger (except for amounts resulting from any required change in
accounting methods and any income and deferred gain recognized pursuant to
Treasury regulations issued under Section 1502 of the Internal Revenue Code).
In rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of officers of the Company and Parent reasonably satisfactory in
form and substance to such counsel;
(e) S-4 REGISTRATION STATEMENT. The S-4 Registration Statement shall be
--------------------------
effective under the Securities Act, no stop orders suspending the effectiveness
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of the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals under
the Securities Act or Exchange Act or Blue Sky Laws relating to the issuance or
trading of the shares of Parent Common Stock issuable pursuant to the Merger
shall have been received; and
(f) NASDAQ LISTING. The shares of Parent Common Stock issuable pursuant to
--------------
the Merger shall have been approved for listing on NASDAQ.
SECTION 8.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. The
----------------------------------------------
obligations of Parent to effect the Merger are also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
------------------------------
the Company contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time with the same force and effect
as if made at and as of such time, except for (i) changes contemplated by this
Agreement and (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date) and Parent shall have received a certificate to such effect signed by the
Chief Executive Officer and the Chief Financial Officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
------------------------
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Time, and Parent shall have received a certificate to such effect signed by the
Chief Executive Officer and the Chief Financial Officer of the Company;
(c) ACQUISITION OF XPEDITE SYSTEMS LIMITED. All conditions precedent to
--------------------------------------
the closing of the transactions contemplated by the Share Purchase Agreement
dated as of August 8, 1997 (the "UK PURCHASE AGREEMENT") by and among Xpedite
Systems Holdings (UK) Limited, Xpedite Systems, Inc. and the stockholders of
Xpedite Systems Limited, a company organized under the laws of England ("XSL")
shall have been satisfied, and such transactions shall have been consummated in
accordance with the terms and conditions of the UK Purchase Agreement;
(d) NO MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
--------------------------
Effect with respect to the Company since the date of this Agreement, and Parent
shall have received a certificate to such effect signed by the Chief Executive
Officer and the Chief Financial Officer of the Company.
(e) POOLING LETTERS. Parent shall have received a letter, dated as of the
---------------
Effective Time, addressed to Parent, in form and substance reasonably acceptable
to Parent, from Arthur Andersen LLP to the effect that the Merger will qualify
for pooling-of-interests accounting treatment. Parent also shall have received
a letter, dated as of the Effective Time, addressed to Parent, in form and
substance reasonably acceptable to Parent, from Ernst & Young LLP to the effect
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that such firm is not aware of any matters relating to the Company and its
Subsidiaries which would preclude the Merger from qualifying for pooling-of-
interests accounting treatment.
(f) AFFILIATE AGREEMENTS. Parent shall have received from each affiliate
--------------------
of the Company the affiliates letter referred to in SECTION 7.02(b), to the
extent necessary to assure in the reasonable judgment of Parent that the
transactions contemplated hereby will qualify for pooling-of-interests
accounting treatment.
SECTION 8.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
--------------------------------------------------
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
------------------------------
Parent and Acquisition Sub contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement and (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date), and the Company shall have received a certificate
to such effect signed by the Chief Executive Officer or Chief Financial Officer
of Parent; and
(b) AGREEMENTS AND COVENANTS. Parent and Acquisition Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by the Chief Executive Officer or Chief Financial Officer of
Parent.
(c) NO MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
--------------------------
Effect with respect to Parent since the date of this Agreement, and Parent shall
have received a certificate to such effect signed by the Chief Executive Officer
or the Chief Financial Officer of Parent.
ARTICLE IX.
TERMINATION
-----------
SECTION 9.01. TERMINATION. This Agreement may be terminated at any time
-----------
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or the stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by April 30, 1998 (PROVIDED that such date shall be extended by an
additional 30 days in the event the Prospectus/Proxy Statement shall have been
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mailed to stockholders of both the Company and Parent by such date; and
PROVIDED, FURTHER, that the right to terminate this Agreement under this SECTION
9.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (PROVIDED that the right to terminate this Agreement under this
SECTION 9.01(c) shall not be available to any party who has not complied with
its obligations under SECTION 7.09 and such noncompliance materially contributed
to the issuance of any such order, decree or ruling or the taking of such
action); PROVIDED, FURTHER, that for the purposes of this SECTION 9.01(c), a
temporary injunction restraining, enjoining or otherwise prohibiting the Merger
shall be deemed to be a nonappealable final order hereunder if such injunction
remains continuously in effect for 60 days after the date of issuance thereof;
and PROVIDED, FURTHER, that during such period all obligations of the Company or
Parent to expend funds or incur monetary obligations in connection with the
transactions contemplated hereby shall be suspended; or
(d) by Parent or the Company, if: (i) the Board of Directors of the Company
shall have recommended to the stockholders of the Company an Alternative
Transaction (as defined below) or (ii) a tender offer or exchange offer for 15%
or more of the outstanding shares of Company Common Stock is commenced (other
than by Parent or an affiliate of Parent) and the Board of Directors of the
Company recommends that the stockholders of the Company tender their shares in
such tender or exchange offer; PROVIDED that the Company shall not be entitled
to exercise any termination rights under clause (i) or (ii) of this SECTION
9.01(d) unless (x) any action of the Board of Directors of the Company referred
to in either such clause is required to be taken by the Board of Directors in
order to properly discharge its fiduciary duties to its stockholders and (y) the
Company has complied with its obligations in SECTION 6.03; or
As used herein, "ALTERNATIVE TRANSACTION" means (i) a transaction or series
of transactions pursuant to which any person (or group of persons) other than
Parent or its Subsidiaries (a "THIRD PARTY") acquires or would acquire more than
15% of the outstanding shares, whether from the Company or pursuant to a tender
offer or exchange offer or otherwise, (ii) any acquisition or proposed
acquisition of the Company or any of its Subsidiaries by a merger, consolidation
or other business combination (including any so-called "merger of equals" and
whether or not the Company or any of its Subsidiaries is the entity surviving
any such merger or business combination), (iii) any reorganization,
recapitalization, liquidation or dissolution of the Company or any of its
Subsidiaries (other than the liquidation or dissolution of a wholly-owned
Subsidiary of the Company or any of its Subsidiaries) or (iv) any other
transaction pursuant to which any Third Party acquires or would acquire control
of assets (including for this purpose the outstanding equity securities of
Subsidiaries of the Company and any entity surviving any merger or business
combination with any Subsidiary) of the Company or any of its Subsidiaries
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having a fair market value equal to more than 15% of the fair market value of
all the assets of the Company and its Subsidiaries, taken as a whole,
immediately prior to such transaction.
(e) by the Company, if: (i) the Board of Directors of Parent shall have
recommended to the stockholders of Parent (x) any acquisition or proposed
acquisition of Parent by a merger, consolidation or other business combination
(including any so-called "merger of equals" and whether or not the Company is
the entity surviving any such merger or business combination) in which the
consideration to be received by Parent stockholders in such business combination
shall be other than cash, (y) any liquidation or dissolution of Parent, or (z)
any transaction or series of transactions in which Third Parties would acquire
substantially all of the consolidated assets of Parent or (ii) a tender offer or
exchange offer for 50% or more of the outstanding shares of Parent Common Stock
is commenced and the Board of Directors of Parent recommends that the
stockholders of Parent tender their shares in such tender or exchange offer; or
(f) by Parent, if the Board of Directors of the Company shall withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to Parent; or
(g) by the Company, if the Board of Directors of Parent shall withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to the Company; or
(h) by either the Company or Parent, if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the other set
forth in this Agreement, which breach has not been cured within 30 days
following receipt by the breaching party of written notice of such breach, in
any case such that the conditions set forth in SECTIONS 8.02 or 8.03, as the
case may be, would be incapable of being satisfied by April 30, 1998 (PROVIDED
that the right to terminate this Agreement under this SECTION 9.01(h) shall not
be available to any party who is itself in material breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, such that the conditions set forth in SECTIONS 8.02 OR 8.03, as the
case may be, would be incapable of being satisfied by April 30, 1998); or
(i) by the Company, if its Board of Directors so determines by a vote of a
majority of the members of its entire Board, at any time during the three-
business-day period commencing on the Determination Date, if the Average Closing
Price shall be less than $24.00 (the "THRESHOLD PRICE"); subject, however, to
the following three sentences. If the Company elects to exercise its
termination right pursuant to this SECTION 9.01(i), it shall give prompt written
notice thereof to Parent (provided that such notice of election to terminate may
be withdrawn at any time within the three-business-day period referenced in the
following sentence). During the three-business-day period commencing with its
receipt of such notice, Parent shall have the option, in its sole discretion, to
elect to increase the Exchange Ratio to equal the quotient obtained by dividing
(x) the product of the Threshold Price and the Exchange Ratio (as then in
effect) by (y) the Average Closing Price. If Parent makes an election
contemplated by the preceding sentence within such three-business-day period, it
shall give prompt written notice to the Company of such election and the revised
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Exchange Ratio, whereupon no termination shall have occurred pursuant to this
SECTION 9.01(i) and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified), and any
references in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this SECTION 9.01(i).
SECTION 9.02. EFFECT OF TERMINATION.
---------------------
(a) Except as provided in SECTION 10.01, in the event of the termination of
this Agreement pursuant to SECTION 9.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders, subject to the provisions
of SECTION 9.02(b) and SECTION 9.02(c), and nothing herein shall relieve any
party from liability for any breach hereof occurring prior to termination. The
Confidentiality Letter shall survive termination of this Agreement as set forth
therein.
(b) Notwithstanding anything to the contrary contained in this Agreement,
in the event that this Agreement is terminated by either party for any reason,
except as provided in clauses (i) and (ii) below, the Company shall pay to
Parent an amount equal to $9,500,000 (the "PARENT FEE") plus all documented fees
and expenses incurred by Parent and its Subsidiaries in connection with or
related to the authorization, preparation, regulation, execution and performance
of this Agreement and the transactions contemplated hereby (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts, consultants, banks and other financial institutions) (the "PARENT
EXPENSES") up to a maximum of $1,000,000 in the aggregate. Notwithstanding the
foregoing:
(i) the Company shall not be obligated to pay the Parent Fee or any
Parent Expenses if this Agreement is terminated
(1) pursuant to SECTION 9.01(a),
(2) by the Company pursuant to SECTION 9.01(e), 9.01(g), 9.01(h)
or SECTION 9.01(i),
(3) by the Company pursuant to SECTION 9.01(b) solely as a result
of the failure to satisfy any of the conditions set forth in SECTION
8.01(b), 8.01(c) (other than if any such injunction results from
claims made by stockholders of the Company or any Third Party
proposing an Alternative Transaction), 8.01(d), 8.01(e), 8.01(f),
8.03(a), 8.03(b) or 8.03(c),
(4) by either party pursuant to SECTION 9.01(b) solely as a result
of the failure to satisfy the condition set forth in SECTION 8.01(a),
but only if the stockholders of the Company have adopted this
Agreement and the stockholders of Parent have not approved the
issuance of shares of Parent Common Stock in the Merger or any other
aspect of the Merger which is submitted for their approval at the
Parent Stockholders Meeting,
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(5) by Parent pursuant to SECTION 9.01(b) solely as a result of
the failure to satisfy any of the conditions set forth in SECTION
8.01(b), 8.01(d), 8.01(e), 8.01(f), 8.02(e) or 8.02(f),
(6) by either party pursuant to SECTION 9.01(c) if any such
injunction results from claims made by stockholders of the Company or
any Third Party proposing an Alternative Transaction, or
(7) by the Company pursuant to SECTION 9.01(g); and
(ii) the Company shall not be obligated to pay the Parent Fee but
shall only be obligated to reimburse Parent for the amount of Parent
Expenses incurred by it up to a maximum of $1,000,000 if this Agreement is
terminated
(1) by Parent pursuant to SECTION 9.01(b) solely as a result of
the failure to satisfy the condition set forth in SECTION 8.02(c)
(other than as a result of the Company's breach of a representation or
warranty in the UK Purchase Agreement or the Company's failure to
fulfill any of its material obligations in the UK Purchase Agreement)
or the condition set forth in SECTION 8.02(d), or
(2) by the Company pursuant to SECTION 9.01(g) if there shall have
occurred a Material Adverse Effect with respect to the Company after
the date of this Agreement and prior to the date on which Parent's
Board of Directors withdrew, modified or changed its approval or
recommendation of this Agreement or the Merger in a manner adverse to
the Company.
(c) Notwithstanding anything to the contrary contained in this Agreement,
in the event this Agreement is terminated
(i) by the Company pursuant to SECTION 9.01(e) or 9.01(h),
(ii) by the Company pursuant to SECTION 9.01(b) solely as a result of
the failure to satisfy any of the conditions set forth in SECTION 8.01(c)
(if any such injunction results from claims made by stockholders of Parent
or any Third Party proposing an Alternative Transaction with Parent),
8.03(a), 8.03(b) or 8.03(c),
(iii) by either party pursuant to SECTION 9.01(b) solely as a result
of the failure to satisfy the condition set forth in SECTION 8.01(a), but
only if the stockholders of the Company have adopted this Agreement and the
stockholders of Parent have not approved the issuance of shares of Parent
Common Stock in the Merger or any other aspect of the Merger which is
submitted for their approval at the Parent Stockholders Meeting,
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(iv) by either party pursuant to SECTION 9.01(c) if any such
injunction results from claims made by stockholders of Parent or any Third
Party proposing an Alternative Transaction with Parent, or
(v) by the Company pursuant to SECTION 9.01(g) (unless there shall
have occurred a Material Adverse Effect with respect to the Company after
the date of this Agreement and prior to the date on which Parent's Board of
Directors withdrew, modified or changed its approval or recommendation of
this Agreement or the Merger in a manner adverse to the Company),
Parent shall pay to the Company an amount equal to $9,500,000 plus all
documented fees and expenses incurred by Parent and its Subsidiaries in
connection with or related to the authorization, preparation, regulation,
execution and performance of this Agreement and the Prior Agreement and the
transactions contemplated hereby and thereby (including, without limitation, all
fees and expenses of counsel, accountants, investment bankers, experts,
consultants, banks and other financial institutions) up to a maximum of
$1,000,000 in the aggregate.
(d) Any payment required to be made pursuant to SECTION 9.02(b) or SECTION
9.02(c), as the case may be, shall be made to the party entitled to receive such
payment (the "Recipient") or its designee not later than two business days after
delivery by the Recipient or its designee to the party obligated to make such
payment of notice of demand for payment and shall be made by wire transfer of
immediately available funds to an account designated by the Recipient or its
designee in the notice of demand for payment delivered pursuant to this SECTION
9.02(d).
(e) The parties acknowledge that the loss to either party resulting from
breach of this Agreement by the other party or other failure of the Merger to be
consummated is not susceptible of ready measurement and, therefore, that the
payments provided in this SECTION 9.02 are intended by the parties to constitute
liquidated damages for any breach by a party of the terms of this Agreement, and
not a penalty.
SECTION 9.03. FEES AND EXPENSES. All fees and expenses incurred in
-----------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated, subject to the provisions of SECTION 9.02(b) and SECTION 9.02(c).
ARTICLE X.
GENERAL PROVISIONS
------------------
SECTION 10.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
------------------------------------------------
AGREEMENTS, ETC. Except as otherwise provided in this SECTION 10.01, the
- ---------------
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or
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after the execution of this Agreement. The representations, warranties and
agreements in this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to SECTION 9.01, as the case may be,
except that the agreements set forth in ARTICLE III and SECTION 7.06 shall
survive the Effective Time indefinitely and those set forth in SECTIONS 7.04,
9.02 and 9.03 shall survive such termination indefinitely. Nothing in this
SECTION 10.01 shall relieve any party for any breach of any representation,
warranty or agreement in this Agreement occurring prior to termination.
SECTION 10.02. NOTICES. All notices and other communications given or
-------
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation of receipt, to the telecopy numbers specified below (or at such
other address or telecopy number for a party as shall be specified by like
notice):
(a) If to Parent:
Premiere Technologies, Inc.
The Lenox Building, Suite 400
3399 Peachtree Road, N.E.
Atlanta, Georgia 30326
Telecopier No.: (404) 262-8540
Telephone No.: (404) 262-8400
Attention: Jeffrey A. Allred
Executive Vice President
Strategic Development
With copies to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Telecopier No.: (404) 881-4777
Telephone No.: (404) 881-7000
Attention: David E. Brown, Jr.
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(b) If to the Company:
Xpedite Systems, Inc.
1 Industrial Way
Eatontown, New Jersey 07724
Telecopier No.: (732) 544-1044
Telephone No.: (732) 389-3900
Attention: President
With a copy to:
Neil A. Torpey, Esq.
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Telecopier No.: (212) 319-4090
Telephone No.: (212) 318-6000
SECTION 10.03. CERTAIN DEFINITIONS. For purposes of this agreement, the
-------------------
term:
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Common Stock
or Parent Common Stock means a person who shall be deemed to be the beneficial
owner of such shares (i) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of its
affiliates or associates has, directly or indirectly, (a) the right to acquire
(whether such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in the
State of New York are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly, or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
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<PAGE>
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles;
(f) "Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the business, assets, properties, condition
(financial or other), results of operations or prospects of the Company and its
Subsidiaries or Parent and its Subsidiaries, as the case may be, in each case
taken as a whole, or (ii) the ability of the Company or Parent to perform their
respective obligations under this Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement, provided that "Material
Adverse Effect" shall not be deemed to include the impact of (i) actions and
omissions of a party (or any of its Subsidiaries) taken with the prior informed
written consent of the other party in contemplation of the transactions
contemplated hereby or (ii) the Merger and the transactions contemplated hereby
on the operating performance of the Company, including expenses incurred by the
Company in consummating the transactions contemplated by this Agreement or the
Prior Agreement; and
(g) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act).
SECTION 10.04. AMENDMENT. This Agreement may be amended by the parties
---------
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED that after approval of the
Merger by the stockholders of the Company or the stockholders of Parent, no
amendment may be made which by law required further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 10.05. WAIVER. At any time prior to the Effective Time, any party
------
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 10.06. HEADINGS. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.07. SEVERABILITY. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
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parties hereby shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible.
SECTION 10.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letter), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 10.09. ASSIGNMENT. This Agreement shall not be assigned by
----------
operation of law or otherwise, except that Acquisition Sub may assign all or any
of its rights hereunder to any direct wholly owned Subsidiary of Parent,
PROVIDED that no such assignment shall relieve the assigning party of its
obligations hereunder.
SECTION 10.10. PARTIES IN INTEREST. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than SECTION 7.06 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
SECTION 10.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 10.12. GOVERNING LAW. This agreement shall be governed by, and
-------------
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware without giving effect to principles of conflicts of laws.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 10.14. CONSENT TO JURISDICTION. Each of the parties hereto:
-----------------------
(a) consents to submit itself to the personal jurisdiction of (i) the
United States District Court for the Southern District of New York in the event
any dispute arises out of this Agreement or any of the transactions contemplated
-48-
<PAGE>
by this Agreement to the extent such court would have subject matter
jurisdiction with respect to such dispute and (ii) the Chancery or other Courts
of the State of Delaware otherwise;
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such court;
(c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any Court other than
such courts;
(d) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to a party to its address
set forth in SECTION 10.02 or at such other address of which a party shall have
been notified pursuant thereto; and
(e) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.
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<PAGE>
IN WITNESS WHEREOF, each of Parent, Acquisition Sub and the Company has
executed this Agreement, or has caused this Agreement to be executed on its
behalf by a representative duly authorized, all as of the day and year first
above written.
PREMIERE TECHNOLOGIES, INC.
By: /s/ Jeffrey A. Allred
-----------------------------------
Name: Jeffrey A. Allred
Title: Executive Vice President
NETS ACQUISITION CORP.
By: /s/ Jeffrey A. Allred
-----------------------------------
Name: Jeffrey A. Allred
Title: Executive Vice President
XPEDITE SYSTEMS, INC.
By: /s/ Robert Chefitz
-----------------------------------
Name: Robert Chefitz
Title: Director
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<PAGE>
EXHIBIT A
FORM OF
AFFILIATE LETTER
Premiere Technologies, Inc.
3399 Peachtree Road NE
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attention: Patrick G. Jones
Executive Vice President Finance and Legal
Gentlemen:
The undersigned is a stockholder of Xpedite Systems, Inc. (the "COMPANY"),
a Delaware corporation, and will become a stockholder of Premiere Technologies,
Inc. ("PARENT"), a Georgia corporation, pursuant to the transactions described
in the Agreement and Plan of Merger, dated as of November 13, 1997 (the
"AGREEMENT"), by and among Parent, Nets Acquisition Corp. ("ACQUISITION SUB")
and the Company. Under the terms of the Agreement, Acquisition Sub will be
merged into and with the Company (the "MERGER"), and the shares of the $.01 par
value common stock of the Company ("COMPANY COMMON STOCK") will be converted
into and exchanged for shares of the $.01 par value common stock of Parent
("PARENT COMMON STOCK"). This Affiliate Letter represents an agreement between
the undersigned and Parent regarding certain rights and obligations of the
undersigned in connection with the shares of Parent to be received by the
undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and Parent hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
the Company the undersigned may be deemed to be an "affiliate" under Rule 145(c)
as defined in Rule 405 of the Rules and Regulations of the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended
("SECURITIES ACT"), and the undersigned anticipates that the undersigned may be
deemed to be such an "affiliate" both at the time of the Agreement is submitted
to the stockholders of the Company for their consideration and adoption and at
the effective time of the Merger.
2. Initial Restrictions on Dispositions. During the 30 days immediately
------------------------------------
preceding the Effective Time of the Merger, the undersigned agrees that the
undersigned will not sell, transfer, or otherwise dispose of the undersigned's
interests in, or reduce the undersigned's risk relative to, any of the shares of
the Company Common Stock beneficially owned by the undersigned. The undersigned
agrees that the undersigned will not sell, transfer, or otherwise dispose of the
undersigned's interests in, or reduce the undersigned's risk relative to, any of
the shares of Parent Common Stock into which the undersigned's shares of the
<PAGE>
Company Common Stock are converted upon consummation of the Merger until such
time as Parent notifies the undersigned that the requirements of SEC Accounting
Series Release Nos. 130 and 135 ("ASR 130 AND 135") have been met. The
undersigned understands that ASR 130 and 135 relate to publication of financial
results of post-Merger combined operations of Parent and the Company. Parent
agrees that it will publish such results as soon as practicable after completion
of the first full calendar month after consummation of the Merger containing the
required period of post-Merger combined operations and that it will notify the
undersigned promptly following such publication. Notwithstanding anything in
this Agreement to the contrary, the undersigned shall be permitted to transfer
the shares of Company Common Stock owned by it in connection with distributions
of securities by the undersigned to its equity holders on a pro rata basis in
accordance with the respective interests of such equity holders in the
undersigned; provided such transfer does not adversely affect the ability of
Parent to treat the Merger as a pooling of interests for accounting purposes or
for the Merger to qualify as a tax-free reorganization; and provided further
that the undersigned shall have given Parent prior written notice of such
proposed transfer and shall have supplied to Parent and its representatives such
information regarding the proposed transfer as Parent or such representatives
shall request to permit Parent and such representatives to confirm that such
transfer will not adversely affect the ability of Parent to treat the Merger as
a pooling of interests for accounting purposes or for the Merger to qualify as a
tax-free reorganization.
3. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
(a) The Parent Common Stock received by the undersigned as a result of the
Merger will be taken for the undersigned's own account and not for others,
directly or indirectly, in whole or in part.
(b) The undersigned agrees not to make any sale, transfer of other
disposition of the Parent Common Stock received by the undersigned in
connection with the Merger in violation of the Securities Act or the rules
and regulations promulgated thereunder. Parent has informed the undersigned
that any distribution by the undersigned of Parent Common Stock has not been
registered under the Securities Act and that shares of Parent Common Stock
received pursuant to the Merger can only be sold by the undersigned (1)
following registration under the Securities Act, or (2) in conformity with
the volume and other requirements of Rule 145(d) promulgated by the SEC as
the same now exist or may hereafter be amended, or (3) in the opinion of
counsel reasonably acceptable to the Company, or pursuant to a "no action"
letter obtained by the undersigned from the staff of the Commission, such
sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act. The undersigned understands that, except as
-------------------------------------------
provided in the Agreement, Parent is under no obligation to file a
------------------------------------------------------------------
registration statement with the SEC covering the disposition of the
-------------------------------------------------------------------
undersigned's shares of Parent Common Stock or to take any other action
-----------------------------------------------------------------------
necessary to make compliance with an exemption from such registration
---------------------------------------------------------------------
available.
---------
(c) The undersigned is aware that Parent intends to treat the Merger as a
tax-free reorganization under Section 368 of the Internal Revenue Code (the
-2-
<PAGE>
"CODE") for federal income tax purposes. The undersigned agrees to treat the
transaction in the same manner as Parent for federal income tax purposes.
The undersigned acknowledges that Section 1.368-1(b) of the Income Tax
Regulations requires "continuity of interest" in order for the Merger to be
treated as tax-free under Section 368 of the Code. This requirement is
satisfied if, taking into account those Company stockholders who receive cash
in exchange for their stock, who receive cash in lieu of fractional shares,
or who dissent from the Merger, there is no plan or intention on the part of
the Company stockholders to sell or otherwise dispose of the Parent Common
Stock to be received in the Merger that will reduce such stockholders'
ownership to a number of shares having, in the aggregate, a value at the time
of the merger of less than 50% of the total fair market value of the Company
Common Stock outstanding immediately prior to the Merger. The undersigned
has no prearrangement, plan or intention to sell or otherwise dispose of an
amount of the undersigned's Parent Common Stock to be received in the Merger
which would cause the foregoing requirement not to be satisfied.
4. Restrictions on Transfer. The undersigned understands and agrees that
------------------------
stop transfer instructions with respect to the shares of Parent Common Stock
received by the undersigned pursuant to the Merger will be given to Parent's
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
"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 the owner's risks relative
thereto in any way, until such time as Premiere Technologies, Inc. ("Parent")
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. In addition, the shares represented by this
certificate may not be sold, transferred or otherwise disposed of except or
unless (1) covered by an effective registration statement under the
Securities Act of 1933, as amended, (2) in accordance with (i) Rule 145(d)
(in the case of shares issued to an individual who is not an affiliate of
---
Parent) or (ii) Rule 144 (in the case of shares issued to an individual who
is an affiliate of Parent) of the Rules and Regulations of such Act, or (3)
in accordance with a legal opinion satisfactory to counsel for Parent that
such sale or transfer is otherwise exempt from the registration requirements
of such Act."
Such legend will also be placed on any certificate representing Parent
securities issued subsequent to the original issuance of the Parent Common Stock
pursuant to the Merger as a result of any transfer of such shares or any stock
dividend, stock split, or other recapitalization as long as the Parent Common
Stock issued to the undersigned pursuant to the Merger has not been transferred
in such manner to justify the removal of the legend therefrom. Upon the request
of the undersigned, Parent shall cause the certificates representing the shares
of Parent Common Stock issued to the undersigned in connection with the Merger
to be reissued free of any legend relating to restrictions on transfer by virtue
of ASR 130 and 135 as soon as practicable after the requirements of ASR 130 and
135 have been met. In addition, if the provisions of Rules 144 and 145 are
amended to eliminate restrictions applicable to the Parent Common Stock received
-3-
<PAGE>
by the undersigned pursuant to the Merger, or at the expiration of the
restrictive period set forth in Rule 145(d), Parent, upon the request of the
undersigned, will cause the certificates representing the shares of Parent
Common Stock issued to the undersigned in connection with the Merger to be
reissued free of any legend relating to the restrictions set forth in Rules 144
and 145(d) upon receipt by Parent of an opinion of its counsel to the effect
that such legend may be removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon the undersigned's ability to sell, transfer, or
otherwise dispose of the shares of Parent Common Stock received by the
undersigned, to the extent the undersigned believes necessary, with the
undersigned's counsel or counsel for the Company.
6. Filing of Reports by Parent. Parent agrees, for a period of three
---------------------------
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Parent Common Stock issued to the undersigned pursuant to the
Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Parent Common Stock received by the undersigned
in connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary representation
letter to the transfer agent for Parent Common Stock together with such
additional information as the transfer agent may reasonably request. If
Parent's counsel concludes that such proposed sale or transfer complies with the
requirements of Rule 145(d), Parent shall cause such counsel to promptly provide
such opinions as may be necessary to Parent's Transfer Agent so that the
undersigned may complete the proposed sale or transfer, and Parent shall
promptly take such other actions as may reasonably be required in order to
effectuate such sale or transfer.
8. Acknowledgments. The undersigned recognizes and agrees that the
---------------
foregoing provisions also apply to all shares of the capital stock of the
Company and Parent that are deemed to be beneficially owned by the undersigned
pursuant to applicable federal securities laws, which the undersigned agrees may
include, without limitation, shares owned or held in the name of (i) the
undersigned's spouse, (ii) any relative of the undersigned or of the
undersigned's spouse who has the same home as the undersigned, (iii) any trust
or estate in which the undersigned, the undersigned's spouse, and any such
relative collectively own at least a 10% beneficial interest or of which any of
the foregoing serves as trustee, executor, or in any similar capacity, and (iv)
any corporation or other organization in which the undersigned, the
undersigned's spouse and any such relative collectively own at least 10% of any
class of equity securities or of the equity interest. The undersigned further
recognizes that, in the event that the undersigned is a director or officer of
Parent or becomes a director or officer of Parent upon consummation of the
Merger, among other things, any sale of Parent Common Stock by the undersigned
within a period of less than six months following the effective time of the
Merger may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
-4-
<PAGE>
9. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Parent and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Delaware.
This Affiliate Agreement is executed as of the ____ day of November, 1997.
Very truly yours,
___________________________
Signature
___________________________
Print Name
___________________________
___________________________
___________________________
Address
[add below the signatures of all registered owners
of shares deemed beneficially owned by the
affiliate]
___________________________
Name:
___________________________
Name:
___________________________
Name:
AGREED TO AND ACCEPTED as of
_______________, 19__
PREMIERE TECHNOLOGIES, INC.
By: ________________________
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<PAGE>
EXHIBIT B
FORM OF
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT dated as of November 13, 1997, among the person whose
name appears on Schedule 1 (the "STOCKHOLDER"), Xpedite Systems, Inc., a
Delaware corporation (the "COMPANY"), and Premiere Technologies, Inc., a Georgia
corporation ("PARENT").
WHEREAS, Parent proposes to enter into a Merger Agreement dated as of the
date hereof (as amended from time to time, the "MERGER AGREEMENT"; capitalized
terms used but not defined herein shall have the meanings set forth in the
Merger Agreement, whether or not such Merger Agreement shall be in effect from
time to time) with the Company which provides, among other things, that Nets
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent, will merge with and into the Company pursuant to the merger contemplated
by the Merger Agreement (the "MERGER");
WHEREAS, as of the date hereof, the Stockholder beneficially owns the
number of shares of common stock, par value $.01 per share, of the Company
("COMPANY COMMON STOCK") set forth on Schedule 1; and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, Parent has requested that the Stockholder agree, and in order
to induce Parent to enter into the Merger Agreement, the Stockholder has agreed,
to enter into this Agreement with respect to all the shares of Company Common
Stock now beneficially owned and of which the Stockholder may hereafter acquire
beneficial ownership (the "SHARES") and any other securities, if any, which the
Stockholder is entitled to vote at any meeting of stockholders of the Company
(the "OTHER SECURITIES").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
VOTING AGREEMENT
SECTION 1.01 VOTING AGREEMENT. The Stockholder hereby agrees that,
subject to Schedule 1, at any meeting of the stockholders of the Company,
however called, or in connection with any written consent of the holders of
shares of Company Common Stock, the Stockholder shall vote (or cause to be
voted) the Shares and the Other Securities in favor of the Merger, the execution
and delivery by the Company of the Merger Agreement and the approval of the
terms thereof and each of the other actions contemplated by the Merger Agreement
<PAGE>
and this Agreement and any actions required in furtherance thereof and hereof.
The Stockholder agrees that the Stockholder shall not enter into any agreement
or understanding with any person or entity the effect of which would be to
violate the provisions and agreements contained in this Section 1.01. The
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
SECTION 1.02 IRREVOCABLE PROXY. The Stockholder hereby irrevocably
appoints Parent and each of its officers, as the Stockholder's attorney and
proxy pursuant to the provisions of Section 212(c) of the General Corporation
Law of the State of Delaware, with full power of substitution, to vote and
otherwise act (by written consent or otherwise) with respect to the Shares and
the Other Securities, which the Stockholder is entitled to vote at any meeting
of stockholders of the Company (whether annual or special and whether or not an
adjourned or postponed meeting) or consent in lieu of any such meeting or
otherwise, on the matters and in the manner specified in Section 1.01. THIS
PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. The
Stockholder hereby revokes all other proxies and powers of attorney with respect
to the Shares and the Other Securities that the Stockholder may have heretofore
appointed or granted, and no subsequent proxy or power of attorney shall be
given or written consent executed (and if given or executed, shall not be
effective) by the Stockholder with respect thereto. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
Stockholder and any obligation of the Stockholder under this Agreement shall be
binding upon the heirs, personal representatives, successors and assigns of the
Stockholder. The Shareholder hereby affirms that the irrevocable proxy set
forth in this SECTION 1.02 is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of the Shareholder under this Agreement. The
Shareholder hereby ratifies and confirms all that such irrevocable proxy may
lawfully do or cause to be done by virtue hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder represents and warrants to Parent as follows:
(a) This Agreement has been duly executed and delivered by the
Stockholder and is a legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms. There is no
beneficiary or holder of a voting trust certificate or other interest of any
trust of which Stockholder is trustee whose consent is required for the
execution and delivery of this Agreement or the consummation by the Stockholder
of the transactions contemplated hereby.
(b) The execution and delivery of this Agreement by the Stockholder do
not, and the performance of this Agreement by the Stockholder will not, (i)
conflict with or violate any federal, state, local or foreign law, statute,
ordinance, rule, regulation, permit, injunction, writ, judgment, decree or order
(collectively, "LAWS") of any domestic or foreign administrative, governmental
-2-
<PAGE>
or regulatory agency or other governing body (each, a "GOVERNMENTAL ENTITY")
applicable to the Stockholder or by which any of the Stockholder's assets are
bound, or (ii) conflict with, result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of any
Encumbrance (as hereinafter defined) on any of the assets of the Stockholder
pursuant to, any contract or other instrument to which the Stockholder is a
party or by which the Stockholder or any of the Stockholder's assets are bound,
except for any thereof that could not reasonably be expected to materially
impair the ability of the Stockholder to perform the Stockholder's obligations
hereunder or to consummate the transactions contemplated hereby and except for
any Encumbrances created hereby.
(c) The execution and delivery of this Agreement by the Stockholder do
not, and the performance of this Agreement by the Stockholder will not, require
the Stockholder to obtain any consent, approval, authorization or permit of, or
to make any filing with or notification to, any Governmental Entity based on any
Laws of any Governmental Entity, except (i) the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Securities and Exchange
Commission (the "COMMISSION") thereunder (the "EXCHANGE ACT"), and the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (the "SECURITIES ACT"); and (ii) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, could not reasonably be expected to materially impair
the ability of the Stockholder to perform its obligations hereunder or to
consummate the transactions contemplated hereby.
(d) There is no suit, action, investigation or proceeding pending or,
to the knowledge of the Stockholder, threatened against the Stockholder at law
or in equity before or by any Governmental Entity that could reasonably be
expected to materially impair the ability of the Stockholder to perform the
Stockholder's obligations hereunder or to consummate the transactions
contemplated hereby, and there is no judgment, decree, injunction, rule, order
or writ of any Governmental Entity to which the Stockholder or the Stockholder's
assets are subject that could reasonably be expected to materially impair the
ability of the Stockholder to perform the Stockholder's obligations hereunder or
to consummate the transactions contemplated hereby.
(e) The Stockholder owns beneficially and of record the number of
shares of Company Common Stock (the "EXISTING SHARES") set forth on Schedule 1.
The Existing Shares constitute all the shares of Company Common Stock owned of
record or beneficially by the Stockholder. The Stockholder has sole voting
power, sole power of disposition and all other stockholder rights with respect
to all the Existing Shares, with no restrictions, other than pursuant to
applicable securities laws, on the Stockholder's rights of disposition
pertaining thereto. The Stockholder has good and valid title to all the
Existing Shares, free and clear of all Encumbrances (other than any Encumbrance
created by this Agreement).
(f) The Stockholder understands and acknowledges that Parent is
entering into, and causing Acquisition Sub to enter into, the Merger Agreement
in reliance upon the Stockholder's execution and delivery of this Agreement.
-3-
<PAGE>
The Stockholder acknowledges that the irrevocable proxy set forth in SECTION
1.02 is granted in consideration for the execution and delivery of the Merger
Agreement by Parent and Acquisition Sub.
SECTION 2.02 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents
and warrants to the Stockholder that Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia.
Parent has the requisite corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Parent's Board of Directors and (except as
otherwise set forth in the Merger Agreement) no other corporate proceedings on
the part of Parent are necessary to authorize this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent and is a legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
SECTION 3.01 CONFIDENTIALITY OF AGREEMENT. Each party hereto agrees that,
without the prior written consent of the other party, it will not disclose this
Agreement, or the contents hereof, to any person or entity, except (a) such
party's directors, employees, agents, advisors and affiliates, in each case on a
confidential and need-to-know basis, (b) filings of, or filings of amendment(s)
to, Schedule 13D, or (c) as is required, in the opinion of its counsel, by
applicable law or pursuant to applicable requirements of any listing agreement
with or the rules of any securities exchange or the NASDAQ National Market,
provided that if any party hereto proposes to make any disclosure based upon the
opinion of its counsel such party will, if practicable, advise and consult with
the other party at least one business day prior to such disclosure concerning
the information such party proposes to disclose.
SECTION 3.02 FURTHER ASSURANCES. The Stockholder agrees to use the
Stockholder's reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. If any further action
is necessary or desirable to carry out the purposes of this Agreement, the
Stockholder shall use the Stockholder's reasonable best efforts to take all such
action as promptly as practicable.
-4-
<PAGE>
ARTICLE IV
TERMINATION
SECTION 4.01 TERMINATION. This Agreement shall terminate upon the earlier
of (a) the termination of the Merger Agreement for any reason whatsoever and (b)
the Effective Time of the Merger and, except as set forth below, the parties
hereto shall have no further rights or obligations with respect thereto, except
as a result of any prior breach thereof.
ARTICLE V
DEFINITIONS
SECTION 5.01 DEFINITIONS. For purposes of this Agreement:
(a) "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing;
(b) "PERSON" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(c) "ENCUMBRANCE" means any pledge, security interest, lien, claim,
encumbrance, mortgage, charge, hypothecation, option, right of first refusal or
offer, community property right, other marital right, preemptive right, voting
agreement, voting trust, proxy, power of attorney, escrow, option, forfeiture,
penalty, action at law or in equity, security agreement, stockholder agreement
or other agreement, arrangement, contract, commitment, understanding or
obligation, or any other restriction, qualification or limitation on the use,
transfer, right to vote, right to dissent and seek appraisal, receipt of income
or other exercise of any attribute of ownership.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
-5-
<PAGE>
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 6.02 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
SECTION 6.03 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same instrument.
SECTION 6.04 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties, provided that Parent may assign its rights hereunder to any of its
affiliates, but no such assignment shall relieve Parent of its obligations
hereunder.
SECTION 6.05 AMENDMENTS. This Agreement may not be amended, supplemented,
waived or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
SECTION 6.06 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, facsimile
transmission, mail (registered or certified mail, postage prepaid, return
receipt requested), or courier service providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses:
If to Stockholder, to the address set forth on Schedule 1
If to the Company or Parent, to their respective addresses set forth in the
Merger Agreement, with copies delivered as provided therein
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 6.07 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to be for the benefit of, and shall not be enforceable by, any person or entity
not a party hereto.
SECTION 6.08 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges that a breach by it of any agreement contained in this Agreement
will cause the other parties to sustain damage for which they would not have an
adequate remedy at law for money damages, and therefore each of the parties
hereto agrees that in the event of any such breach the aggrieved parties shall
-6-
<PAGE>
be entitled to the remedy of specific performance of such agreement and
injunctive and other equitable relief in addition to any other remedy to which
they may be entitled, at law or in equity.
SECTION 6.09 REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
SECTION 6.10 NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon strict compliance by any
other party hereto with its obligations hereunder, and any custom or practice of
the parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
SECTION 6.11 GOVERNING LAW.
(a) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
(b) Each party hereby irrevocably submits to the exclusive jurisdiction of
the Court of Chancery in the State of Delaware in any action, suit or proceeding
arising in connection with this Agreement, and agrees that any such action, suit
or proceeding shall be brought only in such court (and waives any objection
based on FORUM NON CONVENIENS or any other objection to venue therein);
PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the purpose
referred to in this subsection (b) and shall not be deemed to be a general
submission to the jurisdiction of such court or in the State of Delaware other
than for such purposes.
SECTION 6.12 WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND THE
STOCKHOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE
COMPANY OR THE STOCKHOLDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT THEREOF.
SECTION 6.13 DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Name:
-----------------------------------------
XPEDITE SYSTEMS, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
PREMIERE TECHNOLOGIES, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
*Schedule 1 hereto setting forth the Stockholder's name, the number of shares
owned and the number of currently exercisable options has been omitted. The
reporting person agrees to furnish supplementally a copy of the omitted schedule
to the Securities and Exchange Commission upon request.
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<PAGE>
EXHIBIT C
REGISTRATION RIGHTS
-------------------
I. DEFINITIONS
-----------
1.1. Definitions. Terms defined in the Agreement and Plan of Merger, dated
-----------
as of November 13, 1997 (the "Agreement"), by and among Premiere Technologies,
Inc. ("Parent"), Xpedite Systems, Inc. (the "Company") and Nets Acquisition
Corp. ("Acquisition Sub"), are used herein as therein defined. In addition, the
following terms, as used herein, have the following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Piggyback Registration" means a Piggyback Registration as defined in
Section 2.2.
"Priority Holders" means the following persons who have previously been
granted registration rights by Parent: (i) Sirrom Capital Corporation, (ii)
NationsBanc Capital Corporation, (iii) CMG@Ventures, L.P., (iv) WorldCom, Inc.,
(v) those former stockholders and other equity owners of Voice-Tel Enterprises,
Inc. ("VTE"), VTN, Inc. and the franchisees of VTE, and (vi) the former
stockholders of VoiceCom Holdings, Inc. pursuant to the acquisition agreement
between Parent and certain stockholders of VoiceCom.
"Registrable Securities" means (A) the shares of Parent Common Stock issued
to the Large Stockholder under the Agreement, and (B) any securities of Parent
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares of Parent Common Stock referred to in clause
(A); provided, that Registrable Securities shall not include (i) securities with
respect to which a registration statement with respect to the sale of such
securities has become effective under the Securities Act and all such securities
have been disposed of in accordance with such registration statement, (ii) such
securities as are actually sold pursuant to Rule 144 (or any successor provision
thereto) under the Securities Act ("Rule 144"), or (iii) such securities as are
acquired by Parent or any of its Subsidiaries.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
II. REGISTRATION RIGHTS
-------------------
2.1. Demand Registration.
-------------------
(a) Beginning on the date that is 30 days after financial results
covering at least 30 days of combined operations of Parent and the Company have
been published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies and ending three months thereafter, a Large
Shareholder may make a written request for registration under the Securities Act
<PAGE>
of all or part of its Registrable Securities (a "Demand Registration"); provided
that Parent shall not be obligated (i) to effect more than one Demand
Registration, (ii) to effect a Demand Registration for less than one million
shares of Parent Common Stock or (iii) to effect a Demand Registration within
three months of Large Shareholder selling any Registrable Securities pursuant to
a Piggyback Registration under Section 2.2. Such request will specify the
number of shares of Registrable Securities proposed to be sold. A registration
will not count as a Demand Registration (x) if, due to the provisions of Section
2.3, the number of Registrable Securities included in such registration is less
than 85% of the Registrable Securities sought to be included in such
registration and (y) until it has become effective.
(b) Unless Parent shall otherwise consent in writing in response to a
request made by the Large Stockholder, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
underwritten offering. Parent shall select the book-running and other managing
Underwriters (which shall be nationally recognized firms) in connection with
such offering and any additional investment bankers and managers to be used in
connection with the offering.
(c) Subject to the provisions of Section 2.3, other shareholders of
Parent shall be entitled to include shares in the Demand Registration pursuant
to any registration rights or other similar rights granted to them by Parent.
2.2. Piggyback Registration. If Parent proposes to file a registration
----------------------
statement under the Securities Act with respect to an offering of Parent Common
Stock (i) for Parent's own account (other than (a) a registration statement on
Form S-4 or S-8 or relating solely to securities issued pursuant to any benefit
plan (or any substitute form that may be adopted by the Commission), (b) a
registration statement covering any method of distribution which is not an
underwritten public offering, or (c) a registration relating to convertible
securities of Parent including any underlying equity securities or relating to
any securities sold pursuant to a Rule 144A transaction) or (ii) for the account
of any of the holders of Parent Common Stock (other than a registration where
the intended method of disposition is not pursuant to an underwritten public
offering), then Parent shall give written notice of such proposed filing to the
Large Shareholder as soon as practicable (but in no event less than ten days
before the anticipated filing date), and such notice shall offer, subject to the
terms and conditions hereof, such Large Shareholder the opportunity to register
such Registrable Securities as such Large Shareholder may request on the same
terms and conditions as Parent's or such holders' Parent Common Stock (a
"Piggyback Registration"). Parent shall have the right to terminate or withdraw
any registration undertaken by it under this Section 2.2 prior to the
effectiveness of such registration whether or not any Large Shareholder has
elected to include securities in such registration.
2.3. Reduction of Offering. Notwithstanding anything contained herein, if
---------------------
the managing Underwriter or Underwriters of an offering described in Section 2.1
or 2.2 shall advise Parent that (i) the size of the offering that Large
Shareholder, Parent and any other persons intend to make or (ii) the kind of
securities that Large Shareholder, Parent and such other persons intend to
include in such offering are such that the success of the offering would be
materially and adversely affected, then (A) if the size of the offering is the
-2-
<PAGE>
basis of such Underwriter's advice, the amount of Registrable Securities to be
offered for the account of such Large Shareholder shall be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing Underwriter or Underwriters;
provided that (x) in the case of a Demand Registration, the amount of
Registrable Securities to be offered for the account of such Large Shareholder
shall be reduced only after the amount of securities to be offered for the
account of Parent and such other persons has been reduced to zero except and to
the extent prohibited by the terms of any registration rights or other agreement
in effect with any of the Priority Holders, and (y) in the case of a Piggyback
Registration, if securities are being offered for the account of persons other
than Parent, then after all securities of the persons requesting such
registration have been included (the "Demand Shareholders"), the proportion by
which the amount of such Registrable Securities intended to be offered for the
account of such Large Shareholder is reduced shall not exceed the proportion by
which the amount of such securities intended to be offered for the account of
persons other than the Demand Shareholders is reduced except and to the extent
prohibited by the terms of any registration rights or other agreement in effect
with any of the Priority Holders; and (B) if the combination of securities to be
offered is the basis of such Underwriter's advice, (x) the Registrable
Securities to be included in such offering shall be reduced as described in
clause (A) above (subject to the proviso in clause (A)), or (y) in the case of a
Piggyback Registration, if the actions described in sub-clause (x) of this
clause (B) would, in the judgment of the managing Underwriter, be insufficient
to eliminate the adverse effect that inclusion of the Registrable Securities
requested to be included would have on such offering, such Registrable
Securities will be excluded from such offering. If the managing underwriter has
not limited the number of Registrable Securities or other securities to be
underwritten, Parent and officers and directors of Parent may include its or
their securities for its or their own account in such registration if the
managing underwriter so agrees and if the number of Registrable Securities and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited.
III. REGISTRATION PROCEDURES
-----------------------
3.1. Filings; Information. Whenever a Large Shareholder requests that any
--------------------
Registrable Securities be registered pursuant to Section 2.1 hereof, Parent will
use its commercially reasonable efforts to effect the registration of such
Registrable Securities as soon as reasonably practicable, and in connection with
any such request:
(a) Parent will as soon as reasonably practicable prepare and file with the
SEC a registration statement on any form for which Parent then qualifies and
which counsel for Parent shall deem appropriate and available for the sale of
the Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use reasonable efforts to cause
such filed registration statement to become and remain effective for a period
of not less than 45 days; provided that if Parent shall furnish to such Large
Shareholder a certificate signed by its Chairman, Chief Executive Officer,
Chief Financial Officer or any Executive Vice President stating that in his
or her good faith judgment it would be detrimental or otherwise
disadvantageous to Parent or its shareholders for such a registration
-3-
<PAGE>
statement to be filed, or, in the case of an effective registration
statement, for sales to be effected thereunder, Parent shall have a period of
not more than 120 days within which to file such registration statement
measured from the date of receipt of the request in accordance with Section
2.1 or, in the case of an effective registration statement, Parent shall be
entitled to require such Large Shareholder to refrain from selling
Registrable Securities under such registration statement for a period of up
to 120 days. If Parent furnishes a notice under this paragraph at a time
when a registration statement filed pursuant to this Agreement is effective,
Parent shall extend the period during which such registration statement shall
be maintained effective as provided in this Section 3.1(a) hereof by the
number of days during the period from and including the date of the giving of
notice under this paragraph to the date when sales under the registration
statement may recommence.
(b) Parent will, if requested, prior to filing such registration statement
or any amendment or supplement thereto, furnish to the Large Shareholder
requesting registration and each managing Underwriter, if any, copies
thereof, and thereafter furnish to such Large Shareholder and each such
Underwriter, if any, such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein) and the prospectus
included in such registration statement (including each preliminary
prospectus) as such Large Shareholder or such Underwriter may reasonably
request in order to facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, Parent will promptly
notify such Large Shareholder of any stop order issued or, to the knowledge
of Parent, threatened to be issued by the SEC and take all necessary actions
required to prevent the entry of such stop order or to remove it if entered.
(d) Parent will use its reasonable efforts to qualify the Registrable
Securities for offer and sale under such other securities or blue sky laws of
such jurisdictions in the United States as such Large Shareholder reasonably
(in light of such Large Shareholder's intended plan of distribution)
requests; provided that Parent will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this paragraph (d), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to service of process in any such
jurisdiction.
(e) Parent shall, as promptly as reasonably practicable, notify each Large
Shareholder that has sold, or is selling, Registrable Securities hereunder,
at any time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales by an
Underwriter or dealer, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, and as promptly as practicable make available to
each such Large Shareholder and to the Underwriters any such supplement or
-4-
<PAGE>
amendment. Each Large Shareholder, by requesting a registration or selling
Registrable Securities hereunder, shall be deemed to agree with Parent that,
upon receipt of any notice from Parent of the happening of any event of the
kind described in the preceding sentence, such Large Shareholder will
forthwith discontinue the offer and sale of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until
receipt of the copies of such supplemented or amended prospectus and, if so
directed by Parent, such Large Shareholder will deliver to Parent all copies,
other than permanent file copies then in Large Shareholder's possession, of
the most recent prospectus covering such Registrable Securities at the time
of receipt of such notice. In the event Parent shall give such notice,
Parent shall extend the period during which any registration statement shall
be maintained effective as provided in Section 3.1(a) hereof by the number of
days during the period from and including the date of the giving of such
notice to the date when Parent shall make available such supplemented or
amended prospectus.
(f) In the event of the issuance of a stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any Registrable Securities included in such registration statement for
sale in any jurisdiction in the United States, Parent will promptly notify
the holders of Registrable Securities and will use its commercially
reasonable efforts to obtain the withdrawal of such order.
(g) Parent will enter into customary agreements (including an underwriting
agreement in customary form and satisfactory in form and substance to Parent
in its reasonable judgment) and take such other actions as are reasonably
required in order to expedite or facilitate the sale of such Registrable
Securities.
(h) Parent will furnish to each Large Shareholder that sells Registrable
Securities hereunder and to each managing Underwriter, if any, a signed
counterpart, addressed to such Large Shareholder and each Underwriter, of (i)
an opinion or opinions of counsel to Parent and (ii) a comfort letter or
comfort letters from Parent's independent auditors pursuant to SAS 72, each
in customary form and covering such matters of the type customarily covered
by opinions or comfort letters delivered to such parties.
(i) Parent will make generally available to its securityholders, as soon as
reasonably practicable, an earnings statement covering a period of 12 months,
beginning within three months after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and the rules and regulations of the SEC
thereunder.
(j) Parent will use reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by Parent are then listed.
3.2. Registration Expenses. In connection with any Demand Registration or
---------------------
Piggyback Registration by or for a Large Shareholder, Parent shall pay the
following expenses incurred in connection with such registration (the
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<PAGE>
"Registration Expenses"): (i) all filing fees with the SEC, (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) printing expenses, (iv) the fees and expenses
incurred in connection with any listing of the Registrable Securities, (v) fees
and expenses of counsel and independent certified public accountants for Parent
(including the expenses of any comfort letters pursuant to Section 3.1(g)
hereof) and (vi) the reasonable fees and expenses of any additional experts
retained by Parent in connection with such registration. Such Large Shareholder
shall pay any underwriting fees, discounts or commissions attributable to the
sale of Registrable Securities, and any out-of-pocket expenses of Large
Shareholder, including such Large Shareholder's counsel's fees and expenses.
Parent shall pay internal Parent expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties).
3.3. Participation in Underwritten Registrations. No person may
-------------------------------------------
participate in any underwritten registered offering contemplated hereunder
unless such person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting arrangements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights. Parent may require each Large Shareholder that requests a
registration or is selling Registrable Securities hereunder promptly to furnish
in writing to Parent such information regarding such Large Shareholder, the plan
of distribution of the Registrable Securities and other information as Parent
may from time to time reasonably request or as may be legally required in
connection with such registration.
IV. INDEMNIFICATION AND CONTRIBUTION
--------------------------------
4.1. Indemnification by Parent. Parent agrees to indemnify and hold
-------------------------
harmless each Large Shareholder, its officers and directors, and each person, if
any, who controls Large Shareholder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if Parent shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished in writing to Parent by or on behalf of any Large Shareholder or
Underwriter for any Large Shareholder expressly for use therein; provided that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Large Shareholder if a copy of the current
prospectus was not provided to the purchaser of Registrable Securities and such
current prospectus would have cured the defect giving rise to such loss, claim,
damage or liability or for any sales occurring after Parent has informed such
Large Shareholder under Section 3.1(e) hereof and prior to the delivery by
Parent of any supplement or amendment to such prospectus. Parent also agrees to
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<PAGE>
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of such Large Shareholder provided in
this Section 4.1.
4.2. Indemnification by Large Shareholders. Each Large Shareholder, by
-------------------------------------
requesting any registration or making any sale of Registrable Securities
hereunder, shall be deemed to agree (on a several and not joint basis) to
indemnify and hold harmless Parent, its officers and directors, and each person,
if any, who controls Parent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from Parent to Large Shareholder, but only with reference to
information furnished in writing by or on behalf of Large Shareholder expressly
for use in any registration statement or prospectus relating to such Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus. Each such Large Shareholder also shall be deemed to agree to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of Parent provided
in this Section 4.2.
4.3. Conduct of Indemnification Proceedings. In case any proceeding
--------------------------------------
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2 hereof, such Person (the "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party, upon the request of the Indemnified Party,
shall retain counsel reasonably satisfactory to such Indemnified Party to
represent such Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
It is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for all such Indemnified Parties, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, or if there be a final judgment for
the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.
4.4. Contribution. If the indemnification provided for in this Article IV
------------
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
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<PAGE>
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by Parent, any Large Shareholder and the Underwriters from the
offering of the securities, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) but also the
relative fault of Parent, such Large Shareholder and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by Parent, such Large
Shareholder and the Underwriters shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of Parent and such
Large Shareholder and the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the prospectus, bear to the aggregate public offering price of the securities.
The relative fault of Parent, a Large Shareholder and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by or on behalf of such party
and the parties, relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Parent and each Large Shareholder shall be deemed to agree that it would
not be just and equitable if contribution pursuant to this Section 4.4 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 4.4, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and
Large Shareholder shall not be required to contribute any amount in excess of
the amount by which the net proceeds of the offering (before deducting expenses)
received by Large Shareholder exceeds the amount of any damages which Large
Shareholder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
-8-
<PAGE>
<PAGE>
Exhibit 99.3
================================================================================
SHARE PURCHASE AGREEMENT
by and among
PHJ&W NO. 2 LIMITED
XPEDITE SYSTEMS, INC.
and
the
SHAREHOLDERS OF XPEDITE SYSTEMS LIMITED
Dated as of August 8, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of the Shares........................... 2
SECTION 1.01. Purchase and Sale of the Shares.................. 2
SECTION 1.02. Adjustments...................................... 5
SECTION 1.03. Modification of Option Agreement;
Termination of Option Agreement.................. 7
SECTION 1.04. Epstein Put/Call Agreement....................... 8
ARTICLE II Representations and Warranties of APAX.................... 10
SECTION 2.01. Organization and Standing........................ 10
SECTION 2.02. [INTENTIONALLY OMITTED].......................... 11
SECTION 2.03. Capitalization................................... 11
SECTION 2.04. Absence of Equity Investments.................... 12
SECTION 2.05. Liabilities and Obligations of the Company....... 12
SECTION 2.06. Tax Matters...................................... 13
SECTION 2.07. Title to Property and Related Matters............ 16
SECTION 2.08. Real Property Owned or Leased.................... 16
SECTION 2.09. Personal Property Owned or Leased................ 17
SECTION 2.10. Accounts Receivable.............................. 18
SECTION 2.11. Agreement Does Not Violate Other Instruments..... 18
SECTION 2.12. Absence of Changes............................... 19
SECTION 2.13. Litigation....................................... 21
SECTION 2.14. Licenses and Permits; Compliance With Law........ 21
SECTION 2.15. Contracts, Etc................................... 21
SECTION 2.16. Licenses; Trademarks; Trade Names; Etc........... 24
SECTION 2.17. Insurance........................................ 25
SECTION 2.18. Employee Benefit Plans........................... 26
SECTION 2.19. Labor Relations; Employees....................... 28
SECTION 2.20. Compensation..................................... 28
SECTION 2.21. Investment Banking Fees, Brokers and Finders..... 29
SECTION 2.22. Tariffs.......................................... 29
SECTION 2.23. Customers and Suppliers.......................... 29
SECTION 2.24. Environmental Compliance......................... 30
SECTION 2.25. Change of Control Provisions..................... 31
SECTION 2.26. Improper and Other Payments...................... 31
SECTION 2.27. Minute Books..................................... 31
SECTION 2.28. Accounts......................................... 32
SECTION 2.29. Accuracy of Representations...................... 32
ARTICLE III Representations and Warranties of the Shareholders........ 33
<PAGE>
PAGE
SECTION 3.01. Ownership of the Shares.......................... 33
SECTION 3.02. Authorization.................................... 33
SECTION 3.03. No Conflict or Violation......................... 33
SECTION 3.04. Brokers' Fees.................................... 34
ARTICLE IV Representations and Warranties of Xpedite and Purchaser... 35
SECTION 4.01. Corporate Organization........................... 35
SECTION 4.02. Authorization.................................... 35
SECTION 4.03. Agreement Does Not Violate Other Instruments..... 35
SECTION 4.04. Brokers and Finders.............................. 36
ARTICLE V Interpretation and Survival of
Representations and Warranties............................ 36
SECTION 5.01. Interpretation................................... 36
SECTION 5.02. Reliance by Purchaser............................ 37
SECTION 5.03. Survival......................................... 37
ARTICLE VI Covenants................................................. 37
SECTION 6.01. Regular Course of Business....................... 37
SECTION 6.02. Capital Changes.................................. 39
SECTION 6.03. Dividends........................................ 39
SECTION 6.04. Capital Expenditures............................. 39
SECTION 6.05. Indebtedness..................................... 40
SECTION 6.06. Property......................................... 40
SECTION 6.07. Loans............................................ 40
SECTION 6.08. Other............................................ 40
SECTION 6.09. Interim.......................................... 40
SECTION 6.10. Consents......................................... 40
SECTION 6.11. Access........................................... 40
SECTION 6.12. Notice of Transfer............................... 41
SECTION 6.13. [INTENTIONALLY OMITTED].......................... 41
SECTION 6.14. Further Assurances............................... 41
SECTION 6.15. No Solicitation or Negotiation................... 41
SECTION 6.16. Public Announcements............................. 42
SECTION 6.17. Authorized Share Capital......................... 42
SECTION 6.18. Expenses......................................... 43
SECTION 6.19. Escrow of Eagle Shares........................... 43
SECTION 6.20. Modifications to Buyback Agreement............... 43
SECTION 6.21. Waiver of Pre-emption Rights..................... 43
SECTION 6.22. Transfers by Eagle............................... 43
ARTICLE VII Conditions to the Obligations of the Purchaser............ 44
SECTION 7.01. Representations and Warranties; Performance...... 44
SECTION 7.02. Consents and Approvals........................... 44
SECTION 7.03. Litigation....................................... 45
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PAGE
SECTION 7.04. APAX Letter of Credit............................ 45
SECTION 7.05. No Material Adverse Change....................... 45
SECTION 7.06. Options.......................................... 45
SECTION 7.07. Employment Agreement............................. 46
SECTION 7.08. Buyback Agreement................................ 46
SECTION 7.09. Satisfaction of Financial Assistance
Requirements..................................... 46
SECTION 7.10. Share Certificates; Redemption of A Prefs........ 46
ARTICLE VIII Conditions to the Obligations of the Shareholders........ 46
SECTION 8.01. Representations and Warranties; Performance...... 47
SECTION 8.02. Consents and Approvals........................... 47
SECTION 8.03. No Proceeding or Litigation...................... 47
SECTION 8.04. Purchaser Letter of Credit....................... 47
ARTICLE IX Closing.................................................. 47
SECTION 9.01. Closing.......................................... 47
ARTICLE X Termination.............................................. 51
SECTION 10.01. Termination Events............................... 51
SECTION 10.02. Effect of Termination............................ 52
ARTICLE XI Liability to Purchaser................................... 53
SECTION 11.01. Integration...................................... 53
SECTION 11.02. Projections...................................... 53
SECTION 11.03. Disclosed Matters................................ 53
SECTION 11.04. Survival Period.................................. 54
SECTION 11.05. No Rescission.................................... 55
SECTION 11.06. Mitigation....................................... 55
SECTION 11.07. Offset; Increase................................. 56
SECTION 11.08. DeMinimis Claims; Basket......................... 56
SECTION 11.09. Maximum Liability................................ 57
SECTION 11.10. Third Party Recoveries........................... 57
SECTION 11.11. Subsequent Recovery.............................. 57
SECTION 11.12. Purchase Price Reduction......................... 58
SECTION 11.13. Actual Damages................................... 58
SECTION 11.14. Contingent Liability............................. 58
SECTION 11.15. Application of Credits, etc...................... 58
SECTION 11.16. Single Recovery.................................. 58
SECTION 11.17. [INTENTIONALLY OMITTED].......................... 59
SECTION 11.18. Shareholders' Indemnity.......................... 59
SECTION 11.19. Settlement of Claims............................. 59
SECTION 11.21. Reservation...................................... 61
ARTICLE XII Miscellaneous............................................. 61
SECTION 12.01. Expenses......................................... 61
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PAGE
SECTION 12.02. Headings......................................... 61
SECTION 12.03. Notices.......................................... 62
SECTION 12.04. Assignment....................................... 64
SECTION 12.05. Complete Agreement............................... 64
SECTION 12.06. Waivers.......................................... 64
SECTION 12.07. Counterparts..................................... 64
SECTION 12.08. Governing Law.................................... 64
SECTION 12.09. Arbitration...................................... 64
SECTION 12.10. Accounting Terms................................. 65
SECTION 12.11. Parties.......................................... 65
SECTION 12.12. Legal Remedies................................... 65
SECTION 12.13. Schedules........................................ 66
SECTION 12.14. Xpedite Guarantee................................ 66
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EXHIBIT A Form of Buyback Agreement
EXHIBIT B APAX Letter of Credit
EXHIBIT C Form of Employment Agreement with David Proctor
EXHIBIT D Rules with Respect to Arbitration Proceedings
EXHIBIT E Form of Closing Date Certificate
SCHEDULE 1 Ownership of Shares (excluding Eagle)
SCHEDULE 1A Ownership of Shares (including Eagle)
SCHEDULE 1.02 Audit Policies*
SCHEDULE 1.02(a) Projected Balance Sheet*
SCHEDULE 2.01(b) Subsidiaries; Jurisdictions of Organization*
SCHEDULE 2.01(c) Organizational Documents of Subsidiaries*
SCHEDULE 2.03 Conversion Rights*
SCHEDULE 2.05(a)(i) Company Financial Statements*
SCHEDULE 2.05(a)(ii) Material Liabilities*
SCHEDULE 2.06(b) Unpaid Taxes*
SCHEDULE 2.06(c)(i) Encumbrances Relating to Taxes*
SCHEDULE 2.06(c)(ii) Jurisdictions in Which Returns Have Been
Examined or Statute of Limitations Has Run*
SCHEDULE 2.06(c)(iii) Unpaid Deficiencies Resulting from Audits or
Examinations and Material Issues Raised*
SCHEDULE 2.06(c)(iv) Returns Under Audit and Outstanding Subpoenas*
SCHEDULE 2.06(d) Tax Extensions; Powers of Attorney*
SCHEDULE 2.06(e) Consolidated Groups; Tax Jurisdictions*
SCHEDULE 2.06(f) Tax Sharing Agreements*
SCHEDULE 2.06(g) Inclusions in Income*
SCHEDULE 2.06(h) Nexus Jurisdictions*
SCHEDULE 2.07 Encumbrances*
SCHEDULE 2.08 Real Property; Encumbrances; Defaults*
SCHEDULE 2.09 Personal Property; Leases; Defaults*
SCHEDULE 2.10 Receivables Deemed Uncollectible*
SCHEDULE 2.11 Conflicts, Consents, etc.*
SCHEDULE 2.12 Absence of Changes*
SCHEDULE 2.13 Litigation*
SCHEDULE 2.14 Permits; Violations*
SCHEDULE 2.15 Material Contracts; Defaults*
SCHEDULE 2.16 Licenses; Trademarks; Tradenames*
SCHEDULE 2.17 Insurance Policies; Claims; Denials of Coverage*
SCHEDULE 2.18 Benefit Plans; Withdrawal Liability; Unfunded Benefits*
SCHEDULE 2.19 Labor Relations; Unions; Foreign Plans*
SCHEDULE 2.20 Compensation*
SCHEDULE 2.21 Brokers*
SCHEDULE 2.22 Tariffs*
SCHEDULE 2.23 Customers*
SCHEDULE 2.28 Accounts*
SCHEDULE 6.04 Budgeted Capital Expenditures*
SCHEDULE 6.06 Commitments with Respect to Property*
SCHEDULE 7.02 Consents*
* The registrant has omitted these schedules to the Share Purchase Agreement.
The registrant agrees to furnish copies of all such schedules, to the extent
they are available to the registrant, to the Commission upon request.
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INDEX OF DEFINITIONS
DEFINITION SECTION
"A Prefs"............................................. Section 1.01
"Adjusted Purchase Price"............................. Section 1.02(a)
"Adjustment Statement"................................ Section 1.02(b)
"Affiliated Group".................................... Section 2.06(a)
"Agreement"........................................... Introduction
"APAX"................................................ Article II
"APAX Letter of Credit"............................... Section 7.04
"Applicable Laws"..................................... Section 2.11(c)
"Balance Amount"...................................... Section 1.01
"Base Balance Sheet".................................. Section 2.05
"Base Net Asset Value"................................ Section 1.02(a)
"Breakup Amount"...................................... Section 10.02
"Buyback Agreement"................................... Introduction
"Closing"............................................. Section 9.01
"Closing Date"........................................ Section 9.01
"Closing Date Balance Sheet".......................... Section 1.02(a)
"Closing Date Net Asset Value"........................ Section 1.02(a)
"Company"............................................. Introduction
"Company Financial Statements"........................ Section 2.05
"Contested Adjustment Notice"......................... Section 1.02(b)
"Contested Adjustments"............................... Section 1.02(b)
"Conversion Rights"................................... Section 2.03(b)
"Covered Taxes"....................................... Section 2.06(b)
"Disclosure Letter"................................... Section 11.03(c)
"Eagle"............................................... Introduction
"Eagle Shares"........................................ Introduction
"Employment Agreement:................................ Section 7.07
"Encumbrances"........................................ Section 2.03(a)
"Environmental Laws".................................. Section 2.24
"Epstein Shares"...................................... Section 1.04(a)
"Epstein Put/Call Purchase Price"..................... Section 1.04(a)
"Exercise Notice"..................................... Section 1.06(a)
"Exit Bonus Scheme"................................... Section 2.20
"Finally Determined".................................. Section 11.19
"GAAP"................................................ Section 2.05
"Governmental Authority" ............................. Section 2.11(c)
"Hazardous Materials"................................. Section 2.24
"Indebtedness"........................................ Section 1.01
"Independent Accountant".............................. Section 1.02(b)
"Judgment" ........................................... Section 2.11(c)
"June 1997 Accounts" ................................. Section 2.05
"Legal Action"........................................ Section 2.13
"Material Adverse Change" ............................ Section 7.05
"Material Adverse Effect" ............................ Section 2.01(a)
"Material Contracts".................................. Section 2.15
"Morgan Stanley Fee".................................. Section 2.21
"Net Asset Value"..................................... Section 1.02(a)
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1
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DEFINITION SECTION
"1995/1996 Accounts" ................................. Section 2.05
"Option Agreement" ................................... Introduction
"Options"............................................. Section 2.03(a)
"Permits"............................................. Section 2.14
"Person".............................................. Section 2.11(b)
"Personal Property"................................... Section 2.09
"Plans"............................................... Section 2.18(a)
"Purchase Price"...................................... Section 1.01
"Purchaser Letter of Credit".......................... Section 8.04
"Qualifying Claim" ................................... Section 11.08
"Return" or "Returns"................................. Section 2.06(a)
"Settlement Amount Certificate"....................... Section 1.02(b)
"Share" or "Shares"................................... Introduction
"Shareholder" or "Shareholders"....................... Introduction
"Subsidiary".......................................... Section 2.01(a)
"Tax" or "Taxes"...................................... Section 2.06(b)
"Taxing Authority".................................... Section 2.06(a)
"Xpedite"............................................. Introduction
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<PAGE>
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (collectively with the Schedules, Exhibits,
Disclosure Letter and other attachments hereto, the "AGREEMENT"), dated as of
August 8, 1997, is entered into by and among PHJ&W No. 2 LIMITED, an English
corporation (Registration No. 3406448) (the "PURCHASER"), XPEDITE SYSTEMS, INC.,
a Delaware corporation ("XPEDITE"), and the shareholders of XPEDITE SYSTEMS
LIMITED, an English corporation (Registration No. 2778084) (the "COMPANY")
listed on SCHEDULE 1 attached hereto (each, a "SHAREHOLDER" and collectively,
the "SHAREHOLDERS" but, for the avoidance of doubt, the terms "SHAREHOLDER" and
"SHAREHOLDERS" shall not include Eagle (as defined below) unless the Buyback
Agreement (as defined below) is terminated).
WHEREAS, the Shareholders own all of the issued ordinary and preference
share capital of the Company (other than the "A PREFS" (as hereinafter defined)
and the Ordinary Shares of (pound)1.00 each in the capital of the Company
subject to the provisions of the Buyback Agreement) (individually, a "SHARE" and
collectively, the "SHARES"), in the amounts indicated on SCHEDULE 1 attached
hereto.
WHEREAS, Xpedite, the Company and the Shareholders are parties to that
certain Put and Call Option Agreement dated as of January 29, 1993 (as amended
through the date hereof, the "OPTION AGREEMENT") in which the parties thereto
set forth certain agreements regarding the ability of a party to either "put" or
"call" the Shares as more fully set forth in the Option Agreement.
WHEREAS, Xpedite has formed Purchaser for the purpose of purchasing the
Shares.
WHEREAS, the Shareholders desire to sell to Purchaser, and Purchaser
desires to purchase from the Shareholders, the number of Shares set forth
opposite their respective names on SCHEDULE 1 attached hereto or, in the event
the Buyback Agreement is terminated, SCHEDULE 1A attached hereto, in accordance
with the terms and provisions of this Agreement.
WHEREAS, on the date of this Agreement, the Company and Eagle Nominees
Limited ("EAGLE") have entered
<PAGE>
into a conditional sale and purchase agreement (the "BUYBACK AGREEMENT") in the
form of EXHIBIT A attached hereto for the acquisition by the Company of 48,334
Ordinary Shares (the "Eagle Shares") of (pound)1.00 each in the capital of the
Company from Eagle for a consideration of $10,773,935 subject to compliance with
the Companies Act 1985.
WHEREAS, the Buyback Agreement will automatically terminate if there is
an outstanding objection under Section 176 of the Companies Act 1985 at Closing
in which event Eagle will become a "Shareholder" for purposes of this Agreement
and the Eagle Shares shall be treated as "Shares" for purposes hereof.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and of the representations, warranties, covenants and
agreements hereinafter contained, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
-------------------------------
SECTION 1.01. PURCHASE AND SALE OF THE SHARES.
-------------------------------
At the Closing (as defined in SECTION 9.01), (a) each Shareholder (other
than Marc Epstein), in reliance on the representations, warranties and covenants
of Purchaser and Xpedite contained herein and subject to the terms and
conditions of this Agreement, shall sell with full title guarantee to Purchaser
all of the Shares set forth opposite such Shareholder's name on SCHEDULE 1
hereto or, in the event the Buyback Agreement is terminated, SCHEDULE 1A hereto;
and (b) Purchaser, in reliance on the representations, warranties and covenants
of the Company and the Shareholders contained herein and subject to the terms
and conditions of this Agreement, shall purchase the Shares (including the
Epstein Shares (as defined in SECTION 1.04) which ordinary shares are subject to
the provisions of SECTION 1.04) from the Shareholders in the proportions set
forth in SCHEDULE 1 or, in the event the Buyback Agreement is terminated, in the
proportions set forth in SCHEDULE 1A , for the aggregate cash purchase price
equal to $76,226,065 (or $87,000,000, in the event the Buyback Agreement is
terminated and the Eagle Shares are purchased pursuant hereto) MINUS the nominal
amount outstanding of the 17.5% cumulative redeemable "A" preference shares (the
"A PREFS"), in the capital of the Company, and any premiums and interest
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<PAGE>
thereon (accrued down to the Closing Date) and penalties (if any) with respect
thereof, and MINUS Indebtedness (as defined below) of the Company outstanding on
the Closing Date including, but not limited to, any overdrafts and indebtedness
to N.M. Rothschild & Sons Limited ("PURCHASE PRICE"), which Purchase Price shall
be allocated among the Shareholders as set forth on SCHEDULE 1 or SCHEDULE 1A
attached hereto, as applicable. For purposes of this Agreement, the term
"INDEBTEDNESS" of a Person at a particular date shall mean all obligations for
borrowed money of such Person (other than trade debt incurred in the ordinary
course of business) which in accordance with GAAP (as defined in SECTION 2.05
hereof) would be classified upon a balance sheet as liabilities, including all
indebtedness, debt and similar monetary obligations of such Person, whether
direct or guaranteed, and all premiums, if any, due at the required prepayment
dates of, interest on, and penalties with respect to, such indebtedness. Not
later than two business days prior to the Closing Date, the Shareholders shall
deliver to Purchaser (i) an estimated consolidated balance sheet of the Company,
prepared in good faith, as of the close of business on the last day of the month
immediately preceding the Closing Date (as defined in SECTION 9.01 hereof);
provided that where the Closing is delayed pursuant to SECTION 9.01 and
consequently the Closing Date is before the 15th day of a month, the
Shareholders shall deliver to Purchaser a consolidated balance sheet of the
Company prepared in good faith as of the close of business on the last day of
the second to last month immediately preceding the Closing Date, and (ii) a
statement of aggregate revenues and page count, on a weekly basis, for each week
(or portion thereof) in the period from the date of the balance sheet of the
Company delivered pursuant to clause (i) of this sentence to the day before such
delivery. Not later than October 31, 1997, Xpedite shall provide the
Shareholders with evidence that it has received financing commitments (subject
to customary closing conditions) in an amount of at least $87,000,000. The
Purchase Price will be paid by Purchaser as follows:
(i) at the Closing, $57,000,000 shall be delivered to
either Shareholders' solicitors, Hammond Suddards, or to such other
persons that the Shareholders specify, whose respective bank account
details will be provided to Purchaser not less than 7 days prior to the
Closing in cash by wire transfer in immediately available funds, which
$57,000,000 will be applied in accordance with SECTION 9.01(b)(i);
provided that the amounts applied pursuant to SECTION 9.01(b)(i)
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(First) and (Second) shall be contributed to the Company for the
purpose of redeeming the A Prefs and completing the Buyback Agreement,
respectively; and
(ii) six months after the Closing Date, the remaining
balance of the Purchase Price (after taking into account any adjustment
to be made pursuant to SECTION 1.02) ("BALANCE AMOUNT") shall be
delivered to Hammond Suddards, or to such other persons that the
Shareholders specify, for the benefit of all the Shareholders in cash
by wire transfer in immediately available funds, LESS the amount of the
Epstein Put/Call Purchase Price which shall be paid in accordance with
SECTION 1.04; PROVIDED, that in the event of a dispute over the
calculation of the Balance Amount, such Balance Amount shall be payable
on the later of (i) the date ten (10) days after the final calculation
of the Balance Amount pursuant to SECTION 1.02(b) hereof, or (ii) the
date six months after the Closing Date; PROVIDED, FURTHER, that in the
event of a dispute over the adjustment to the Purchase Price pursuant
to SECTION 1.02(b) hereof, Purchaser shall pay the undisputed portion
of the Balance Amount on the date six months after the Closing Date.
Notwithstanding anything contained in this Agreement to the contrary,
in the event David Proctor has not purchased at least $2.0 million of
Xpedite common stock (which Xpedite hereby irrevocably covenants to
issue to David Proctor upon such payment being made) within six months
after the Closing Date, as required by the Employment Agreement (as
defined in SECTION 7.07), the Purchaser shall have the right to
withhold the payment of the Balance Amount until such time as David
Proctor has purchased $2.0 million of Xpedite stock. In addition, APAX
agrees that the Purchaser has a right of set-off of $172,000 against
APAX, which amount may be withheld by the Purchaser from APAX's portion
of the Balance Amount.
Upon delivery to Hammond Suddards or to such other persons that the
Shareholders specify, of any payment described in this SECTION 1.01, neither the
Purchaser nor Xpedite shall have any liability with respect to such payment to
any party.
Subject to Section 1.02 hereof, nothing contained in this Agreement shall
require that, in order to purchase the Shares the Purchaser will pay more than
an aggregate sum of $76,226,065 (in the event the Buyback Agreement is in
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<PAGE>
effect) or $87,000,000 (in the event the Buyback Agreement has been terminated
pursuant to Clause 5.2 of the Buyback Agreement), LESS the nominal amount
outstanding of the A Prefs on the Closing Date (and any premiums and interest
thereon accrued down to the Closing Date and penalties (if any) in respect
thereof), LESS the amount of Indebtedness of the Company outstanding on the
Closing Date, and LESS the amount of the Epstein Put/Call Purchase Price (as
defined in SECTION 1.04), as adjusted pursuant to SECTION 1.02 hereof.
SECTION 1.02. ADJUSTMENTS.
-----------
(a) Within sixty (60) days after the Closing Date, the Purchaser shall
prepare, in a manner consistent with the procedures and policies, bases and
methods of valuation adopted in the preparation of the audited accounts of the
Company for the year ending December 31, 1996 as detailed in SCHEDULE 1.02, and
deliver to the Shareholders a consolidated balance sheet of the Company (the
"CLOSING DATE BALANCE SHEET") as at the end of the calendar month prior to the
month in which the Closing takes place (but, for the avoidance of doubt, without
taking into account the effect of the transactions described in SECTION
9.01(b)(i) and (if the Buyback Agreement is not terminated) the completion of
the Buyback Agreement). The parties shall have the right to dispute the Closing
Date Balance Sheet as provided in SECTION 1.02(b) hereof. The Purchase Price
payable to the Shareholders shall be increased, where the Closing Date Net Asset
Value, as defined below, is more than the Base Net Asset Value, as defined
below, or reduced, where the Closing Date Net Asset Value is less than the Base
Net Asset Value, by the difference between the Closing Date Net Asset Value and
the Net Asset Value, as defined below, of the Company as of the end of the
calendar month prior to the month in which the Closing takes place (the "BASE
NET ASSET VALUE"), as shown in the projected balance sheets of the Company
attached as SCHEDULE 1.02(a). For purposes of this Agreement, the term "NET
ASSET VALUE" shall mean the total assets MINUS total liabilities of the Company
(calculated in a manner consistent with the calculation of the Base Net Asset
Value) as of the end of a particular month, and the term "CLOSING DATE NET ASSET
VALUE" shall be the Net Asset Value shown on the Closing Date Balance Sheet, and
in each case, the Net Asset Value shall be expressed in U.S. Dollars based upon
an exchange rate from Pounds Sterling equal to the average daily closing
exchange rate as reported in the Wall Street Journal for the five business days
immediately prior to the third business day prior to the date following six (6)
months after Closing; PROVIDED, FURTHER, that for
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<PAGE>
purposes of calculating "Net Asset Value" the amount of liability for amounts
owed by the Company to Xpedite shall not exceed one month of Xpedite's royalty
charges to the Company. The amount of the Purchase Price, as adjusted pursuant
to this SECTION 1.02, shall be referred to herein as the "ADJUSTED PURCHASE
PRICE" provided always that the adjustment to the Purchase Price shall not in
any event be more than $1,500,000 up or down.
(b) The Shareholders shall have until thirty (30) days after the delivery
of the Closing Date Balance Sheet to them to review such statement and propose
any adjustments thereto. The Purchaser agrees that it shall provide the
Shareholders and their accountants access during normal business hours to review
and, where reasonable, take copies of, the Company's books and records for all
relevant periods in connection with the Shareholders' review of the Closing Date
Balance Sheet and proposal of adjustments with respect thereto in accordance
with this SECTION 1.02(b). All adjustments proposed by the Shareholders shall be
set out in detail in a written statement delivered to Purchaser (an "ADJUSTMENT
STATEMENT") and shall be incorporated into the Closing Date Balance Sheet unless
Purchaser shall object in writing to such proposed adjustment within fifteen
(15) days after delivery by the Shareholders to Purchaser of such Adjustment
Statement. If Purchaser does object in writing within fifteen (15) days to any
such proposed adjustment (the proposed adjustment or adjustments to which
Purchaser objects, hereinafter the "CONTESTED ADJUSTMENTS" and Purchaser's
objection notice, hereinafter, a "CONTESTED ADJUSTMENT NOTICE"), then Purchaser
and the Shareholders shall use reasonable efforts to resolve their dispute
regarding the Contested Adjustments, but if a final resolution thereof is not
obtained within fifteen (15) days after Purchaser delivers to the Shareholders
the relevant Contested Adjustment Notice, the Shareholders and Purchaser shall
promptly retain Arthur Andersen & Co. (the Leeds, England office) (the
"INDEPENDENT ACCOUNTANT") to resolve any remaining disputes concerning the
Contested Adjustments. Within fifteen (15) days after the Independent Accountant
is retained, (i) Purchaser and the Shareholders shall each submit to the
Independent Accountant in writing their respective positions with respect to the
Contested Adjustments, together with such supporting documentation as they deem
necessary or as the Independent Accountant requests, and (ii) Purchaser and the
Shareholders shall cause the Independent Accountant to, within thirty (30) days
after receiving the positions of both Purchaser and the Shareholders and all
supplementary supporting documentation
-6-
<PAGE>
requested by the Independent Accountant, render its decision as to the Contested
Adjustments, which decision shall (in the absence of manifest error) be final
and binding on, and nonappealable by, Purchaser and the Shareholders. The fees
and expenses of the Independent Accountant incurred in connection with the
procedure set forth in this SECTION 1.02(b) shall be borne by Purchaser and the
Shareholders in proportion to the difference between the Closing Date Net Asset
Value last claimed by each such party in the Adjustment Statement or Contested
Adjustment Notice immediately prior to the retention of such Independent
Accountant and the Closing Date Net Asset Value as determined by the Independent
Accountant in its final decision as set forth in its Settlement Amount
Certificate (as hereinafter defined) (E.G., if Purchaser claims a Closing Date
Net Asset Value of Three Hundred Thousand Pounds Sterling ((pound)300,000), the
Shareholders claim a Closing Date Net Asset Value of Five Hundred Thousand
Pounds Sterling ((pound)500,000) and the Settlement Amount Certificate
establishes a Closing Date Net Asset Value of Four Hundred Fifty Thousand Pounds
Sterling ((pound)450,000) then the costs of the Independent Accountant would be
borne Seventy-Five Percent (75%) by Purchaser and Twenty-Five Percent (25%) by
the Shareholders. The decision of the Independent Accountant shall also include
a certificate (the "SETTLEMENT AMOUNT CERTIFICATE") of the Independent
Accountant setting forth the final amount of the Closing Date Net Asset Value
and the amount, if any, by which the second installment of the Purchase Price
payable six months after the Closing shall be increased or reduced. The Closing
Date Balance Sheet shall be deemed to include all undisputed adjustments and
those adjustments made by the decision of the Independent Accountant in
resolving the Contested Adjustments.
(c) For the avoidance of doubt, Purchaser shall, subject to the time
limits imposed by this SECTION 1.02, be entitled to cause the Company to take
such steps as Purchaser decides necessary (including, but not limited to,
obtaining rulings from relevant Governmental Authorities) in order to prepare
and finalize the Closing Date Balance Sheet.
SECTION 1.03. MODIFICATION OF OPTION AGREEMENT; TERMINATION OF OPTION
AGREEMENT. The parties hereto agree that in the event this Agreement is
terminated for whatever reason then the Option Agreement shall as of the date of
such termination be amended so that the definition of "MC" contained in the
Schedule of the Option Agreement shall in
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<PAGE>
the event of a "put" or "call" option being exercised pursuant to the Option
Agreement in January 1998 (but not in connection with an exercise at any other
time) be as follows: "means (a) INC's total equity value (as represented by the
average market capitalization of all INC's Stock in issue on (i) the last 20
trading days prior to December 31, 1997 or (ii) the 20 trading days commencing
on the 30th day after the termination of the Share Purchase Agreement dated as
of August 8, 1997 among PHJ&W No. 2 Limited, Xpedite Systems, Inc. and APAX and
Mr. Proctor and others (as amended, the "Purchase Agreement"), whichever period
begins later, including, but without limitation, all ordinary and preferred
stock including accrued and unpaid interest and dividends) and (b) any amount
paid by INC within the last 6 months of the date falling 30 days after the
termination of the Purchase Agreement, other than funds representing profits
from operations, to redeem, repurchase or retire any preferred stock." The
parties hereto also agree that the definition of "CP" shall be calculated by
reversing the expenses booked by the Company that are associated with the Exit
Bonus Scheme and the Morgan Stanley Fee (each as defined herein). The parties
hereto further agree that upon the unconditional purchase and sale of the Shares
on the Closing Date, the Option Agreement shall be automatically terminated
without any further action of the parties, shall be of no further force or
effect and no party shall have any rights, liability or obligation to any other
party thereunder with respect thereto. For the avoidance of doubt, in connection
with the exercise of a "put" or "call" option under the Option Agreement other
than in January 1998, the definition of "MC" shall remain as set forth in the
Option Agreement as of the date hereof.
SECTION 1.04. EPSTEIN PUT/CALL AGREEMENT. (a) At any time on or after
August 1, 1998, the Purchaser shall have the right to purchase from Marc Epstein
all, but not less than all, of the 10,000 ordinary shares of(pound)1.00 eACH in
the capital of the Company beneficially owned by Marc Epstein (the "EPSTEIN
SHARES"), and Marc Epstein shall have the right to cause the Purchaser to
purchase all, but not less than all, the Epstein Shares, for a cash purchase
price equal to the proportion of the Adjusted Purchase Price due to Marc Epstein
as set out in SCHEDULE 1 or SCHEDULE 1A, as the case may be (the "EPSTEIN
PUT/CALL PURCHASE PRICE"). Each of the Purchaser and Marc Epstein, as the case
may be, may exercise their rights under this SECTION 1.04(a) by giving written
notice thereof to the other party ("EXERCISE NOTICE"). The closing for the
purchase and sale of the Epstein Shares (the "EPSTEIN PUT/CALL CLOSING") shall
take
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place on the date that is five (5) days after receipt by the Purchaser or Marc
Epstein, as the case may be, of the Exercise Notice from the other party or such
other date as may be mutually agreed upon by the Purchaser and Marc Epstein. It
shall be a condition precedent to the Purchaser's obligation to consummate the
Epstein Put/Call Closing that (i) the representations and warranties made by
Marc Epstein in Article III hereof with respect to the Epstein Shares and to
himself are true and correct in all material respects as of such date, (ii) Marc
Epstein will in connection with such Epstein Put/Call Closing execute and
deliver to Xpedite at Closing a Noncompetition and Nondisclosure Agreement in a
form reasonably satisfactory to Xpedite (both parties agreeing to negotiate in
good faith) and (iii) Marc Epstein shall have complied with the provisions of
Section 1.04(c). At the Epstein Put/Call Closing, the Epstein Put/Call Purchase
Price shall be paid in cash by the Purchaser to Marc Epstein by wire transfer to
an account designated by Marc Epstein and Marc Epstein shall deliver to the
Purchaser a certificate or certificates representing the Epstein Shares,
together with a duly executed stock transfer form in respect of the Epstein
Shares in favor of the Purchaser (or to such other Person as the Purchaser may
designate).
(b) From the date hereof until the date of the Epstein Put/Call Closing,
Marc Epstein shall not sell, transfer, pledge, hypothecate, or otherwise dispose
of any of the Epstein Shares or any interest in or portion thereof, or any
rights appurtenant thereto. Effective as of Closing, Marc Epstein hereby
appoints the Purchaser as his attorney to attend any and all meetings of the
shareholders of the Company, to vote all of the share capital of the Company
owned by Marc Epstein, to give or withhold a written consent in connection with
any solicitation of consents and to represent and otherwise to act for him in
matters involving the Company and its business in the same manner and with the
same effect as if done by him. This power of attorney shall be irrevocable. Marc
Epstein hereby authorizes the Purchaser to substitute any other Person to act
pursuant to this power of attorney, to revoke any substitution and to file this
power of attorney and any substitution or revocation with the Secretary of the
Company. Marc Epstein agrees to execute such instruments as the Purchaser may
request in order to evidence the granting of this power of attorney.
(c) Within ten (10) days after the execution of
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this Agreement, Marc Epstein shall deposit the certificate(s) representing the
Epstein Shares with the Company to be held in escrow in accordance with the
terms of this Agreement. Such Epstein Shares shall be released from the
provisions of this escrow as follows: (a) to the Purchaser, upon the
consummation of the transactions contemplated by this SECTION 1.04, or (b) to
Marc Epstein, in the event this Agreement is terminated for any reason.
(d) For the avoidance of doubt, Marc Epstein agrees to (i) take all
reasonable steps required by the Company to satisfy all requirements under
English law to enable the Company to lawfully make the payments contemplated by
the Exit Bonus Scheme and the Morgan Stanley Fee and (ii) give consent in favor
of the Company granting to Xpedite's financing sources guarantees of Xpedite's
indebtedness including, without limitation, voting his shares in favor of any
resolution approving such guarantees.
ARTICLE II
Representations and Warranties
oF APAX
------------------------------
Apax Partners & Co. Ventures Limited ("APAX")(in its capacity as manager
of Apax Ventures IV and as manager of Apax IV International Partners LP) hereby
represents and warrants to Purchaser as follows:
SECTION 2.01. ORGANIZATION AND STANDING.
-------------------------
(a) Each of the Company and its Subsidiaries (as hereinafter defined) is
a corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, and has the full corporate power
and authority to carry on its business in the places and as it is now being
conducted and to own and lease the properties and assets which it now owns or
leases. The Company and each of its Subsidiaries is now duly qualified to
transact business and in good standing as a foreign corporation in all
jurisdictions in which the character of the property owned or leased by it and
the nature of the business conducted by it require such qualification, except
where failure to be qualified could not reasonably be expected to have a
Material Adverse Effect. Each of the Company's Subsidiaries has no assets or
liabilities (save for cash and receivables not exceeding (pound)50,000 in the
aggregate) and does not engage in any active
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operations. For purposes of this Agreement, a "MATERIAL ADVERSE EFFECT" is a
material adverse effect on the business or prospects of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement, a "SUBSIDIARY" of
any Person is any corporation, partnership, joint venture or other legal entity
of which a majority of all outstanding shares of capital stock or other equity
interests (the holders of which are ordinarily and generally entitled to vote
for the election of the members of the board of directors or other governing
body thereof) is owned, directly or indirectly, by such Person (either alone or
through or together with any other Subsidiary). For purposes of this Agreement,
"so far as APAX is aware" or any similar expression shall be restricted to mean
APAX's actual knowledge having made reasonable enquiry of David Proctor.
(b) SCHEDULE 2.01(b) sets forth a list of the Company's Subsidiaries and
the jurisdiction of incorporation or organization of each such Subsidiary.
(c) True, correct and complete copies of the Memorandum and Articles of
Association, Certificate of Incorporation, Certificates of Incorporation on
Change of Name and Articles of Association of the Company and each of its
Subsidiaries are attached hereto as SCHEDULE 2.01(c).
SECTION 2.02. [INTENTIONALLY OMITTED]
SECTION 2.03. CAPITALIZATION.
--------------
(a) The authorized share capital of the Company is (pound)12,059,205
divided into 2,712,094 A Preference Shares of (pound)1.00 each (of which
2,644,033 are in issue and fully paid), 6,238,778 B Preference Shares of
(pound)1.00 each (none of which are in issue) 2,775,000 Preference Shares of
(pound)1.00 each (of which 2,375,000 are in issue and fully paid), 250,000 A
Ordinary Shares of (pound)1.00 each (all of which are in issue and fully paid)
and 83,333 Ordinary Shares of (pound)1.00 each (of which 60,000 are in issue and
fully paid, 3,267 are held under options by David Proctor and 20,066 are the
subject of options issued under the Company's Share Option Scheme disclosed in
the Disclosure Letter (as defined in SECTION 11.03(c)) (the "OPTIONS")). Save
for the 48,334 Ordinary Shares which are the subject of the Buyback Agreement
and the A Prefs, the Shares to be sold by the Shareholders pursuant to this
Agreement constitute all of the issued share capital of the Company. All of the
issued share capital of the Company is validly issued, fully paid, and not
subject to any capital call (I.E., are non-assessable).
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All of the outstanding share capital of each of the Company's Subsidiaries is
validly issued, fully paid non-assessable and is owned directly or indirectly by
the Company free and clear of all security interests, liens, pledges, claims,
charges, escrows, encumbrances, options, rights of first refusal, rights of pre-
emption, mortgages, indentures or easements (collectively "ENCUMBRANCES") of any
nature.
(b) Except as set forth on SCHEDULE 2.03 or in the Disclosure Letter,
there are no other shares in the share capital of the Company or any of its
Subsidiaries, or securities convertible into or exchangeable or exercisable for
shares of the Company or any of its Subsidiaries, outstanding, and there are no
outstanding options, warrants, rights, contracts, commitments, understandings,
arrangements or claims of any character by which the Company or any of its
Subsidiaries is or may become bound to create, allot, issue, transfer, sell,
redeem, repurchase or otherwise acquire or retire any shares or other ownership
interest of the Company or any of its Subsidiaries, or any securities
convertible into or exchangeable or exercisable for any such shares or other
ownership interest (all of the foregoing being called "CONVERSION RIGHTS").
There are no voting trusts or other agreements or understandings to which the
Company is a party with respect to the voting of the shares of the Company or
any of its Subsidiaries. No holder or beneficiary of any Conversion Rights shall
be entitled to receive any consideration with respect thereto not expressly
contemplated by this Agreement.
SECTION 2.04. ABSENCE OF EQUITY INVESTMENTS. Neither the Company nor any
of its Subsidiaries, either directly or indirectly, owns legally or beneficially
any shares or other equity interests in any Person (as defined in SECTION
2.11(b)) other than the Company's ownership of the Subsidiaries.
SECTION 2.05. LIABILITIES AND OBLIGATIONS OF THE COMPANY. The
consolidated balance sheets of the Company and its Subsidiaries as at December
31, 1995 and December 31, 1996 and the related profit and loss account and
related cash flows for the respective years and periods then ended, including
the notes thereto and the reports thereon of Price Waterhouse, chartered
accountants (the "1995/1996 ACCOUNTS") and the Company's unaudited consolidated
balance sheet and related consolidated profit and loss account and cash flows
for the six-month period ended June 30, 1997 (the "JUNE 1997 ACCOUNTS" and,
collectively with the 1995/1996 Accounts, the
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"COMPANY FINANCIAL STATEMENTS"), are attached hereto as SCHEDULE 2.05(a)(i). The
Company Financial Statements present fairly the consolidated financial position
and the results of operations of the Company and its Subsidiaries as of the
dates and for the periods indicated on the Company Financial Statements, in each
case in conformity with generally accepted accounting principles in the United
Kingdom ("GAAP"), consistently applied during such periods. The Company and its
Subsidiaries did not have any material liabilities or obligations of any nature
(whether accrued, absolute, contingent, unasserted or otherwise) except (1) as
disclosed, reflected or reserved against in the balance sheet dated as of June
30, 1997 (the "BASE BALANCE SHEET") included in the Company Financial Statements
and the notes thereto and (2) for liabilities set forth on SCHEDULE 2.05(a)(ii).
The Company has complied in all respects with the accounts and audit
requirements of the UK Companies Act 1985 and is fully up-to-date with all its
accounts and other statutory filing obligations at Companies House.
SECTION 2.06. TAX MATTERS.
-----------
(a) All federal, state, national, foreign and local tax returns and tax
reports, if any, required to be filed with respect to the business and assets of
the Company and its Subsidiaries and any consolidated, combined, unitary,
affiliated or aggregate group of which the Company or any of its Subsidiaries is
or has ever been a member (an "AFFILIATED GROUP"), have been filed with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed and all of the foregoing are true, correct and
complete in all material respects as amended, if appropriate. For purposes of
this Agreement, (A) "TAXING AUTHORITY" shall mean any domestic, foreign,
federal, national, state, provincial, county or municipal or other local
government, any subdivision, agency, commission or authority thereof, or any
quasi-governmental body exercising any Taxing authority or any other authority
exercising Tax regulatory authority (including, without limitation, the Inland
Revenue and H.M. Customs and Excise); and (B) "RETURN" or "RETURNS" shall mean
all returns, declarations of estimated Tax payments, reports, estimates,
information returns and statements, including any related or supporting
information filed with respect to any of the foregoing, maintained, filed or to
be filed with any Taxing Authority in connection with the determination,
assessment, collection or administration of any Taxes.
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(b) All federal, state, national, foreign and local income, profits,
franchise, sales, use, value added, occupation, property, excise, payroll, wage
withholding and all other taxes, fees, charges, assessments, duties or similar
charges of any kind whatsoever (including interest, fines, penalties and
additions) ("TAX" or "TAXES"), if any, payable by the Company or its
Subsidiaries or relating to or chargeable against its assets, revenues or income
through June 30, 1997 were fully and timely paid by such date or provided for by
adequate liabilities and reserves on the Base Balance Sheet and all similar
items due through the date of the Closing Date Balance Sheet ("COVERED TAXES")
will have been fully and timely paid by that date or provided for by adequate
liabilities and reserves on the Closing Date Balance Sheet in accordance with
GAAP consistently applied during such periods. There are no pending claims of
insufficiency of payments or assertions of any deficiency for any Taxes, or of
any adjustments to any tax item or attribute, of the Company or any of its
Subsidiaries and except as scheduled, no audits or investigations of which the
Company is aware which may lead to such claims. Except as set forth in SCHEDULE
2.06(b), none of the Company, any of its Subsidiaries or any Affiliated Group is
a party to any action for assessment or collection of Covered Taxes. All
material payments of estimated Taxes required to be made with respect to the
Company or any of its Subsidiaries under any provision of Applicable Law have
been made. The provision for taxation shown on the Base Balance Sheet and the
Closing Date Balance Sheet adequately reflects, in accordance with GAAP,
consistently applied during such periods, the liability for unpaid Taxes
(including deferred Taxes, any Taxes not yet due and payable that are properly
accruable as of the date thereof and any Taxes that are being contested) of the
Company and its Subsidiaries as of the date of the Base Balance Sheet and the
date of the Closing Date Balance Sheet, respectively.
(c) Except as set forth on SCHEDULE 2.06(c)(i), no Encumbrances or liens
relating to Taxes exist with respect to any of the assets or properties of the
Company or any of its Subsidiaries. Except as set forth in SCHEDULE 2.06(c)(ii),
no statute of limitations period with respect to any Tax liability of, or Return
filed by, the Company, any Subsidiary or any Affiliated Group, has expired.
Except as set forth on SCHEDULE 2.06(c)(iii), each deficiency resulting from any
audit or examination relating to Covered Taxes by any Taxing Authority has been
paid and no material issues were raised (either orally or in writing) by the
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relevant Taxing Authority during any such audit or examination that might apply
to taxable periods other than the taxable period to which such audit or
examination related. Except as set forth on SCHEDULE 2.06(c), (A) no Taxing
Authority has given notice (either orally or in writing), nor is APAX otherwise
aware, that any Returns of the Company, any of its Subsidiaries or any
Affiliated Group has ever been audited or examined by any Taxing Authority, (B)
no Taxing Authority has given notice (either orally or in writing) that it will
commence any such audit or examination and (C) there are no outstanding
subpoenas or requests for information with respect to the Company, any of its
Subsidiaries or any Affiliated Group.
(d) Except as set forth in SCHEDULE 2.06(d), there is no agreement,
waiver, consent or other document extending, or having the effect of extending,
the period of assessment or collection of any Covered Taxes and no power of
attorney with respect to any Covered Taxes has been executed or filed permitting
any Person other than the Company to file any Return or conduct any proceedings
with any Taxing Authority.
(e) Except as set forth in SCHEDULE 2.06(e), none of the Company or any
of its Subsidiaries has been a member of any affiliated, consolidated, combined,
unitary or aggregate group for purposes of filing Returns or paying Taxes at any
time. SCHEDULE 2.06(e) lists each jurisdiction in which the Company or any of
its Subsidiaries joins or has joined, or is or has ever been required to join,
in filing any consolidated, combined, unitary or aggregate Return and lists the
other corporations and/or other persons that were included or were required to
be included in filing such Return.
(f) Except as set forth in SCHEDULE 2.06(f), none of the Company, any of
its Subsidiaries or any Affiliated Group is or has been a party to or is or ever
was bound by any written agreement, written arrangement or written practice with
respect to Taxes except published agreements, arrangements or practices
(including any Tax sharing agreements with any of its affiliates, or with any
Taxing Authority). The Company has delivered to Purchaser complete and accurate
copies of any such written agreement, arrangement or practice.
(g) Except as set forth on SCHEDULE 2.06(g), none of the Company or any
of its Subsidiaries will be required in a taxable period beginning on or after
the Closing Date
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to include any amount in income pursuant to any provisions of applicable
federal, national, state, local or foreign law), solely by reason of a change in
accounting methods made before the date hereof.
(h) SCHEDULE 2.06(h) lists each country, county, local, municipal or
foreign jurisdiction in which the Company or any of its Subsidiaries files, has
during the past five (5) years filed, is required to file or has during the past
five (5) years been required to file a Return or is or has been liable for Tax
on a "nexus" or any other basis.
(i) All copies of Tax documents, schedules, lists and other information
provided by the Company or any of its Subsidiaries to Purchaser are true,
complete and correct copies of the originals in all material respects.
(j) All taxes required to be withheld, collected or deposited by the
Company or any of its Subsidiaries have been withheld, collected or deposited
when due or required by Applicable Law and, to the extent required, have been
paid to the relevant Taxing Authority.
(k) The Company has not, during the period commencing five (5) years
prior to the date hereof, acquired, either directly or through any of its
Subsidiaries, any corporation that was a member of any Affiliated Group that
included any corporation that was not also acquired, either directly or through
any of its Subsidiaries, by the Company.
SECTION 2.07. TITLE TO PROPERTY AND RELATED MATTERS. The Company and each
of its Subsidiaries has good and marketable title to all the real and personal
property reflected on the Base Balance Sheet or subsequently acquired (except
for properties or interests in properties sold or otherwise disposed of since
the date of the Base Balance Sheet in the ordinary course of business) free and
clear of all Encumbrances, except for (w) contractual retention of title prior
to payment, (x) mechanics', workmen's, or other like liens arising or incurred
in the ordinary course of business, (y) encumbrances or other imperfections of
title, if any, which do not materially affect the marketability of the property
subject thereto and do not materially impair the use of the property subject
thereto as presently conducted, and (z) except as reflected on SCHEDULE 2.07.
SECTION 2.08. REAL PROPERTY OWNED OR LEASED. SCHEDULE 2.08 contains a
list of all real estate owned or
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leased (where the aggregate payments remaining under such lease aggregate
(pound)20,000 or more) by the Company and each of its Subsidiaries and
identifies the owner or lessor thereof. All of such real estate and the
improvements thereon are in (given its age and subject to normal wear and tear)
reasonably good condition and working order. With respect to real estate owned,
the Company or the Subsidiary identified on SCHEDULE 2.08, as applicable, has
good and marketable title in fee simple thereto and (save for landlord's
fixtures and fittings) owns all improvements (including buildings and other
structures) thereon, subject only to those Encumbrances, if any, which are
listed on SCHEDULE 2.08. So far as APAX is aware, with respect to real estate
leased, except as may be set forth on SCHEDULE 2.08 (i) all such leases are in
full force and effect and constitute valid and binding obligations of the
respective parties thereto; (ii) there have not been and there currently are not
any material defaults thereunder by any party; (iii) no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a default thereunder entitling the landlord to
terminate the lease; and (iv) the continuation, validity and effectiveness of
all such leases under the current rentals and other current material terms
thereof will in no way be affected by the transactions contemplated hereby,
except where the failure of same will not in any case result in damage to the
Company or any of its Subsidiaries in excess of (pound)20,000. Neither the
Company nor any of its Subsidiaries has received any notice of any failure of
the improvements on such real estate to conform to all Applicable Laws.
SECTION 2.09. PERSONAL PROPERTY OWNED OR LEASED. SCHEDULE 2.09 includes a
list of each item of machinery, equipment, office furniture, automobiles, trucks
and other personal property (collectively, the "PERSONAL PROPERTY") of the
Company included in the Base Balance Sheet at a depreciated book value of more
than (pound)1,000. Except for ANY Personal Property with Xpedite for repair and
except as set forth in SCHEDULE 2.09, the Personal Property in the aggregate is
in reasonably good condition and working order, and each individual item of
Personal Property which would cost in excess of (pound)1,000 to replace is in
reasonably goOD condition and working order (subject to fair wear and tear).
SCHEDULE 2.09 also contains a list of each lease or other agreement under which
the Company or any of its Subsidiaries leases, licenses, holds or operates any
item of Personal Property under which the amount payable exceeds (pound)5,000
PER year, and identifies the lessee, licensee, holder or
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operator thereof. Except for inaccuracies in (i), (ii), or (iii) below which
would not in any case result in damage to the Company or any of its Subsidiaries
in excess of (pound)100,000 (in the aggregate) and except as set forth on
SCHEDULE 2.09, (i) all of such leases and agreements are in full force and
effect and constitute legal, valid and binding obligations of the respective
parties thereto; (ii) there have not been and there currently are not any
material defaults thereunder by any party thereto; and (iii) no event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a material default
thereunder. Except as set forth on SCHEDULE 2.09, the continuation and
effectiveness of all of such leases and agreements under the current rentals and
other current material terms thereof will in no way be affected by the
consummation of the transactions contemplated by this Agreement or, if any would
be affected, the result will not in any case result in costs to the Company or
any of its Subsidiaries in excess of (pound)25,000 (for each case). The Company
and its Subsidiaries are not obligated under any lease that would be
characterized as a Capital lease in accordance with GAAP.
SECTION 2.10. ACCOUNTS RECEIVABLE. All accounts receivable of the Company
and its Subsidiaries, whether reflected on the Base Balance Sheet or
subsequently created, have arisen from bona fide transactions in the ordinary
course of business. Except as set forth on SCHEDULE 2.10, all accounts
receivable reflected on the Base Balance Sheet or subsequently created are, good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for doubtful accounts reflected on the Base Balance Sheet or
subsequently created in the ordinary course of business and consistent with past
practice and all customer accounts receivable arising since the date of the Base
Balance Sheet are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for doubtful accounts reflected on the
Base Balance Sheet or subsequently recorded and disclosed in writing to
Purchaser.
SECTION 2.11. AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set
forth on SCHEDULE 2.11, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby and thereby will:
(a) result in the creation of any Encumbrance upon any of the assets
and properties of the Company or any of its Subsidiaries;
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(b) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default under, or result in the
termination or in a right of termination of, violate or be in conflict
with, result in a breach of any term or provision of, or constitute a
default under, or accelerate or permit the acceleration of the performance
required by, or give any other natural person, corporation, trust,
association, company, partnership, joint venture or other entity or any
government, governmental agency, instrumentality or political subdivision
("PERSON") a basis for increased rights or termination or nonperformance
under, or require any consent, authorization or approval under, any term or
provision of any Encumbrance, lease, license, decree, order or any other
agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which any of them are bound;
(c) violate any provision of, or require any consent, authorization or
approval under, any statute, law, ordinance, or administrative rule or
regulation, Permit, order or license, in each case, which is legally
binding on the Company or any of its Subsidiaries, (collectively,
"APPLICABLE LAWS") of any governmental agency, body or instrumentality
(whether federal, national, supra-national, state, local or foreign)
("GOVERNMENTAL AUTHORITY"), or any judicial, administrative or arbitration
order, award, judgment, writ, injunction or decree (collectively,
"JUDGMENT") in each case legally binding on the Company or any of its
Subsidiaries; or
(d) require any consent, approval, permit or authorization of, or
declaration, filing or registration with, any Governmental Authority or any
other Person, to be made or obtained by or on behalf of the Company.
SECTION 2.12. ABSENCE OF CHANGES. Except as set forth on SCHEDULE 2.12,
since December 31, 1996, the Company and each of its Subsidiaries has conducted
its business only in the ordinary course, and neither the Company nor any of its
Subsidiaries has, except as set forth on SCHEDULE 2.12:
(a) transferred, assigned, conveyed or liquidated any of its assets
(with a net book value in excess of (pound)10,000) or entered into any
transaction or incurred
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any liability or obligation which materially affected its assets, except in
the ordinary course of business, consistent with past practice;
(b) suffered any change in its business, operations, or financial
condition which could reasonably be expected to have a Material Adverse
Effect thereon, or become aware of any event which will result in any such
Material Adverse Effect;
(c) suffered any material destruction, damage or loss relating to its
assets (whether or not covered by insurance);
(d) suffered, permitted or incurred the imposition of any Encumbrance
which might adversely affect the Company or any of its Subsidiaries (other
than contractual retention of title prior to payment, mechanic's,
materialmen's and similar liens arising in the ordinary course of business
and purchase money security interests arising as a matter of law between
the date of delivery and payment);
(e) committed, suffered, permitted or incurred any default in any
liability or obligation which, in the aggregate, has had or will have a
Material Adverse Effect;
(f) made or agreed to any change in the terms of any contract or
instrument to which it is a party which will have a Material Adverse
Effect;
(g) waived, cancelled, sold or otherwise disposed of, for less than
the face amount thereof, any claim or right which it has against others,
except in the ordinary course of business, consistent with past practice;
(h) declared, promised, set aside or made any distribution (within the
meaning of Section 209 Income and Corporation Taxes Act 1988) to its
shareholders (other than reasonable compensation for services actually
rendered) or issued any additional shares of, or rights, options or calls
with respect to, any of its shares, or redeemed, purchased or otherwise
acquired any of its shares, or made any change whatsoever in its capital
structure;
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(i) paid, agreed to pay or incurred any obligation for any payment
for, any contribution or other amount to or with respect to, any employee
benefit plan, or paid any bonus to, or granted any increase in the
compensation (including but not limited to severance or termination pay)
applicable to (x) any group or classification of employees, (y) any
individual employee who is paid more than (pound)50,000 per year in the
aggregate, or (z) any of its officers or directors; or made any increase in
the pension, retirement or other benefits (other than salary) of any of its
directors, officers or other employees, or entered into any employment,
severance or termination agreement with any officer or director;
(j) incurred any other material liability or obligation or entered
into any transaction other than, in either case, in the ordinary course of
business;
(k) made any change in accounting methods, principle or practices; or
(l) agreed to take or taken any action reasonably likely to cause any
event or occurrence listed in (a) - (k) above.
SECTION 2.13. LITIGATION. Except as set forth on SCHEDULE 2.13, there is
no suit, action, proceeding, claim, inquiry or investigation ("LEGAL ACTION")
pending against the Company or any of its Subsidiaries, and, so far as APAX is
aware, no such Legal Actions are threatened. There has not occurred any event
nor does there exist any condition on the basis of which APAX reasonably
believes that any such Legal Action might properly be instituted.
SECTION 2.14. LICENSES AND PERMITS; COMPLIANCE WITH LAW. The Company and
each of its Subsidiaries holds all licenses, certificates, permits,
authorizations, franchises, rights and other approvals from all Governmental
Authorities ("PERMITS") which are material to the conduct of its business. All
such Permits and the respective expiration dates thereof are listed on SCHEDULE
2.14. Except as set forth on SCHEDULE 2.14, neither the Company nor any of its
Subsidiaries is, or at any time has been, in violation of or non-compliance, in
any material respect (taking the business of the Company as a whole) with any
Applicable Laws, Judgments or Permits. Further, neither the Company nor any of
its Subsidiaries is presently charged with, nor so far as APAX is aware, is the
Company or any of
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its Subsidiaries under investigation by any Governmental Authority with respect
to, any actual or alleged violation of any Applicable Laws, Judgments or
Permits, and neither the Company nor any of its Subsidiaries is presently the
subject of any pending or, so far as APAX is aware, any threatened adverse
proceeding by any Governmental Authority having jurisdiction over it, except as
may be set forth on SCHEDULE 2.14. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
result in the termination of, or any material change in, any Permit, except as
may be set forth on SCHEDULE 2.14. All Permits will continue in full force and
effect after the transactions contemplated by this Agreement, except as may be
set forth on SCHEDULE 2.14.
SECTION 2.15. CONTRACTS, ETC. SCHEDULE 2.15 contains a true, correct and
complete list of all material (i) contracts, (ii) leases, (iii) agreements and
(iv) other instruments to which the Company or any of its Subsidiaries is a
party not otherwise included on any other Schedule hereto, except (i) purchase
or sale orders for goods or services which are (x) to be performed within ninety
(90) days, or (y) are terminable by the Company or any such Subsidiary on not
more than ninety (90) days notice, and do not involve aggregate payments to or
by the Company or any of its Subsidiaries of more than (pound)100,000, and (ii)
agreements for utility or similar services on customary terms which are not
material in respect of the business of the Company or any such Subsidiary
(collectively "MATERIAL CONTRACTS"). Except for (i) Material Contracts and (ii)
purchase or sale orders for goods or services which are (x) to be performed
within ninety (90) days, or (y) are terminable by the Company or any such
Subsidiary on not more than ninety (90) days notice, and do not involve
aggregate payments to or by the Company or any of its Subsidiaries of more than
(pound)100,000, and (iii) agreements for utility or similar services on
customary terms which are not material in respect of the business of the Company
or any such Subsidiary, neither the Company nor any of its Subsidiaries is a
party or subject to any of the following, whether oral or written:
(a) any contracts, commitments, understandings or agreements, the
consummation or performance of which would, either singly or in the
aggregate, have a Material Adverse Effect;
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(b) any contract or commitment which is outside of the normal,
ordinary and usual requirements of its business;
(c) any contract or commitment which authorizes others to perform
services for, through or on behalf of it with respect to its business;
(d) other than a contract or commitment with a customer or
telecommunications carrier, any material contract or commitment involving
an obligation with respect to its business which cannot, or in reasonable
probability will not, be performed or terminated within ninety (90) days
from the date hereof;
(e) any promissory note or other evidence of indebtedness to the
Company or any of its Subsidiaries;
(f) other than a contract or commitment with a customer or
telecommunications carrier, any single contract or commitment, or sales or
purchase order, which involves future payments, performance of services or
delivery of goods and/or materials, to or by it, with an amount or value in
the aggregate in excess of (pound)100,000;
(g) any contract or agreement with a creditor not made in the ordinary
course of business;
(h) any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease purchase, or otherwise, which may affect it (other
than a purchase or sale transaction to be performed within ninety (90)
days, which does not involve payments of more than (pound)1,000);
(i) any deed, indenture, lease, sublease or other instrument by which
an ownership, leasehold or other interest in real property is held by the
Company or any of its Subsidiaries;
(j) other than a contract or commitment with a customer or
telecommunications carrier, any contract, commitment or agreement,
including contracts or licenses pertaining to the payment of intellectual
property royalties (but excluding customer purchase orders), to the extent
such contracts, commitments or
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agreements involve payments or commitments (whether fixed or contingent) to
or from the Company or any of its Subsidiaries for an amount (or potential
amount) in excess of (pound)100,000 and have a term longer than three (3)
months in duration;
(k) any written management, compensation or employment contracts or
contracts entered into with any officer or director of the Company or any
of its Subsidiaries;
(l) any contracts or agreements under which the Company or any of its
Subsidiaries has any outstanding indebtedness, obligation or liability for
borrowed money or the deferred purchase price of property or has the right
or obligation to incur any such indebtedness, obligation or liability, in
each case in an amount greater than (pound)25,000;
(m) any bonds or agreements of guarantee or indemnification in which
the Company or any of its Subsidiaries acts as surety, guarantor or
indemnitor with respect to any obligation (fixed or contingent) in an
amount or potential amount greater than (pound)100,000;
(n) any secrecy, noncompete or other agreements which (i) restrict the
right of the Company or any of its Subsidiaries to engage in any business
reasonably related to its present activities or (ii) would restrict the
right of Purchaser to engage in any business after the consummation of the
transactions contemplated by this Agreement;
(o) any agreements relating to preemptive or other preferential
rights, restrictions on the disposition of shares and registration rights;
(p) any partnership, joint venture or similar agreements;
(q) any agreements to which the Company or any of its Subsidiaries is
a party relating to material business acquisitions or dispositions during
the last five (5) years, including any separate tax or indemnification
agreements;
(r) any sales representative, sales marketing, agency or
distributorship agreements;
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(s) any facilities management agreements; and
(t) any contracts or agreements, not covered by, or specifically
excluded in, any of the other items of this SECTION 2.15, which was not
entered into in the ordinary course of business or which could reasonably
be expected to have a Material Adverse Effect.
Except as set forth on SCHEDULE 2.15, neither the Company nor any of its
Subsidiaries has received any notice that it is in default under the terms of
any Material Contract. No Material Contract, when entered into, was in excess of
the normal, ordinary, usual and current requirements of the Company's or any of
its Subsidiaries' business or was at a price that was in excess of the then
current reasonable market price. Each Material Contract is a valid and binding
obligation of the parties thereto in accordance with the terms and conditions
thereof and, except as disclosed on SCHEDULE 2.15 hereto, no party to any such
Material Contract is in default with respect to any term thereof, nor has any
event occurred which, through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.
SECTION 2.16. LICENSES; TRADEMARKS; TRADE NAMES; ETC. SCHEDULE 2.16
contains a list of (i) all material non-governmental licenses held by the
Company or any of its Subsidiaries and (ii) all trademarks, trade names, service
marks, copyrights, patents and applications for any of the foregoing owned by or
registered in the name of the Company or any of its Subsidiaries, necessary or
used in connection with its business, and in each case identifies the owner or
holder thereof. Except as set forth on SCHEDULE 2.16, all of such licenses are
in full force and effect and constitute legal, valid and binding obligations of
the respective parties thereto; there have not been and there currently are not
any material defaults thereunder by any party; and no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a material default thereunder; and the
validity, continuation and effectiveness of all of such licenses under the
current terms thereof will in no way be materially adversely affected by the
transactions contemplated hereby. Except as set forth on SCHEDULE 2.16, the
Company or the Subsidiary identified on SCHEDULE 2.16 owns all the trademarks,
trade names, service marks, copyrights, patents and applications for patents
which are listed on SCHEDULE 2.16; except as set forth thereon, pays
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no royalty under any of them and has the exclusive right to bring actions for
the infringement thereof; and no third party is infringing on any of the
Company's or any of its Subsidiaries' rights thereto. No service provided by the
Company or any of its Subsidiaries violates any such license or infringes any
trademark, trade name, service mark, copyright, know-how, patent, trade secret
or other proprietary rights of another party. Except as may be listed on
SCHEDULE 2.16, there is no pending or, so far as APAX is aware, threatened claim
or litigation against the Company or any of its Subsidiaries contesting a breach
of any of the trademarks, trade names, service marks, copyrights, know-how or
patents of any Person.
SECTION 2.17. INSURANCE. All material insurance policies maintained by
the Company and its Subsidiaries are listed on SCHEDULE 2.17 and the holder
thereof is identified on SCHEDULE 2.17. The Company and its Subsidiaries are
insured by insurers, who are reputable and who APAX reasonably believes are
financially sound, against all risks of liability and casualty in amounts deemed
reasonably necessary by the Company's management. All such policies are in full
force and effect in accordance with their terms, no notice of cancellation has
been received by the Company or any of its Subsidiaries, and, so far as APAX is
aware, there is no existing default or event which with the giving of notice or
lapse of time, or both, would constitute a default thereunder. All premiums to
date have been paid in full. The Shareholders have no reason to believe that the
Company and its Subsidiaries shall not be able to renew such policies at the end
of the applicable term for such policy. Except as set forth on SCHEDULE 2.17,
all material pending property damage and personal injury claims against the
Company or any of its Subsidiaries are listed on SCHEDULE 2.17, are being
defended by the respective insurer and, to the knowledge of APAX, involve no
exposure to the Company or any of its Subsidiaries.
SECTION 2.18. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.18 contains a true and complete list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement (other than arrangements
involving the payment of wages), sponsored, maintained or contributed
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to or required to be contributed to by the Company or any of its Subsidiaries,
for the benefit of any current or former employee of the Company or any of its
Subsidiaries, whether formal or informal and whether legally binding or not (the
"PLANS") with respect to which the Company or any of its Subsidiaries has or may
in the future have any liability or obligation to contribute or make payments of
any kind.
(b) With respect to each of the Plans, the Shareholders have heretofore
delivered to Purchaser true, complete and correct copies of each of the
following documents:
(i) the Plan (including all amendments thereto)(or, in the case
of any unwritten Plans, descriptions thereof);
(ii) if the Plan is funded through a trust or any third party
funding vehicle, such as an insurance contract, a copy of the trust or
other funding agreement (including all amendments thereto) and the
latest financial statements thereof; and
(iii) all contracts relating to the Plans with respect to which
the Company or any of its Subsidiaries may have any liability,
including, without limitation, insurance contracts, investment
management agreements, subscription and participation agreements and
record keeping agreements;
(c) Full payment has been made, or will be made in accordance with the
terms of each of the Plans and any applicable collective bargaining agreement
required to pay, and all such amounts properly accrued through the Closing Date
with respect to the current plan year thereof will be paid by the Company or one
of its Subsidiaries on or prior to the Closing Date or were properly recorded on
the Base Balance Sheet.
(d) During the one (1) year period ending on the date of this Agreement,
there has been no change in the manner in which contributions to any Plan are
made or the basis on which such contributions are determined.
(e) Each of the Plans has been operated and administered in all material
respects in accordance with its terms and all Applicable Laws. All reports,
returns and similar documents with respect to the Plans required to be filed
with any governmental agency or distributed to any
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Plan participant have been duly and timely filed or distributed and, so far as
APAX is aware, all reports, returns and similar documents actually filed or
distributed were true, complete and correct in all material respects. There are
no investigations by any governmental agency or other claims (except claims for
benefits payable in the normal operation of the Plan), suits or proceedings
against or involving any Plan or asserting any rights to or claims for benefits
under any Plan that could give rise to any material liability and there are not
any facts that could give rise to any material liability in the event of any
such investigation claim, suit or proceeding.
(f) No employee of the Company or any of its Subsidiaries will be
entitled to any additional benefits or any acceleration of the time of payment
or vesting of any benefits under any Plan as a result of the transactions
contemplated by this Agreement.
(g) No Plan provides benefits, including, without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees upon retirement or other termination of service (other than (i)
coverage mandated by Applicable Law, (ii) deferred compensation benefits accrued
as liabilities on the books of the Company or any of its Subsidiaries or (iii)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary)).
(h) With respect to each Plan that is funded wholly or partially through
an insurance policy, there will be no liability of the Company or any of its
Subsidiaries, as of Closing Date, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate adjustment loss sharing arrangement or other actual or contingent liability
arising wholly partially out of events occurring prior to the Closing Date.
(i) Other than current or contingent liabilities disclosed on SCHEDULE
2.18, neither the Company nor any of its Subsidiaries has any material current
or contingent liability with respect to any Plan.
SECTION 2.19. LABOR RELATIONS; EMPLOYEES. The Company and each of its
Subsidiaries has generally enjoyed a reasonably good employer-employee
relationship with their employees. The Company or one of its Subsidiaries will
pay in full to the extent possible or, if not, to the extent
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consistent with past practices, accrue by adequate reserves on the Base Balance
Sheet, all wages, salaries, bonuses, vacation pay and other direct and indirect
compensation earned by all employees of the Company and each of its Subsidiaries
through the date of the Base Balance Sheet (whether or not payable by such
date). Neither the Company nor any of its Subsidiaries has received notice that
it is not in compliance with any national, federal, state, foreign or local law
or regulation respecting employment or employment practices, terms or conditions
of employment or wages or hours. Except as listed on SCHEDULE 2.19, there is no
charge or complaint against the Company or any of its Subsidiaries pending
before any industrial tribunal, national or local labor or employment agency or
any representative thereof; nor is there any strike, dispute, slowdown or
stoppage pending or threatened against or involving the Company or any of its
Subsidiaries, and none has occurred since their inception. Except as identified
on SCHEDULE 2.19, neither the Company nor any of its Subsidiaries is a party to
any union, collective bargaining, works council or similar agreement or
arrangement. No representation question exists respecting the employees of the
Company or any of its Subsidiaries, and no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries. Except as
listed on SCHEDULE 2.19, no grievance procedure or arbitration proceeding is
pending under any collective bargaining agreements.
SECTION 2.20. COMPENSATION. SCHEDULE 2.20 contains a list of each of the
current officers, employees and consultants of the Company or any of its
Subsidiaries, who during calendar year 1997 is expected to receive aggregate
remuneration in excess of (pound)50,000, together With the current job title and
aggregate remuneration rate (bonus and salary) for each such person. SCHEDULE
2.20 also contains a list of all employment contracts in effect with respect to
employees of the Company or any of its Subsidiaries, and, except as listed on
SCHEDULE 2.20, all employment contracts are in writing and include all material
information required by law to be included in particulars of terms of
employment. The Company has not paid or agreed to pay any compensation, fee,
bonus, or other remuneration of any kind to any officer, employee, consultant or
other Person in connection with this Agreement or the transactions contemplated
herein, except for (i) compensation payable in the ordinary course of business
of the Company consistent with past practice and (ii) an "Employee Exit Bonus
Scheme" which may provide for bonuses payable to employees of the
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Company in amounts which will not exceed an aggregate of (pound)150,000 (the
"EXIT BONUS SCHEME"). So far as APAX is aware, no executive, key employee or
group of employees has any plans to terminate employment with the Company or any
of its Subsidiaries.
SECTION 2.21. INVESTMENT BANKING FEES, BROKERS AND FINDERS. Except as set
forth on SCHEDULE 2.21, neither the Company nor any of its Subsidiaries has
employed any investment banker, broker or finder, and has not incurred and will
not incur any liability for any investment banking, brokerage fees, commissions,
finders' fees or similar fees or expenses in connection with this Agreement or
the transactions contemplated herein. Notwithstanding the disclosure of the
requirement to pay any investment banking, broker or finder fee, other than the
payment of a fee of up to (pound)400,000 payable to Morgan Stanley & Co. Limited
(thE "MORGAN STANLEY FEE"), the Shareholders shall be solely responsible for
paying any and all such fees and reimbursement of expenses owed to such
investment bankers, brokers or finders including, without limitation, any fees
and expenses in excess of the Morgan Stanley Fee referred to above.
SECTION 2.22. TARIFFS. SCHEDULE 2.22 contains a list of the local and
international telephone tariffs of the major carriers as they are currently
applied to the Company and each of its Subsidiaries.
SECTION 2.23. CUSTOMERS AND SUPPLIERS. APAX reasonably believes the
Company's and its Subsidiaries' relationships with their customers and suppliers
are satisfactory. Except as set forth on SCHEDULE 2.23, since December 31, 1996,
no significant supplier of the Company or any of its Subsidiaries has advised
the Company or any of its Subsidiaries that it will stop or decrease the rate of
supplying any materials, products or services to the Company or any of its
Subsidiaries, and no customer of the Company or any of its Subsidiaries which
currently generates monthly revenues of at least (pound)10,000 has advised the
Company or any of its Subsidiaries that it will stop or materially decrease the
rate of buying any materials, products or services from the Company or any of
its Subsidiaries. SCHEDULE 2.23 hereto sets forth a list of (a) the Company's 50
largest accounts for the six months ended June 30, 1997 and the amount of
revenues accounted for by such customer during such period and (b) each supplier
that is the sole supplier of any significant product or component to the Company
or any of its Subsidiaries.
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SECTION 2.24. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries
have been and are in compliance with and are not subject to liability under any
Environmental Law (as defined below). The Company and its Subsidiaries have made
all filings and provided all notices required under Environmental Laws, and
possess, and are in compliance with, all Permits required under Environmental
Laws and each of them are in full force and effect. There is no civil, criminal
or administrative action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter or request for information as
to which the Company or any of its Subsidiaries have been notified, that is
pending or threatened against the Company or any of its Subsidiaries under any
Environmental Law. No Encumbrance has been recorded under any Environmental Law
with respect to any assets, facility or property owned, operated, leased or
controlled by the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries had received any notice that it has been identified as
the potential recipient of a remediation notice pursuant to the Environmental
Protection Act 1990, as amended by the Environment Act 1995.
For purposes of this Agreement, "ENVIRONMENTAL LAWS" means the common
law and all applicable national, supra-national, federal, state, local or
foreign laws or regulations, codes, rules, orders, decrees, judgments,
requirements or injunctions issued, promulgated, approved or entered
thereunder, relating to the outdoor or indoor environment, pollution or
protection of public or employee health and safety related to Hazardous
Materials as now or previously in effect and regulating, relating to or
imposing liability or standards of conduct concerning, without limitation,
(i) emissions, discharges, releases or threatened releases of Hazardous
Materials into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation, treatment, storage,
disposal, transport, possession, or handling of Hazardous Materials, and
(iii) underground and above ground storage tanks and related piping, and
emissions, discharges, releases or threatened releases therefrom.
For purposes of this Agreement, "HAZARDOUS MATERIALS" means any
pollutant, contaminant, or hazardous, toxic, or dangerous waste, substance,
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constituent, or material, defined or regulated as such in, or for purposes
of, any Environmental Law, including, without limitation, any asbestos,
petroleum, oil (including crude oil or any fraction thereof), radioactive
substance, polychlorinated biphenyls, urea-formaldehyde insulation, toxin,
pathogen, virus, infectious disease agent, and any other substance that is
regulated pursuant to or may give rise to liability under any Environmental
Law.
SECTION 2.25. CHANGE OF CONTROL PROVISIONS. Neither the execution and
delivery of this Agreement nor the consummation of the transactions provided for
herein will trigger any obligation of the Company or its Subsidiaries to any
Person, including, without limitation, the obligation to make payments to any
Person pursuant to any contract or agreement to which the Company or its
Subsidiaries is a party or by which it or its assets are bound.
SECTION 2.26. IMPROPER AND OTHER PAYMENTS. (a) None of the Company or any
of its Subsidiaries, any director, officer, employee, agent or representative of
the Company or any of its Subsidiarie or any Person acting on behalf of any of
them, made, paid or received any unlawful bribes, kickbacks or other similar
payments to or from any Person and (b) no improper contributions have been made
by or on behalf of the Company or any of its Subsidiaries, directly or
indirectly, to a domestic or foreign political party or candidate.
SECTION 2.27. MINUTE BOOKS. Each of the Company's and its Subsidiaries'
minute books and copies thereof provided to Purchaser contain in all material
respects true and complete minutes and records of all meetings, proceedings, and
other actions of its shareholders and directors from the date of its respective
date of organization to the date hereof. All meetings and other corporate
proceedings of the Company and its Subsidiaries, their respective shareholders
and directors, have in all material respects been legally and properly held or
taken. All books required to be kept by the Company under the Companies Act 1985
and copies thereof provided to Purchaser are true and complete in all material
respects, and all of the signatures which purport to be signatures of officers
of the Company and its Subsidiaries, as applicable, which appear on certificates
representing shares of stock of the Company and its Subsidiaries (including all
certificates which are not outstanding and all certificates which have
heretofore been cancelled) are the true signatures which
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they purport to be and were actually affixed to the respective documents by the
person whose names they represent. All stamp and other taxes (if any) levied on
or relating to the original issuance or transfer of shares of the Company and
its Subsidiaries have been paid.
SECTION 2.28. ACCOUNTS. Set forth on SCHEDULE 2.28 attached hereto is an
accurate and complete list showing (a) the name and address of each bank and
brokerage firm in which the Company or any of its Subsidiaries has an account or
safe deposit box, the number of any such account or any such box and the names
of all persons authorized to draw thereon or to have access thereto; and (b) the
names of all persons, if any, holding powers of attorney from the corporation
with respect to such bank or brokerage account and a summary statement of the
terms thereof.
SECTION 2.29. ACCURACY OF REPRESENTATIONS. So far as APAX is aware, no
representation or warranty contained in this Agreement, and no statement
contained in any certificate, Schedule or Exhibit furnished to Purchaser in
connection with the transactions contemplated hereby contains any materially
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading. All
copies of all writings furnished or made available to Purchaser hereunder or in
connection with the transactions contemplated hereby have been true and complete
copies except as may otherwise have been disclosed or apparent on the face of
the document.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each of the Shareholders, severally and not jointly, represents and
warrants to Purchaser as follows:
SECTION 3.01. OWNERSHIP OF THE SHARES. Save as specified in SCHEDULE 1 or
SCHEDULE 1A (as applicable) hereto, each Shareholder is the legal and beneficial
owner of the Shares set forth opposite its name on SCHEDULE 1 or SCHEDULE 1A (as
applicable) hereto, and upon delivery of and payment for the Shares owned by
such Shareholder in accordance with the provisions of this Agreement, such
Shareholder shall transfer to Purchaser with full title guarantee such Shares,
free and clear of all Encumbrances of any type. Save for the 48,334 Ordinary
Shares at (pound)1.00 each
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which are the subject of the Buyback Agreement and any Ordinary Shares issuable
upon exercise of the Options, the Shares listed on SCHEDULE 1 or SCHEDULE 1A (as
applicable) hereto are all of the allotted and issued share capital of the
Company and are fully paid. The Ordinary Shares issuable upon exercise of
Options will be fully paid and the owners of such Ordinary Shares shall, upon
delivery of and payment for such Shares in accordance with the provisions of
this Agreement, transfer to Purchaser with full title guarantee such Ordinary
Shares, free and clear of all Encumbrances of any type. Following the redemption
of the A Prefs as contemplated by SECTION 9.01(b)(i)(First), the Company shall
have no further liability to any Person (other than any Taxing Authority) with
respect thereto.
SECTION 3.02. AUTHORIZATION. Each Shareholder has the requisite power and
authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each Shareholder and is a valid and binding agreement
of each Shareholder, enforceable against each Shareholder in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws in effect now
or hereafter relating to creditors' rights generally, and by equitable
principles (whether considered in a proceeding at law or in equity).
SECTION 3.03. NO CONFLICT OR VIOLATION. Neither the execution and
delivery by each Shareholder of this Agreement nor the consummation of the
transactions contemplated hereby or thereby, will:
(a) conflict with or result in a breach of any provision of the
respective articles or certificate of incorporation or organization or
By-laws (or equivalent documents) of such Shareholder;
(b) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default under, or result in the
termination or in a right of termination of, violate or be in conflict
with, result in a breach of any term or provision of, or constitute a
default under, or accelerate or permit the acceleration of the performance
required by, or give any other Person a basis for increased rights or
termination or nonperformance under, or require any consent,
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authorization or approval under, any term or provision of any Encumbrance,
lease, license, decree, order or any other agreement or instrument to which
any of the Shareholders is a party or by which it or any of its property is
bound or affected;
(c) violate any provision of, or require any consent, authorization or
approval under, any Applicable Laws of any Governmental Authority, or any
Judgment, in each case applicable to such Shareholder;
(d) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority or any other
Person, to be made or obtained by or on behalf of such Shareholder; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority, to be made or
obtained by or on behalf of such Shareholder pursuant to any Applicable Law
save that a filing by the Company with the Inland Revenue will have to be
made detailing any Options that may have been exercised pursuant to the
Share Option Scheme.
SECTION 3.04. BROKERS' FEES. None of the Shareholders has employed any
broker or finder, and none has incurred nor will incur any liability for any
brokerage fees, commissions, finders' fees or similar fees or expenses in
connection with this Agreement or the transactions contemplated herein other
than as provided in SECTION 2.21 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF XPEDITE AND PURCHASER
-------------------------------------------------------
Xpedite and Purchaser hereby severally represent and warrant to the
Shareholders as follows:
SECTION 4.01. CORPORATE ORGANIZATION. Each is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation, and has the full corporate power and
authority to carry on its business in the places and as it is now being
conducted and to own and lease the properties and assets which it now owns or
leases.
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SECTION 4.02. AUTHORIZATION.
(a) Each has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
(b) This Agreement has been approved by the Boards of Directors of both
Xpedite and Purchaser and no other corporate proceeding on the part of Xpedite
or Purchaser is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by
Xpedite and Purchaser and is a valid and binding agreement of Xpedite and
Purchaser, enforceable against Xpedite and Purchaser in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws in effect now
or hereafter in effect relating to creditors' rights generally and by equitable
principles (whether considered in a proceeding at law or in equity).
SECTION 4.03. AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Neither the
execution and delivery by Xpedite or Purchaser of this Agreement nor the
consummation by Xpedite or Purchaser of the transactions contemplated hereby and
thereby will:
(a) conflict with or result in a breach of any provision of the
respective articles or certificate of incorporation or organization or
By-laws (or equivalent documents) of Xpedite or Purchaser;
(b) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default in any material respect
under, or result in the termination or in a right of termination of,
violate or be in conflict in any material respect with, result in a
material breach of any term or provision of, or constitute a material
default under, or accelerate or permit the acceleration of the performance
required by, or give any Person a basis for increased rights or termination
or nonperformance under, or require any consent, authorization or approval
under, any term or provision of any Encumbrance, lease, license, decree,
order or any other agreement or instrument to which Xpedite or Purchaser is
a party or by which it is bound;
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(c) violate in any material respect any provision of, or require any
consent, authorization or approval under, any Applicable Laws of any
Governmental Authority, or any Judgment in each case applicable to Xpedite
or Purchaser; or
(d) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority, to be made or
obtained by or on behalf of Xpedite or Purchaser pursuant to any Applicable
Law.
SECTION 4.04. BROKERS AND FINDERS. Neither Xpedite nor Purchaser has
employed any broker or finder, and has not incurred and will not incur any
liability for any brokerage fees, commissions, finders' fees or similar fees or
expenses in connection with this Agreement or the transactions contemplated
herein.
ARTICLE V
Interpretation and Survival of
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 5.01. INTERPRETATION. Each warranty and representation made by a
party in this Agreement or pursuant hereto is independent of all other
warranties and representations made by the same party in this Agreement or
pursuant hereto (whether or not covering identical, related or similar matters)
and must be independently and separately satisfied.
SECTION 5.02. RELIANCE BY PURCHASER. Notwithstanding the right of
Purchaser to investigate the Company and its Subsidiaries, and notwithstanding
any knowledge of facts determinable by Purchaser as a result of such
investigation or right of investigation, Purchaser has the unqualified right to
rely upon the representations and warranties made by the Shareholders in this
Agreement and in the Schedules attached hereto. Each and every representation
and warranty of the Shareholders made herein is material to the decision of the
Purchaser to enter into this Agreement and to consummate the transaction
contemplated herein.
SECTION 5.03. SURVIVAL. All representations and warranties of Xpedite,
APAX and the other Shareholders and Purchaser made in this Agreement or pursuant
hereto shall
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survive the date hereof, the Closing Date, the consummation of the transactions
contemplated hereby, the termination of this Agreement and any investigation
related thereto until the 12 month anniversary of the Closing Date. All
unperformed covenants and agreements of Xpedite, APAX and the other Shareholders
and Purchaser made in this Agreement or pursuant hereto shall survive the date
hereof, the Closing Date and the consummation of the transactions contemplated
hereby.
ARTICLE VI
COVENANTS
---------
Unless otherwise permitted by Xpedite in writing, which permission will
not be unreasonably withheld or delayed, from and after the date hereof until
the Closing Date, the Shareholders shall, and/or shall cause the Company and its
Subsidiaries to, comply with the following:
SECTION 6.01. REGULAR COURSE OF BUSINESS.
(a) GENERALLY. The Shareholders shall cause the Company and its
Subsidiaries (so far as they are lawfully able) to (i) operate and carry on
their businesses in the ordinary course of business consistent with past
practices, (ii) use commercially reasonable efforts to preserve their
relationships with third parties (materially important to the smooth running of
the Company's business) and to keep available the services of their present key
officers and employees, (iii) maintain all of their properties in their current
state of repair, order and condition (fair wear and tear excepted), (iv)
maintain all material contracts, agreements, leases, understandings,
arrangements (whether written or oral) in effect on the date hereof without
modification, termination or change (other than immaterial modifications,
terminations or changes and modifications, terminations or changes which in the
reasonable opinion of the Company's management are in the best interests of the
Company, both prior to and after Closing), (v) comply with the provisions of all
material Applicable Laws of Governmental Authorities applicable to the Company
and its Subsidiaries and the conduct of their businesses, and (vi) maintain,
renew as necessary and comply with all material Permits. The Company shall
maintain its financial and accounting records in a manner consistent with that
employed at December 31, 1996.
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(b) COMPENSATION. Neither the Company nor any of its Subsidiaries shall
hire or fire any employee earning an annual base salary in excess of
(pound)20,000 nor shall it grant any increase greater than (pound)5,000 in the
compensation (in whatever form) or other benefits payable or to become payable
to any officer, director, consultant, independent contractor or other employee
of the Company or any of its Subsidiaries.
(c) INSURANCE. The Company and its Subsidiaries shall maintain in full
force and effect all of the insurance policies with the coverage and in the
amounts set forth on SCHEDULE 2.17.
(d) CLAIMS. The Company shall promptly notify Purchaser of any Legal
Action that may be commenced against the Company or any of its Subsidiaries.
(e) SUPPLEMENT. From time to time until the Closing Date, the
Shareholders shall, after they obtain actual knowledge of such facts or
circumstances, notify Purchaser, as soon as reasonably practicable, of any
material changes with respect to the information set forth in this Agreement or
the Schedules hereto and of any material matters hereafter arising. No
disclosure made pursuant to this SECTION 6.01(e) shall be deemed to cure any
misrepresentation, breach of warranty or breach of covenant unless it is
specifically waived in writing by Purchaser; provided, that the Shareholders
shall have no liability to Purchaser for any additional disclosures made against
the representations and warranties set forth in SECTION 2.23, between the date
of this Agreement and the Closing Date.
(f) AMENDMENTS. Save as contemplated by this Agreement (particularly in
SECTION 6.17), without the prior written consent of Xpedite (not to be
unreasonably withheld or delayed), no change or amendment shall be made to the
Memorandum and Articles of Association, certificate of incorporation or bylaws
(or equivalent governing documents) of the Company or any of its Subsidiaries,
and neither the Company nor any of its Subsidiaries shall merge into or
consolidate with any other Person or change the character of their businesses.
SECTION 6.02. CAPITAL CHANGES. Save as contemplated by this Agreement
(particularly in SECTION 6.17), without the prior written consent of Xpedite
(not to be unreasonably withheld or delayed), neither the Company nor any of its
Subsidiaries shall issue, sell,
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purchase or redeem any shares of its share capital of any class or issue or sell
any securities convertible into, or options, warrants or other rights to
subscribe for, any of its share capital; provided that nothing herein shall
prevent the redemption of the preference shares and/or the A preference shares
of (pound)1.00 each in the capital of the Company; provided further that no such
redemption shall be effectuated between the date of the Base Net Asset Value and
Closing.
SECTION 6.03. DIVIDENDS. Neither the Company nor any of its Subsidiaries
shall declare, pay or set aside for payment any dividend or other distribution
in respect of its ordinary share capital; provided that nothing herein shall
prevent (i) the redemption of the preference shares of (pound)1.00 each in the
capital of the Company and/or the A Prefs or (ii) the payment of dividends to
the holders of the preference shares of (pound)1.00 each in the capital of the
Company in accordance with the Company's Articles of Association or accruing for
the premium payable on redemption of the A Prefs; provided further that no
redemption or payment described in (i) above shall be effectuated between the
date of the Base Net Asset Value and Closing.
SECTION 6.04. CAPITAL EXPENDITURES. The Company and its Subsidiaries
shall not make any capital expenditures (except in respect of (i) any purchases
from Xpedite in accordance with the System and Marketing Agreement between
Xpedite and the Company and (ii) purchases involving expenditures less than
(pound)10,000 in any instance and (pound)100,000 in the aggregate) in excess of
those budgeted in the Company's forecast, a true and complete copy of which is
attached hereto as SCHEDULE 6.04.
SECTION 6.05. INDEBTEDNESS. Neither the Company nor any of its
Subsidiaries shall incur, assume or guarantee any indebtedness or obligations
not reflected on the Base Balance Sheet, except for amounts not to exceed
(pound)250,000 in the aggregate.
SECTION 6.06. PROPERTY. Except as may be required by any Applicable Law
or Legal Action, neither the Company nor any of its Subsidiaries shall sell,
transfer, or dispose of any of its assets and properties (having a book value of
(pound)10,000 or more in any case or (pound)100,000 in the aggregate), allow any
of its assets and properties to become subject to any Encumbrance, or acquire
any material assets
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of any other Person or make any investment in any other Person.
SECTION 6.07. LOANS. The Company shall not make or accept any loan or
advance from any of its Associates, except for loans or advances not exceeding
(pound)10,000 in any instance and (pound)100,000 in the aggregate.
SECTION 6.08. OTHER COMMITMENTS. Except as set forth in this Agreement or
permitted in writing by Purchaser, neither the Company nor any of its
Subsidiaries shall enter into any transaction, make any commitment or incur any
obligation other than in the ordinary course of business.
SECTION 6.09. INTERIM FINANCIAL INFORMATION. The Company shall supply
Purchaser with a copy of its monthly financial statements (in the form
historically provided by the Company to Xpedite) within thirty (30) days after
the end of each month.
SECTION 6.10. CONSENTS AND AUTHORIZATIONS. The Shareholders shall, and
shall cause the Company to, promptly after the date hereof, commence and use
commercially reasonable efforts to obtain any consents, waivers and
authorizations necessary to consummate the transactions contemplated by this
Agreement.
SECTION 6.11. ACCESS. The Shareholders shall cause the Company to afford
to Purchaser and its debt and equity financing sources and their respective
counsel, accountants, agents and other authorized representatives access during
normal business hours to the Company's and its Subsidiaries' plants, properties,
books and records in order that Purchaser and its debt and equity financing
sources may have full opportunity to make such reasonable investigations as it
shall desire to make of the affairs of the Company and its Subsidiaries. The
Shareholders shall employ reasonable efforts to cause the Company to cause the
directors, officers, employees and auditors of the Company and its Subsidiaries
to furnish such additional financial and operating data and other information as
Purchaser and its debt and equity financing sources shall from time to time
reasonably request.
SECTION 6.12. NOTICE OF TRANSFER. Each of Xpedite, Purchaser and the
Shareholders shall cooperate in providing any required notices to the
appropriate
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Governmental Authority regarding any issues of ownership or control or change
thereof with respect to the Company.
SECTION 6.13. [INTENTIONALLY OMITTED]
SECTION 6.14. FURTHER ASSURANCES. On the terms and subject to the
conditions of this Agreement, the parties hereto shall use all reasonable
efforts at their own expense to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable under all
Applicable Laws, to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement, and to cooperate with each other in
connection with the foregoing, including, without limitation, using all
reasonable efforts (a) to obtain all necessary waivers, consents and approvals
from other parties to loan agreements, leases, mortgages and other contracts or
agreements, (b) to obtain all necessary consents, approvals and authorizations
as are required to be obtained under any Judgment, Applicable Law or in
connection with any Permit, (c) to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated by this Agreement and (d) to fulfill
all conditions to the obligations of the parties under this Agreement.
SECTION 6.15. NO SOLICITATION OR NEGOTIATION. Prior to termination of
this Agreement, the Shareholders shall not initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to, or
engage in negotiations concerning, or provide any confidential information or
data to any Person with respect to, or have any discussions with any Person
relating to, any acquisition, business combination, tender or exchange offer or
purchase of all or any significant asset of, or any equity interest in, directly
or indirectly, the Company or any of its Subsidiaries, or otherwise facilitate
any effort or attempt to do or seek any of the foregoing and shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing; nor shall the Shareholders permit the Company to engage in any of the
foregoing activities.
SECTION 6.16. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, no party
hereto nor any affiliate, representative or shareholder of such party, shall
disclose any of the terms of this Agreement to any third party, except as may be
required under Applicable Laws, without the
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other parties' prior written consent. Prior to the Closing Date, the form,
content and timing of all press releases, public announcements or publicity
statements with respect to this Agreement and the transactions contemplated by
this Agreement shall be subject to the prior approval of both the Shareholders
and Purchaser, which approval shall not be unreasonably withheld or delayed to
any of the foregoing which discloses any of the financial terms of this
transaction other than as required by Applicable Laws. Prior to the Closing
Date, no press releases, public announcements or publicity statements shall be
released by either party without such prior mutual agreement; provided, however
a party may, without the prior consent of the other party, issue a press release
or make a public statement as may, upon the advice of independent counsel, be
required by law or the rules and regulations of the Securities and Exchange
Commission or the NASDAQ National Market in which case a copy of such press
release or public announcement will be copied to the other party prior to it
being issued.
SECTION 6.17. AUTHORIZED SHARE CAPITAL. The Shareholders shall procure
that the Company increases its authorized share capital above (pound)12,059,205
by not less than $10,773,935 and (pound)3,661,000 in accordance with Section 80
of the Companies Act 1985 by the creation of 10,773,935 Ordinary Shares of $1.00
each and 3,661,000 Ordinary Shares of (pound)1.00 each, respectively, to rank
pari passu in all respects with the existing ordinary shares of (pound)1.00 each
in the capital of the Company and to disapply the pre-emption rights contained
in Section 89 of the Companies Act 1985 and any contained in the Company's
Articles of Association in relation to the allotment of such shares. The
Shareholders shall be permitted, and shall take all necessary actions, to amend
the Articles of Association of the Company to authorize the issuance of a new
class of Ordinary Shares of $1.00 each and increase the authorized number of
Ordinary Shares of (pound)1.00 each in order to facilitate the increase in share
capital set out in this SECTION 6.17.
SECTION 6.18. EXPENSES. Prior to or on October 31, 1997, the Company
shall cause any portion of the Morgan Stanley Fee to be incurred by the Company
and all amounts which are to be paid by the Company in connection with the Exit
Bonus Scheme to be reflected on the Company's books as expenses, and the parties
agree that such amounts will be reflected as liabilities on the Closing Date
Balance Sheet.
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SECTION 6.19. ESCROW OF EAGLE SHARES. Eagle agrees that it shall, within
four weeks after the date of this Agreement, deposit the share certificates
relating to the Sale Shares (as defined in the Buyback Agreement) with the
office of Ernst & Young, LLP based in Jersey, Channel Islands to be held in
escrow in accordance with the terms of this Agreement. Such certificates shall
be released from the provisions of such escrow as follows: (a) to the Company,
upon the consummation of the transactions contemplated by the Buyback Agreement,
(b) to the Purchaser, in the event the Buyback Agreement is terminated and such
Shares are sold in accordance with this Agreement, or (c) to Eagle, upon the
termination of this Agreement for any reason.
SECTION 6.20. MODIFICATIONS TO BUYBACK AGREEMENT. David Proctor shall
not, and shall not permit Eagle to, agree to any amendment to, or deliver any
waiver with respect to, the Buyback Agreement, without the prior written consent
of the Purchaser (not to be unreasonably withheld or delayed).
SECTION 6.21. WAIVER OF PRE-EMPTION RIGHTS. Each of the Shareholders
(including but not limited to Marc Epstein) and Eagle hereby waives any and all
pre-emption rights (if any) held by such Shareholders (including but not limited
to Marc Epstein) and Eagle, respectively, in connection with the transactions
contemplated hereby.
SECTION 6.22. TRANSFERS BY EAGLE. David Proctor shall not cause, allow,
or give Eagle instruction to sell, transfer, pledge, hypothecate, or otherwise
dispose of any of the Sale Shares or any interest in or portion thereof, or any
rights appurtenant thereto other than as contemplated by this Agreement or the
Buyback Agreement.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
----------------------------------------------
Each and every obligation of the Purchaser under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived by the Purchaser:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES; PERFORMANCE. (a) The
representations and warranties of the Shareholders contained in this Agreement
shall be true and
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correct in all material respects when made and on the Closing Date, with the
same effect as though made on the Closing Date; PROVIDED, that this condition
will be deemed satisfied unless the failure of such representations and
warranties to be true and correct (i) constitutes a Material Adverse Change (as
defined in SECTION 7.05 hereof) or (ii) involves the matters represented and
warranted to in any of SECTION 2.03, 3.01, 3.02 or 3.03 hereof and would cause
any party hereto to be unable to complete the transactions contemplated hereby
or (iii) is as a result of the actual revenues, cash flow (I.E., earnings before
interest, taxes, depreciation and amortization) or net profit for the aggregate
six-month period covered by the June 1997 Accounts, being in any case less than
90% of the amount thereof reflected in the June 1997 Accounts; (b) the
Shareholders shall have performed and complied in all material respects with all
agreements and covenants required by this Agreement to be performed and complied
with by them prior to the Closing Date; PROVIDED, that this condition will be
deemed satisfied unless the failure to perform and comply with such agreements
and covenants (i) constitutes a Material Adverse Change or (ii) involves a
breach of a covenant set forth in (A) SECTION 6.01(b), with respect to increases
in compensation and/or benefits only, (B) SECTION 6.02 - 6.07 (inclusive), (C)
SECTION 6.17 or (D) Section 6.22; and (c) APAX and David Proctor shall have
delivered to the Purchaser a certificate in the form attached hereto as Exhibit
E, dated the Closing Date, certifying to the foregoing.
SECTION 7.02. CONSENTS AND APPROVALS. The Shareholders and the Company
shall have obtained all material consents, approvals, orders, qualifications,
licenses, permits or other authorizations required by all Applicable Laws and
contracts binding on the Company or any of its Subsidiaries or binding on their
properties and assets, with respect to the execution, delivery and performance
of the Agreement by the Shareholders, the consummation of the transactions
contemplated herein and the conduct of the business of the Company and the
Subsidiaries in the same manner after the Closing Date as before the Closing
Date as listed on SCHEDULE 7.02 hereto.
SECTION 7.03. LITIGATION. There shall be no pending action or Legal
Action commenced against the Company, any of its Subsidiaries, Purchaser or any
Shareholder that is intended to have the effect of preventing, delaying or
making illegal the transactions
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contemplated by this Agreement and no such action or Legal Action shall have
been threatened.
SECTION 7.04. APAX LETTER OF CREDIT. APAX shall have delivered to
Purchaser a letter of credit or guarantee issued by a major U.S. or U.K. banking
institution (which for the avoidance of doubt, includes National Westminster
Bank PLC) reasonably acceptable to Purchaser in the face amount of $5,000,000
("APAX LETTER OF CREDIT"), which APAX Letter of Credit shall be in substantially
the form attached hereto as EXHIBIT B.
SECTION 7.05. NO MATERIAL ADVERSE CHANGE. During the period from the date
of this Agreement through and including the Closing Date, there shall not have
occurred any material adverse change in the business, financial condition or
operations of the Company, taken as a whole, other than any change arising out
of matters of a general economic nature, which is reasonably likely to result in
a decline in calendar year 1998 of 10% or more in the (i) revenues, (ii) cash
flow (I.E., earnings before ---- interest, taxes, depreciation and amortization)
or (iii) net profit of the Company and its Subsidiaries (taken as a whole)
achieved for the period from January 1, 1997 to the Closing Date, annualized (a
"MATERIAL ADVERSE CHANGE") PROVIDED, that, for purposes of calculating whether a
- -------- Material Adverse Change has occurred, neither any portion of the Morgan
Stanley Fee payable by the Company nor any amount paid pursuant to the Exit
Bonus Scheme shall be considered in such calculation.
SECTION 7.06. OPTIONS. The Options shall have either lapsed and be void
and no longer of any force and effect or the Shareholders shall have caused the
Options to be exercised and procured the delivery of the Shares issuable upon
the exercise of the Options to Purchaser with duly executed stock transfer forms
in respect thereof as part of the Shares to be delivered to Purchaser in
consideration of the Purchase Price.
SECTION 7.07. EMPLOYMENT AGREEMENT. The Company shall have entered into
an Employment Agreement with David Proctor (the "EMPLOYMENT AGREEMENT"),
substantially in the form of EXHIBIT C hereto.
SECTION 7.08. BUYBACK AGREEMENT. If the Buyback Agreement has not been
terminated, the transactions contemplated by the Buyback Agreement shall be
completed simultaneously with Closing.
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SECTION 7.09. SATISFACTION OF FINANCIAL ASSISTANCE REQUIREMENTS. To the
extent any amount is paid by the Company to any Person in connection with the
Exit Bonus Scheme and/or the Morgan Stanley Fee, the Company shall have made all
filings and satisfied all other material requirements under English law to
enable the Company to lawfully make the payments contemplated by the Exit Bonus
Scheme and to pay the Morgan Stanley Fee.
SECTION 7.10. SHARE CERTIFICATES; REDEMPTION OF A PREFS. All share
certificates and other instruments (if any) representing the shares to be
acquired or redeemed as described in SECTION 9.01 (other than the A Prefs for
which the Shareholders shall demonstrate, to Purchaser's reasonable
satisfaction, that such certificates shall be delivered to the Company within
seven (7) days after the Closing), together with any power of attorney or
certified copy thereof or other authority under which such transfers have been
executed, shall have been delivered to the Company in contemplation of the
acquisition or redemption of such shares in accordance with SECTION 9.01; such
certificates and other instruments shall represent the whole of the outstanding
share capital of the Company (other than the A Prefs and the Epstein Shares).
Marc Epstein shall have delivered to the Company the share certificates
representing the Epstein Shares; such certificates shall be held in escrow by
the Company pending completion of the transactions contemplated in SECTION 1.04,
upon the terms set forth in such SECTION 1.04. All conditions for redemption of
the A Prefs, including all English law requirements, have been satisfied.
ARTICLE VIII
Conditions to the
OBLIGATIONS OF THE SHAREHOLDERS
-------------------------------
Each and every obligation of the Shareholders under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived by the Shareholders.
SECTION 8.01. REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The
representations and warranties of Xpedite and the Purchaser contained in this
Agreement shall be true and correct in all material respects when made and on
the Closing Date, with the same effect as though made on the Closing Date. The
Purchaser shall have performed and
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complied in all material respects with all agreements and covenants required by
this Agreement to be performed and complied with by it prior to the Closing
Date. The Presidents of Xpedite and the Purchaser shall have delivered to the
Shareholders a certificate, dated the Closing Date, certifying to the foregoing.
SECTION 8.02. CONSENTS AND APPROVALS. Xpedite and the Purchaser shall
have obtained all consents, approvals, orders, qualifications, licenses, permits
or other authorizations required to be obtained by Xpedite or the Purchaser by
all Applicable Laws, with respect to the execution, delivery and performance of
the Agreement, the consummation of the transactions contemplated herein and the
conduct of the business of the Company in the same manner after the Closing Date
as before the Closing Date.
SECTION 8.03. NO PROCEEDING OR LITIGATION. There shall be no pending
action or Legal Action commenced against Xpedite and the Company, any of its
Subsidiaries, Purchaser or any Shareholder that may have the effect of
preventing, delaying or making illegal the transactions contemplated by this
Agreement and no such action or Legal Action shall have been threatened.
SECTION 8.04. PURCHASER LETTER OF CREDIT. Purchaser shall have delivered
to the Shareholders a letter of credit issued by a major U.S. or U.K banking
institution reasonably acceptable to the Shareholders in the face amount of
$31.5 million (the "Purchaser Letter of Credit"), which Purchaser Letter of
Credit shall be in form and substance reasonably satisfactory to the
Shareholders.
ARTICLE IX
CLOSING
-------
SECTION 9.01. CLOSING. Subject to the terms and conditions of this
Agreement, the purchase and sale of the Shares and the consummation of the
transactions contemplated by this Agreement (the "CLOSING") shall occur at 10:00
a.m., New York City Time, November 14, 1997 at the offices of Paul, Hastings,
Janofsky & Walker LLP, Thirty-First Floor, 399 Park Avenue, New York, New York,
or at such other hour or on such other earlier date as shall be agreed upon
between the Purchaser and the Shareholders (the date on which the Closing occurs
being referred to as the "CLOSING DATE"); provided that the Closing Date may be
delayed to a
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date not later than December 31, 1997 in the event Purchaser or Xpedite notifies
the Shareholders prior to November 14, 1997 that Xpedite is engaged in a
material transaction and that Xpedite has not received all third party approvals
(whether from any governmental authority, its stockholders or otherwise)
necessary to consummate such transaction; but in no event shall the Closing be
later than December 31, 1997 unless there is a legal impediment (not created by
the Purchaser or Xpedite for the purpose of preventing the consummation of the
transactions contemplated hereby) to the consummation of the transactions
contemplated hereby, in which case the Closing Date shall occur within five (5)
business days of the removal of such legal impediments; At the Closing:
(a) The Shareholders shall deliver or cause to be delivered to the
Purchaser, against payment by the Purchaser of the portion of the Adjusted
Purchase Price payable at the Closing:
(i) duly executed transfers of the Shares in favor of the
Purchaser or its nominees and the share certificates in respect of the
Shares and the A Prefs being redeemed (or, with respect to the A
Prefs, evidence reasonably satisfactory to Purchaser that such
certificates shall be delivered to the Company within seven (7) days
after the Closing) together with any power of attorney or a certified
copy thereof or other authority under which such transfers have been
executed and an indemnity in such form as the Purchaser shall
reasonably require in relation to any missing share certificates;
(ii) the statutory and other books duly written up to the Closing
Date, the Certificates of Incorporation, Certificates of Incorporation
on Change of Name and common seals (if any) of the Company and the
Subsidiaries;
(iii) the share certificates for all the issued shares in the
Subsidiaries together with indemnities in such form as the Purchaser
may reasonably require in respect of any missing certificates;
(iv) the title deeds in the Company's possession relating to the
real estate listed in SCHEDULE 2.08 (not including vacated properties)
and
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all insurance policies, premium receipts, maintenance contracts and
other documents relating thereto;
(v) all books of account and other books and records and copies
of the Memorandum and Articles of Association of the Company and each
of the Subsidiaries;
(vi) letters of resignation from such of the Directors and the
Secretary of the Company and the Subsidiaries as may be specified by
the Purchaser, each of whom shall resign from all his offices and
employments with the Company and each of the Subsidiaries with
immediate effect and shall at the Closing deliver to the Purchaser a
deed of acknowledgement to the effect that he has no claim for any
payment in respect of compensation for loss of office or employment or
any other claim or right of action against the Company or the
Subsidiaries or any of them; and
(vii) all of the documents, certificates and instruments required
to be delivered, or caused to be delivered, by the Company and the
Shareholders pursuant to Article VII hereof, duly executed as provided
herein or therein.
(b) The Purchaser shall, subject to the Shareholders complying with
SECTION 9.01(a)(i)-(vii) (other than with respect to any obligation in
SECTION 9.01(a) relating to Transmit International (Asia) Limited):
(i) wire transfer $57,000,000 in accordance with SECTION
1.01(i), which funds shall be applied as follows:
(First) In subscribing at par for the number of
Ordinary Shares of(pound)1.00 each in capital
of the Company in an amount equal to the
nominal value of the A Prefs (plus the
premiums payable upon redemption of the
A Prefs) calculated down to the Closing
Date which will be used by the Company
to fund the redemption of the A Prefs
including the premium payable on
redemption;
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(Second) Subject to the Buyback Agreement not
having been terminated, in subscribing
at par for the 10,773,935 ordinary
shares of $1.00 each in the capital of
the Company which are to be created in
the increase in the authorized share
capital of the Company pursuant to
SECTION 6.17, which $10,773,935 will be
applied at Closing by Hammond Suddards
to satisfy the Company's obligations
under the Buyback Agreement;
(Third) In acquiring the Preference Shares of
(pound)1.00 in the capital of the Company
from APAX Funds Nominees Limited and David
Proctor for their nominal value plus all
accrued dividends, interest and
penalties (if any) down to the Closing
Date;
(Fourth) Subject to the Buyback Agreement not
having been terminated, the balance to
be paid to the holders of Ordinary
Shares and A Ordinary Shares both of
(pound)1.00 each in the capital of the
Company on account of the Adjusted Purchase
Price in accordance with the proportions
specified in SCHEDULE 1 and where the
Buyback Agreement is terminated, in the
proportions specified in SCHEDULE 1A;
and
(ii) all of the documents required to be delivered, or
caused to be delivered, by the Purchaser pursuant to Article VIII
hereof, duly executed as provided herein or therein.
Only the payments made under SECTION 9(b)(i) (Third) and 9.01(b)(i)
(Fourth) shall constitute payment of the Adjusted Purchase Price for the Shares.
(c) At the Closing, the Shareholders shall procure that:
(i) the auditors of the Company and of each of the
Subsidiaries shall resign their office in accordance with Section 392
of the Companies Act 1985 (without any claim for compensation for loss
of office or otherwise); and
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(ii) a board meeting of the Company be held at which it
shall be resolved that: (1) the stock transfers deliverable pursuant
to SECTION 9.01(a)(i) in respect of the Shares be passed for
registration subject only to their being represented duly stamped; (2)
Ernst & Young shall be appointed auditors of the Company; and (3) Roy
B. Andersen, Jr. and Robert S. Vaters shall be appointed Directors and
Robert S. Vaters shall be appointed Secretary.
ARTICLE X
TERMINATION
-----------
SECTION 10.01. TERMINATION EVENTS. This Agreement may, by written notice
given prior to or at the Closing, be terminated:
(a) By the Purchaser, if there shall have been a Material
Adverse Change unless (i) such Material Adverse Change is cured by the
Shareholders within 10 days after receiving written notice thereof from
the Purchaser or (ii) such Material Adverse Change is as a result of a
breach of the representations, warranties or covenants set forth herein
in which case the Purchaser may terminate this Agreement pursuant to
SECTION 10.01(c); PROVIDED, that, for purposes of calculating whether a
Material Adverse Change has occurred, neither any portion of the Morgan
Stanley Fee payable by the Company and any amount paid pursuant to the
Exit Bonus Scheme shall be considered in such calculation;
(b) By the Shareholders, if any of the representations,
warranties or covenants of Purchaser set forth in this Agreement are
not true and correct or performed, as the case may be, in all material
respects and such misrepresentation or breach, as the case may be, has
not been (1) waived in writing by the Shareholders or (2) cured by
Purchaser within 10 days after receipt of written notice thereof from
the Shareholders;
(c) By the Purchaser, if any of the representations,
warranties or covenants of the Shareholders set forth in this Agreement
are not true and correct or performed, as the case may be, in all
material respects and such misrepresentation or breach,
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as the case may be, (1) would constitute a Material Adverse Change and
(2) has not been (A) waived in writing by the Purchaser or (B) cured by
the Shareholders within 10 days after receipt of written notice thereof
from Purchaser; provided, that, for purposes of calculating whether a
Material Adverse Change has occurred, neither any portion of the Morgan
Stanley Fee payable by the Company nor any amount paid pursuant to the
Exit Bonus Scheme shall be considered in such calculation;
(d) By mutual written consent of Purchaser,
Xpedite and the Shareholders; or
(e) If in the reasonable judgment of Purchaser or the
Shareholders there is an immovable and insurmountable legal impediment
to Closing (not created by any party for such purpose), by either
Purchaser or the Shareholders, if the Closing has not occurred (other
than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before December 31, 1997, or such later date as the parties may
agree upon in writing.
SECTION 10.02. EFFECT OF TERMINATION. In the event Purchaser terminates
this Agreement pursuant to SECTION 10.01(a) hereof, Purchaser's sole and
exclusive right and remedy shall be to receive from the Shareholders, upon
demand, an amount equal to $1,700,000 (the "BREAKUP AMOUNT"). In the event
Purchaser terminates this Agreement pursuant to SECTION 10.01(c) hereof, (i) if
Purchaser shall have satisfied all conditions set forth in Article VIII hereof
or prior to the last date under this Agreement when Purchaser could have
satisfied such conditions and (ii) Purchaser is otherwise prepared to close the
transactions contemplated by this Agreement but for such breach, Purchaser
shall, in any such case, be entitled to receive the Break-Up Amount from the
Shareholders and also or alternatively may, subject to the terms of this
Agreement, seek any remedies at law for damages or other relief, institute and
prosecute an action in any court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
The liability of Purchaser, on the one hand, and the Shareholders, on the other
hand, under this SECTION 10.02 shall be several and not joint.
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ARTICLE XI
LIABILITY TO PURCHASER
----------------------
Subject to the limitations set forth in this Article XI, Purchaser shall
be entitled to make claims hereunder relating to or arising out of any
misrepresentation or breach of warranty of the Shareholders contained in this
Agreement. For the purposes of SECTIONS 11.01 - 11.21, "Shareholders" shall mean
APAX in relation to limitations to the representations and warranties contained
in Article II.
SECTION 11.01. INTEGRATION. The Purchaser hereby acknowledges that except
as provided in this Agreement and without prejudice to any liability for
fraudulent misrepresentation, no reliance has been placed nor will at any time
after execution of this Agreement be placed by the Purchaser on any
representation or warranty (whether express or implied and whether written or
oral) relating to the Company other than those contained in this Agreement and
accordingly all representations and warranties (whether express or implied,
statutory or otherwise) on the part of the Shareholders other than those
contained in this Agreement are hereby excluded. No party shall have any remedy
in respect of any misrepresentation or untrue statement made by any other party
unless and to the extent that a claim lies under this Agreement.
SECTION 11.02. PROJECTIONS. Without prejudice to the generality of
SECTION 11.01, the Purchaser expressly acknowledges and warrants that, save as
specifically warranted to that effect in this Agreement, it is not relying on
nor will at any time hereafter rely on any statement, representation, warranty
or forecast of realized or prospective profits or turnover of the Company.
SECTION 11.03. DISCLOSED MATTERS. The Purchaser shall not be entitled to
make any claim under or pursuant to any of the representations and warranties
contained in this Agreement in relation to and to the extent that:
(a) any matter which is reserved, or provided for in the Company's
audited accounts for the year ended December 31, 1996 or in the Closing
Date Balance Sheet as finally determined in accordance with SECTION 1.02
(but the Purchaser's right to make such a claim shall be limited only
insofar as there is a reserve or provision for the matter to which the
claim relates);
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(b) any matter where the claim arises as a result of, or would not
have arisen but for, or a liability is increased as a result of,
legislation not in force at the date of this Agreement, or any change in
legislation with retrospective effect after the date of this Agreement
(including without limitation any increase in rates or scope or calculation
of Taxes, new Taxes, or changes in legislation relating to Taxes with
retrospective effect) or any change in the interpretation or application of
the law or any judicial decision or practice or any generally accepted
change in any rule or regulation, after the date of this Agreement the
withdrawal or alteration after the date of this Agreement of any extra
statutory concession made by any fiscal authority and presently in
operation, or any introduction, change or withdrawal after the date of this
Agreement of any regulatory or administrative rule or provision of general
application;
(c) any matter where the facts, events, matters or circumstances
giving rise to such claim have been fully and fairly disclosed (but so that
any facts, events, matters or circumstances which are disclosed only in
part shall be deemed fully and fairly disclosed to that extent but not
further or otherwise) to the Purchaser in this Agreement or the disclosure
letter of even date from the Shareholders to the Purchaser and Xpedite (the
"DISCLOSURE LETTER") or the documents annexed or referred to in the
Disclosure Letter or in any documents entered into pursuant to the terms of
this Agreement;
(d) any claim which has been made good or is compensated for in full
otherwise than by the Company or the Purchaser;
(e) any matter which would not have arisen but for a breach by Xpedite
or the Purchaser of its obligations under this Agreement or under any
document entered into pursuant to this Agreement; and
(f) any matter relating to Taxes to the extent that it has been
discharged on or before the Closing Date.
SECTION 11.04. SURVIVAL PERIOD. The rights of the Purchaser in respect of
any breach of any of the representations and warranties contained in this
Agreement
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shall only be enforceable if written notice giving the amount and all available
material and specific details of a claim shall have been given to the
Shareholders on or before the first anniversary of the Closing Date and the
Shareholders shall cease to be liable in respect of such claim (which shall be
deemed to have been withdrawn) if legal proceedings are not issued and served in
respect of it within 18 months after the Closing Date.
SECTION 11.05. NO RESCISSION. Following the Closing, the remedies of the
Purchaser and Xpedite in respect of any breach of any of the representations and
warranties contained in this Agreement shall be against the Shareholders and
limited to a claim for damages subject to the limitations contained in this
Agreement and shall not extend to rescission or termination of this Agreement or
the right to claim that any such breach constitutes repudiation of this
Agreement.
SECTION 11.06. MITIGATION. Following the Closing, the Purchaser shall not
be entitled to make any claim under or pursuant to the representations and
warranties contained in this Agreement unless:
(a) within 45 days after the Chief Executive Officer of
Xpedite has obtained actual knowledge of circumstances which will, or is
reasonably likely to, give rise to such a claim the Purchaser gives to the
Shareholders written notice of such claim and in particular (but without
prejudice to the generality of the foregoing) gives such written notice of
any claim by or against, or any liability of or to, any third party (or of
any circumstances which become known to the Purchaser and/or the Company
which are reasonably likely to give rise to any such claim or liability) in
consequence of which the Shareholders will or may become liable for a claim
under this Agreement;
(b) if requested in writing by the Shareholders, the
Purchaser has taken or procured that the Company has taken all steps
necessary in Purchaser's reasonable judgment to avoid, resist, or
compromise any such claim or liability and any relevant proceedings and has
taken or procured that the Company has taken all reasonably necessary
proceedings or other actions in connection with such claim or liability
subject in each case to the Shareholders indemnifying the Purchaser to the
reasonable satisfaction of the Purchaser against all
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reasonable costs, liabilities, charges and expenses which it may reasonably
incur thereby; and
(c) the Purchaser has at all times allowed the
Shareholders and their professional advisers and other agents access (at
reasonable times upon reasonable notice during normal business hours) to
and to inspect and take copies of, all necessary books, files and records
of the Company for the purpose of assessing and dealing with any such claim
or liability; PROVIDED, that the foregoing shall not unreasonably disrupt
the Purchaser's and the Company's business.
Nothing contained in this SECTION 11.06 shall be deemed to require the
Purchaser to take any act, or omit from taking any act, that would, in the good
faith judgment of the Purchaser, materially adversely affect the Company's
business or its relations with any of its material customers.
SECTION 11.07. OFFSET; INCREASE. (a) In calculating the loss to the
Purchaser arising or alleged to arise out of any liability of the Shareholders
in respect of any breach of any of the representations and warranties contained
in this Agreement there shall be deducted the amount by which any Taxes for
which the Purchaser or the Company is assessed or accountable (with respect to
the taxable year in which the indemnity claim relating to any such liability is
paid) is reduced or extinguished as a result of any such liability.
(b) Except where a claim is made by a third party to whom this Agreement
has been assigned, the amount of any claim to be paid under this Article XI
shall be increased by the amount of any Taxes imposed by any Taxing Authority on
the receipt by the Purchaser or the Company of such payment (and imposed on any
payments received under this SECTION 11.07(b)).
(c) The parties intend that an arbitrator or court of competent
jurisdiction will take into account the principles set forth in SECTION 11.07(a)
and (b). Provided this is so, once a Qualifying Claim has been Finally
Determined (as defined in SECTION 11.19) by a court of competent jurisdiction or
by an arbitrator, the amount awarded shall be in full and final settlement of
such Qualifying Claim and no further adjustment for Taxes will be made.
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SECTION 11.08. DEMINIMIS CLAIMS; BASKET. No payment in respect of any
individual matter giving rise to a claim under any of the representations and
warranties contained in this Agreement shall be made unless and until and to the
extent that the amount finally adjudicated by a court of competent jurisdiction
or arbitrator or agreed to be payable by the Shareholders in respect of any such
claim shall exceed (pound)10,000 ("a QUALIFYING CLAIM") and in such event the
Shareholders shall be liable for the full amount of such claim. No payment shall
be made in respect of any matter giving rise to a claim under any of the
representations and warranties contained in this Agreement unless and until the
amount in respect of that claim (when aggregated with each other Qualifying
Claim) shall exceed (pound)100,000 in which case the Shareholders shall be
liable for all such claims.
SECTION 11.09. MAXIMUM LIABILITY. The maximum aggregate liability of the
Shareholders for claims under any of the representations and warranties
contained in this Agreement shall not in any circumstances exceed the sum of
$5,000,000 (as supported by the APAX Letter of Credit).
SECTION 11.10. THIRD PARTY RECOVERIES. If the Purchaser or the Company is
entitled to recover (whether by payment, discount, credit, set-off or otherwise)
from any Person other than the Shareholders any sum in respect of any matters
giving rise to a liability of the Shareholders under any of the representations
and warranties contained in this Agreement the Purchaser shall, and shall
procure that the Company shall, give all reasonable assistance (including access
to documents) if required by the Shareholders, and at the expense of the
Shareholders, shall take, or procure the taking of, all, in Purchaser's
judgment, appropriate steps to enforce such recovery (keeping the Shareholders
reasonably informed of the progress of any action taken) and, in the case of the
Purchaser, shall forthwith account to the Company for any amount so recovered
less all reasonable expenses of recovery thereof or, if less, any amount paid or
payable by the Shareholders in respect of the claim.
SECTION 11.11. SUBSEQUENT RECOVERY. If any payment is made by the
Shareholders or any of them in or towards the settlement of any claim under any
of the representations and warranties contained in this Agreement and the
Purchaser or the Company subsequently recovers or procures the recovery from a
third party of an amount which is referable to that claim the Purchaser shall,
or shall
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procure that the Company shall, forthwith repay or procure repayment to the
relevant Shareholders of an amount equal to whichever is the lesser of:
(a) the amount recovered from the third party
after deduction of all reasonable expenses of recovery;
and
(b) the amount paid in or towards settlement of
the claim.
SECTION 11.12. PURCHASE PRICE REDUCTION. To the extent permitted under
Applicable Law, the amount or amounts of payments made by the Shareholders
pursuant to any successful claim under any of the representations and warranties
contained in this Agreement shall be deemed to constitute a reduction in the
Purchase Price paid for the Shares.
SECTION 11.13. ACTUAL DAMAGES. The liability of the Shareholders in
respect of any claim under any of the representations and warranties contained
in this Agreement shall not extend or be increased by reference to loss of
future profit or revenue or to loss of or harm to goodwill or reputation.
SECTION 11.14. CONTINGENT LIABILITY. If any breach arises by reason of
a liability falling on the Purchaser or the Company which is a contingent or
future liability when the claim in respect thereof is notified to the
Shareholders then the Shareholders shall not be obliged to make any payment to
the Purchaser until such time as the contingent or future liability ceases to be
contingent and becomes an actual liability or (if earlier) the time at which the
Purchaser or the Company suffers loss.
SECTION 11.15. APPLICATION OF CREDITS, ETC. The Shareholders shall not be
liable in respect of any claim under any of the representations and warranties
contained in this Agreement to the extent that any losses (including carry
forward tax losses), relief, allowances, credits, deductions, counterclaims,
rights of set off or other rights or claims of a similar nature arising by
reference to the period before Closing and to the extent not accounted for in
the final Closing Date Balance Sheet are available to the Company against or to
otherwise mitigate any liability arising from such claims.
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SECTION 11.16. SINGLE RECOVERY. The Purchaser shall not be entitled to
recover any sum in respect of any claim for breach of the representations and
warranties contained in this Agreement or otherwise obtain compensation,
reimbursement or restitution more than once in respect of the same loss or
damage by reason of any misrepresentation or breach of the representations and
warranties contained in this Agreement.
SECTION 11.17. [INTENTIONALLY OMITTED]
SECTION 11.18. SHAREHOLDERS' INDEMNITY. The Purchaser and Xpedite jointly
and severally covenant to procure that the Company shall indemnify and keep
indemnified on an after-Tax basis (if it is not otherwise liable to make such
payment to the Shareholders) the Shareholders (including in all circumstances
and notwithstanding any provision herein to the contrary, Eagle):
(a) any liability to make a payment of Tax of the Shareholders, being
a payment of Tax which is primarily a Tax liability of the Company incurred
by it on or prior to Closing or an accounting period beginning prior to the
date hereof and is payable by the Shareholders (or any of them) by virtue
of the Company failing to discharge such Tax liability;
(b) all losses, liabilities and costs which the Shareholders (or any
of them) may incur in connection with or as a consequence of any of the
matters referred to in SECTION 11.18(a); and
(c) any sums payable by the Purchaser, Xpedite or the Company under
SECTION 11.18(a) or (b) shall be paid not later than the fifth business day
before the date on which the payment of Tax is payable by the Shareholders
(or any of them) or, if later, not more than five (5) business days
following the date on which the Shareholders notify the Purchaser, Xpedite
or the Company of its liability to procure the making of such payment.
SECTION 11.19. SETTLEMENT OF CLAIMS. Not later than the fifth business
day after (i) APAX and Purchaser settle any claim for which Purchaser is
entitled to payment under the provisions of this Article XI or (ii) upon the
determination by a court of competent jurisdiction or arbitrator where there are
no further rights of appeal or
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the time limits for any such rights of appeal have lapsed ("Finally Determined")
the Purchaser is entitled to payment for a claim under the provisions of this
Article XI, APAX shall pay to Purchaser the amount agreed to or awarded to
Purchaser and, if it fails to do so, will not hinder Purchaser from being paid
such amount under the APAX Letter of Credit. In the event that APAX does not
make such payment then Purchaser shall have the right to proceed against the
APAX Letter of Credit to satisfy its claim.
SECTION 11.20. TAX MATTERS. The Purchaser shall not be entitled to make
any claim under or pursuant to any of the representations and warranties
contained in this Agreement, so far as the same relate to Taxes in relation to:
(a) any claim which would not have arisen but for a voluntary act,
omission or transaction, outside the ordinary course of business, on the
part of or carried out by the Purchaser or the Company after Closing
(including, without limitation, the effecting of any change in the nature
or conduct of any trade or business carried on by the Company but not
including seeking advice or a ruling from any Governmental Authority) which
the Purchaser or the Company know, or ought reasonably to have known, would
give rise to the claim;
(b) any claim which would not have arisen or would have been reduced
or eliminated but for a failure or omission on the part of the Company
after Closing to make any claim, election, surrender or disclaimer or to
give any notice or consent or to do any other thing the making, giving or
doing of which was taken into account in computing the provision or reserve
for Taxes made in the Closing Date Balance Sheet or taken into account in
the preparation of the Closing Date Balance Sheet;
(c) any claim which would not have arisen but for the voluntary making
of any claim, election, surrender or disclaimer or voluntary giving of any
claim, election, surrender or disclaimer or voluntary giving of any notice
or consent by the Purchaser or the Company after Closing, the giving,
making or doing of which was not assumed in completing the provision or
reserve for Taxes made in the Closing Date Balance Sheet or taken into
account in the preparation of the Closing Date Balance Sheet;
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(d) any claim which would not have arisen but for a withdrawal or
disclaimer of, or a revision of a claim for any relief from Taxes or any
other modification of the Company's current tax position where such
withdrawal, disclaimer, revision or modification is caused or made by the
Purchaser or the Company after Closing; and
(e) any claim which arises from any change in accounting or taxation
policy or practice adopted by the Company on or after Closing.
SECTION 11.21. RESERVATION. Notwithstanding anything to the contrary
provided for in this Agreement, the provisions and limitations contained in this
Article XI shall not be applicable with respect to (a) any breach or any non-
performance of any agreement or undertaking of the Shareholders contained in
this Agreement or (b) any breach of the representations and warranties contained
in SECTIONS 2.01 or 3.01 or the first sentence of SECTION 2.03(B) hereof or in
respect of any claim for fraud and, in the event of a breach of such
representations or such a claim for fraud, Xpedite and Purchaser shall be
entitled to pursue all remedies available to them at law or in equity against
any of the Shareholders without any limitation or restriction.
ARTICLE XII
MISCELLANEOUS
-------------
SECTION 12.01. EXPENSES. Purchaser and the Shareholders shall bear their
own costs, fees and expenses in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, fees,
commissions and expenses (including, without limitation, all filing, printing,
copying, mailing, telephone, transportation and delivery charges) payable to
brokers, finders, investment bankers, consultants, exchange or transfer agents,
attorneys, accountants and other professionals. Notwithstanding any provision
herein to the contrary, the Purchaser shall pay any stamp, transfer or similar
Taxes arising as a result of the consummation of the transactions contemplated
hereunder.
SECTION 12.02. HEADINGS. The descriptive headings of the several Articles
and Sections of this
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Agreement are inserted for convenience only and do not constitute a part of this
Agreement and shall not in any manner affect the meaning or interpretation of
the terms of this Agreement.
SECTION 12.03. NOTICES.
(a) Any notices or other communications (including any notices or other
documents relating to service of legal process) required or permitted hereunder
shall be addressed as follows:
If to Purchaser or Xpedite to:
PHJ&W No. 2 Limited
c/o Paul, Hastings, Janofsky & Walker LLP
60 Lombard Street
London, England EC3V 9EA
Tel: 011-44-171-464-8429
Fax: 011-44-171-464-8731
Attn: Ian Burton, Esq.
Copy to:
Xpedite Systems, Inc.
446 Highway 35
Eatontown, NJ 07724
Tel: (732) 389-3900
Fax: (732) 544-1044
Attn: Roy B. Andersen, Jr.
Paul Hastings Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Attn: Neil A. Torpey, Esq.
Tel: (212) 318-6034
Fax: (212) 319-4090
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If to the Shareholders to:
APAX Partners & Co. Ventures Limited
15 Portland Place
London WIN 3AA
Attn: John McMonigall
Tel: 011-44-171-872-6300
Fax: 011-44-171-636-6475
and
David Proctor
Warren House
Moor End
Acaster Malbis
York, Y02 1UQ
Tel: 011-44-1904-700-700
Fax: 011-44-1904-707-372
Copy to:
Hammond Suddards
Trinity Court
16 John Dalton Street
Manchester M 60 8MS
Attn: Ged O'Neill, Esq.
Tel: 011-44-161-830-5000
Fax: 011-44-161-830-5001
or such other address as shall be furnished in writing by either party in
accordance with this SECTION 12.03, and any such notice or communication shall
be deemed to have been given on the date specified in SECTION 12.03(b) both for
the purposes of this Agreement and, in the context of service of legal process,
for the purposes of the Rules of the Supreme Court, although the parties reserve
the right to effect service of such legal process pursuant to such Rules.
(b) Notices or other communications shall be deemed given (i) if
delivered personally, upon delivery, (ii) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three business days after being mailed, (iii) if delivered by overnight
courier or similar service, upon delivery, or (iv) if given by telecopy, upon
confirmation of transmission by telecopy; PROVIDED, that if such notice or other
communications would be otherwise deemed given on a day which is not a business
day, the delivery shall be deemed given the first business day following such
day.
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SECTION 12.04. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto, either in whole or in part, without the prior written
consent of the other parties hereto; provided, however, the Purchaser shall have
the right to assign its rights hereunder to the providers of the financing to be
obtained to consummate the transactions contemplated hereby.
SECTION 12.05. COMPLETE AGREEMENT. This Agreement, including the
Schedules, exhibits and other writings referred to herein or delivered pursuant
hereto contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior arrangements or
understandings with respect thereto. There are no restrictions, agreements,
promises, warranties, covenants or undertakings other than those expressly set
forth herein.
SECTION 12.06. WAIVERS. No delay on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right, nor
shall any waiver, express or implied, by any party hereto of any right hereunder
or of any failure to provide and perform hereunder or breach hereof by either
party hereto constitute or be deemed to constitute a waiver of any other failure
to provide and perform hereunder or breach hereof by any party hereto whether of
a similar or dissimilar nature thereto.
SECTION 12.07. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
SECTION 12.08. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with English Law and the parties hereby submit to the
non- exclusive jurisdiction of the English Courts.
SECTION 12.09. ARBITRATION. (a) Any disputes arising under or in
connection with this Agreement (other than a dispute in which a person is
seeking equitable relief (including without limitation, for specific performance
of this Agreement), in which case such party shall have the right to institute
proceedings in the English courts without pursuing arbitration proceedings
pursuant to this SECTION
-65-
<PAGE>
12.09) that cannot be resolved amicably by the parties hereto shall be finally
settled by binding arbitration under the Rules of the London Court of
International Arbitration (a copy of which Rules, as amended, are annexed hereto
as EXHIBIT D hereto) by three arbitrators. If there are two parties to any such
dispute, each such party will choose one arbitrator and the two arbitrators so
chosen will select the third arbitrator; if there are three parties to any such
dispute, each such party will choose an arbitrator. For the purposes hereof, one
or more Shareholders shall count as only one party. The arbitration proceedings
shall be held at a place and time mutually agreed between the parties to such
arbitration or, in the event such parties do not so agree within ten (10) days
of the commencement of consideration of the issue of the venue for such
arbitration, in London, England. The provisions of Section 69 of the Arbitration
Act 1996 shall not apply to any reference to arbitration carried out pursuant to
this Section.
(b) In any such arbitration proceedings, at the request of either any
party hereto, to protect confidential information and any other matter that any
such party would normally not reveal to third parties, the arbitrators shall
enter a protective order in such form as the parties hereto shall stipulate or
as the arbitrators shall determine is suitable. Among other things, the
protective order shall stipulate that the arbitrators themselves shall receive
any information designated as "confidential" solely for the purposes of
assessing the facts and/or law for the purposes of making any necessary factual
determination or issuing an award, and shall not otherwise use or disclose such
matter.
SECTION 12.10. ACCOUNTING TERMS. All accounting terms used herein which
are not expressly defined in this Agreement shall have the meanings given to
them in accordance with GAAP.
SECTION 12.11. PARTIES. Nothing in this Agreement is intended to confer
any rights or remedies under or by reason of this Agreement on any persons or
entities other than the parties hereto and their respective successors and
permitted assigns in accordance with SECTION 12.04 hereof. Without limiting the
foregoing, no third Person shall be a beneficiary of any provision of this
Agreement.
SECTION 12.12. LEGAL REMEDIES. Subject to ARTICLE XI and SECTION 12.11
but otherwise notwithstanding
-66-
<PAGE>
any other provision in this Agreement to the contrary, the parties hereto
reserve all of their contractual remedies (arising both at common law and in
equity) including, without limitation, for specific performance, in respect of
any breach or non-performance of the representations, warranties, covenants,
undertakings and agreements contained in this Agreement.
SECTION 12.13. SCHEDULES. References in this Agreement to Schedules shall
be deemed to mean the information and/or documents contained in the Disclosure
Letter referring to such Schedules.
SECTION 12.14. XPEDITE GUARANTEE.
(a) In consideration of the Shareholders agreeing to enter into this
Agreement, Xpedite as principal obligor and not merely as surety hereby
irrevocably and unconditionally undertakes and guarantees to the Shareholders
the due and punctual performance by Purchaser of the obligations, undertakings,
covenants and liabilities of Purchaser contained in this Agreement and further
undertakes that if default shall be made in the performance of the same Xpedite
shall forthwith on demand pay to the Shareholders an amount equal to, or procure
the discharge of such of the obligations, undertakings, covenants and
liabilities as shall not have been paid or discharged when due, as if Xpedite
was the principal obligor in respect thereof, provided always that Xpedite's
liability pursuant to this SECTION 12.14 shall be no greater than if Xpedite had
been named as the Purchaser and Xpedite shall be entitled to the same rights (if
any) of set-off, counterclaim and defense as if it were so named.
(b) The liability of Xpedite shall not be affected nor shall the
guarantee contained in this SECTION 12.14 be discharged or diminished by reason
of:
(i) the Shareholders compounding with, discharging, releasing or
varying the liability of or granting any time, indulgence or
concession to the Purchaser or granting any accommodation, facility or
transaction in any manner whatsoever to the Purchaser, or concurring
in, accepting, varying or novating any agreement (including this
Agreement), compromise, arrangement or settlement, or waiving or
omitting to claim or enforce payment from or discharge by partner of
the obligations guaranteed under this SECTION 12.14; or
-67-
<PAGE>
(ii) any change in the constitution of the Purchaser; or
(iii) any other act, circumstance or omission which, but for this
provision would or might operate or exonerate Xpedite from its
obligations and liabilities under the guarantee contained in this
SECTION 12.14.
(c) Any intermediate payment, discharge or settlement of the obligations
guaranteed by Xpedite under this SECTION 12.14 will not affect the liability of
Xpedite nor will it discharge or diminish the terms of this guarantee in respect
of the obligations not so paid, discharged or settled.
(d) Until the obligations imposed by this SECTION 12.14 have been paid or
discharged in full Xpedite shall not, by paying off any sum recoverable under
this SECTION 12.14, or by any other means or on any other ground, claim or prove
in competition with the shareholder in respect of any payment by Xpedite under
this SECTION 12.14 or be entitled to claim to have the benefit of any set-off or
counterclaim or proof against or dividend composition or payment by the
Purchaser or the benefit of any other security which the Shareholders may now or
later hold in respect of the said sums.
(e) This guarantee shall be a continuing guarantee and accordingly shall
remain in operation until all Xpedite's obligations under this SECTION 12.14
have been paid or discharged in full.
(f) Any of Xpedite's obligations under this SECTION 12.14 which may not
be recoverable from the Purchaser, whether by reason of any legal limitation,
disability, incapacity or any other fact or circumstance and whether known to
the Shareholders or not, shall nevertheless be recoverable from Xpedite as sole
or principal debtor.
-68-
<PAGE>
IN WITNESS WHEREOF, the parties here to have executed this Agreement, or
has caused this Agreement to be executed on its behalf by a representative duly
authorized, all as of the day and year first above written.
PHJ&W NO. 2 LIMITED
By: /s/ ROY B. ANDERSEN, JR.
-----------------------------------
Name: Roy B. Andersen, Jr.
Title:
XPEDITE SYSTEMS, INC.
By: /s/ ROY B. ANDERSEN, JR.
-----------------------------------
Name: Roy B. Andersen, Jr.
Title: President
SHAREHOLDERS:
/s/ DAVID PROCTOR
--------------------------------------
David Proctor
WITNESS:/s/ Michael Chernick /s/ DAVID PROCTOR
--------------------------------------
Executed as a DEED by
Marc Epstein, acting by
David Proctor, his duly
authorized attorney
APAX PARTNERS & CO. VENTURES
LIMITED, as manager of Apax
Ventures IV and Apax IV
International Partners, L.P.
By: /s/ JOHN PHILLIPS MCMONIGALL
---------------------------------
Name: John Phillips McMonigall
Title:
-69-
<PAGE>
ROTHSCHILD NOMINEES LIMITED,
acting by John Phillips
McMonigall, its duly
authorized attorney
By: /s/ JOHN PHILLIPS MCMONIGALL
-----------------------------------
EAGLE NOMINEES LIMITED,
acting by Gerard James
O'Neill, its duly authorized
attorney
By: /s/ GERARD JAMES O'NEILL
-----------------------------------
-70-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NO. OF
SHAREHOLDER CLASS OF SHARE SHARES CONSIDERATION
- ----------------------- ----------------------------- ------ ----------------------
<S> <C> <C> <C>
Apax Funds "A" ordinary 250,000 250,000
Nominees Limited, of (pound) 1.00 each 284,999 of the amount
B Account (as payable under
custodian trustee Sections 1.01(ii) and
for Apax Ventures 9.01(b)(i)(Fourth)
International
Partners LP and
Apax Ventures IV)
Preference 2,355,288 The nominal value
Shares of plus all accrued
(pound) 1.00 each dividends, interest
and penalties (if
any) calculated down
to the Closing Date
David Proctor Preference 19,712 The nominal value
Shares of plus all accrued
(pound) 1.00 each dividends, interest
and penalties (if
any) calculated down
to the Closing Date
Marc Epstein Ordinary 10,000 10,000
shares of 284,999 of the
(pound) 1.00 each Adjusted Purchase
Price
Rothschild Ordinary 1,666 1,666
Nominees Limited shares of 284,999 of the amount
(as trustee for (pound) 1.00 each payable under
N.M. Rothschild & Sections 1.01(ii) and
Sons Limited) 9.01(b)(i)(Fourth)
David Proctor Ordinary 3,267 3,267
shares of 284,999 of the amount
(pound) 1.00 each payable under
(held under Sections 1.01(ii) and
option) 9.01(b)(i)(Fourth)
Holders of Ordinary 20,066 20,066
Options shares of 284,999 of the amount
(pound) 1.00 each payable under
(held under Sections 1.01(ii) and
option) 9.01(b)(i)(Fourth)
</TABLE>
-71-
<PAGE>
SCHEDULE 1A
<TABLE>
<CAPTION>
NO. OF
SHAREHOLDER CLASS OF SHARE SHARES CONSIDERATION
- ----------------------- ----------------------------- ------ ----------------------
<S> <C> <C> <C>
Apax Funds "A" ordinary 250,000 250,000
Nominees Limited, of(pound) 1.00 333,333 of the
B Account (as each amount payable
custodian trustee under Sections
for Apax Ventures 1.01(ii) and
International 9.01(b)(i)(Fourth)
Partners LP and
Apax Ventures IV)
Preference 2,355,288 The nominal value
Shares of plus all accrued
(pound) 1.00 each dividends,
interest and
penalties (if any)
calculated down to
the Closing Date
David Proctor Preference 19,712 The nominal value
Shares of plus all accrued
(pound) 1.00 each dividends,
interest and
penalties (if any)
calculated down to
the Closing Date
Marc Epstein Ordinary 10,000 10,000
shares of 333,333 of the
(pound) 1.00 each Adjusted Purchase
Price
Rothschild Ordinary 1,666 1,666
Nominees Limited shares of 333,333 of the
(as trustee for (pound) 1.00 each amount payable
N.M. Rothschild & under Sections
Sons Limited) 1.01(ii) and
9.01(b)(i)(Fourth)
Eagle Nominees Ordinary 48,334 48,334
Limited Shares of 333,333 of the
(pound) 1.00 each amount payable
under Sections
1.01(ii) and
9.01(b)(i)(Fourth)
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
NO. OF
SHAREHOLDER CLASS OF SHARE SHARES CONSIDERATION
- ----------------------- ----------------------------- ------ ----------------------
<S> <C> <C> <C>
David Proctor Ordinary 3,267 3,267
shares of 333,333 of the
(pound) 1.00 each amount payable
(held under under Sections
option) 1.01(ii) and
9.01(b)(i)(Fourth)
Holders of Ordinary 20,066 20,066
Options shares of 333,333 of the
(pound) 1.00 each amount payable
(held under under Sections
option) 1.01(ii) and
9.01(b)(i)(Fourth)
</TABLE>
-73-
<PAGE>
EXHIBIT A
FORM
OF
BUYBACK AGREEMENT
THIS AGREEMENT is made as of the _____ day of August, 1997
- --------------
BETWEEN:
- -------
(1) EAGLE NOMINEES LIMITED (Company Number: 36514) whose
registered office is at Eagle House, Don Road, St.
Helier, Jersey (the "VENDOR");
(2) XPEDITE SYSTEMS LIMITED (Company Number: 2778084)
whose registered office is at Xpedite House, Pioneer
Business Park, Amy Johnson Way, Clifton Moor, York,
Y03 8XT (the "COMPANY")
RECITALS
- --------
(A) The Company was incorporated in England under the Companies Act
1985 and is a company limited by shares.
(B) The Company has an authorised share capital of
(pound)12,059,205 divided into 2,712,094 'A' Preference
Shares of(pound)1.00 each (of which 2,644,033 are in issue),
6,238,778 'B' Preference Shares of(pound)1.00 each (none of
which are in issue), 2,775,000 Preference Shares of
(pound)1.00 each (of which 2,375,000 are in issue), 250,000
'A' Ordinary Shares of(pound)1.00 each (all of which are in
issue) and 83,333 Ordinary Shares of(pound)1.00 each (of
which 60,000 are in issue) of which 48,334 are
registered in the name of the Vendor and are the
subject of this Agreement (the "SALE SHARES").
(C) The Company desires to purchase the Sale Shares
pursuant to the power conferred in Section 162 of the
Companies Act 1985 (the "ACT") and the authority
contained in Regulation 35 of Table A of the Companies
(Tables A to F) Regulations 1985 which are incorporated
in the Company's Articles of Association pursuant to
Article 1.2 of the Company's Articles of Association
and the Vendor has agreed to sell the Sale Shares for
the consideration specified in this Agreement and upon
the other terms of this Agreement.
(D) The terms of this Agreement were authorized in connection with
Section 165(2) and Section 320 of the Act by Special Resolutions
of the Company passed by Written Resolution on August 7, 1997 in
accordance with paragraph 5 of Schedule 15A to the Act.
<PAGE>
(E) All of the holders of ordinary share capital in the
Company (other than the Vendor save where this
Agreement is terminated pursuant to Section 5.2 hereof)
have agreed to sell the whole of the ordinary share
capital of the Company to PHJ&W No. 2, Limited (the
"PURCHASER") pursuant to the terms of a Share Purchase
Agreement (the "SHARE PURCHASE AGREEMENT") to be
entered into on the date of this Agreement between (1)
Apax Partners & Co. Ventures Limited and others (2) the
Purchaser and (3) Xpedite Systems, Inc.
IT IS HEREBY AGREED as follows:
- -------------------
1. AGREEMENT FOR SALE
------------------
1.1 Subject to the provisions of Clause 2 below, the Vendor
shall sell with full title guarantee and the Company shall
purchase the Sale Shares free from all liens charges and
Encumbrances (as defined herein) and together with all
accrued benefits and rights attached to them.
1.2 Subject to the condition set out in Clause 2.1 below
having been satisfied and subject to the provisions of the
Act, completion of the sale and purchase shall take place
on the 36th day after approval of the sale and purchase
provided for in this Agreement has been obtained in
accordance with Section 173(2) of the Act or if such
conditions have not been satisfied by such date, on the
day of the satisfaction of such conditions and the date
for such completion is hereinafter referred to as the
"COMPLETION DATE".
2. CONDITIONS
----------
2.1 This Agreement is conditional upon but shall take place
simultaneously with the consummation of the "CLOSING" (as
defined in the Share Purchase Agreement).
2.2 The Vendor and the Company shall co-operate and
use all reasonable endeavors to procure the
fulfillment of the condition set out in
Clause 2.1.
2.3 The Vendor and the Company shall cooperate and use all
reasonable endeavors to cause the approval of the sale and
purchase of the Sale Shares, including but not limited to
that required under Section 173(2) of the Act, to be
obtained.
2
<PAGE>
3. REPRESENTATIONS, WARRANTIES, AND COVENANTS
------------------------------------------
The Vendor represents and warrants to the Company, and covenants to
the Company, as follows:
3.1 OWNERSHIP OF THE SALE SHARES. The Vendor is the legal
owner of the Sale Shares and upon delivery of and payment
for the Sale Shares in accordance with the provisions of
this Agreement, the Vendor shall transfer to the Company
with full title guarantee to such Sale Shares, free and
clear of all security interests, liens, pledges, claims,
charges, escrows, encumbrances, options, rights of first
refusal, rights of pre-emption, mortgages, indentures or
easements of any type ("ENCUMBRANCE"). Other than the Sale
Shares (which are fully paid) the Vendor does not own any
of the share capital of the Company. From the date hereof
until the date of termination of this Agreement, Vendor
shall not, without specific instruction from David Proctor
to do so, sell, transfer, pledge, hypothecate, or
otherwise dispose of any of the Sale Shares or any
interest in or portion thereof, or any rights appurtenant
thereto.
3.2 AUTHORIZATION. The Vendor has the requisite power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered
by the Vendor and is a valid and binding agreement of the
Vendor, enforceable against the Vendor in accordance with
its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws in effect now or
hereafter relating to creditors' rights generally, and by
equitable principles (whether considered in a proceeding
at law or in equity).
3.3 NO CONFLICT OR VIOLATION. Neither the execution
and delivery by the Vendor of this Agreement nor
the consummation of the transactions contemplated
hereby or thereby, will:
(a) conflict with or result in a breach of any
provision of the articles or certificate of
incorporation or organization of the Vendor;
3
<PAGE>
(b) with or without giving of notice or the
passage of time, or both, violate, or
conflict with, or constitute a default under,
or result in the termination or in a right of
termination of, violate or be in conflict
with, result in a breach of any term or
provision of, or constitute a default under,
or accelerate or permit the acceleration of
the performance required by, or give any
other "PERSON" (as defined in the Share
Purchase Agreement) a basis for increased
rights or termination or nonperformance
under, or require any consent, authorization
or approval under, any term or provision of
any Encumbrance, lease, license, decree,
order or any other agreement or instrument to
which the Vendor is a party or by which the
Sale Shares are bound or affected;
(c) violate any provision of, or require any consent,
authorization or approval under, any "APPLICABLE
LAWS" of any "GOVERNMENTAL AUTHORITY", or any
"JUDGMENT" (in each case as such terms are
defined in the Share Purchase Agreement), in each
case applicable to the Vendor;
(d) require any consent, approval or
authorization of, or declaration, filing or
registration with, any Governmental Authority
or any other Person, to be made or obtained
by or on behalf of the Vendor; or
(e) require any consent, approval or authorization
of, or declaration, filing or registration with,
any Governmental Authority, to be made or
obtained by or on behalf of the Vendor pursuant
to any Applicable Law.
3.4 BROKERS' FEES. The Vendor has not employed any broker or
finder, and it has not incurred nor will it incur any
liability for any brokerage fees, commissions, finders'
fees or similar fees or expenses in connection with this
Agreement or the transactions contemplated herein.
4. CONSIDERATION
-------------
The aggregate price payable for the Sale Shares shall be the sum
of $10,773,935 ("BUYBACK PRICE") which shall
4
<PAGE>
be payable to the Vendor (or as the Vendor directs) by telegraphic
transfer out of the monies held by Hammond Suddards pursuant to
Section 9.01(b)(i)(Second) of the Share Purchase Agreement.
5. COMPLETION; TERMINATION
-----------------------
5.1 COMPLETION. Completion of the sale and purchase of the
Sale Shares shall take place on the Completion Date at the
office of Hammond Suddards, Trinity Court, 16 John Dalton
Street, Manchester, M60 8HS.
(a) the Vendor shall deliver to the Company the
share certificate(s) in respect of the Sale
Shares;
(b) the Company shall instruct Hammond Suddards
to deliver to the Vendor (or as the Vendor
directs) a telegraphic transfer for the sum
due under Clause 4.
(c) The provisions of Section 3 hereof shall
survive completion of the transactions
contemplated hereby.
5.2 TERMINATION. This Agreement shall terminate (i) in the
event a creditor exercises its right to block the
transactions contemplated by this Agreement in accordance
with Section 176 of the Act or (ii) in the event the
conditions (save the Closing itself) to completion
hereunder have not been satisfied by Closing. In the event
this Agreement is terminated for any reason whatsoever,
the Vendor agrees that the Sale Shares shall become
subject to the provisions of the Share Purchase Agreement.
In such circumstances and in accordance therewith, the
Sale Shares shall be deemed "SHARES," and the Vendor shall
be deemed a "SHAREHOLDER," for all purposes of the Share
Purchase Agreement.
6. ENTIRE AGREEMENT
----------------
This Agreement constitutes the whole agreement between the parties
hereto and no variation hereof shall be effective unless made in
writing and signed by both the parties hereto and which variation
is thereafter authorized and approved by Special Resolution of the
Company as required by the provisions of the Act.
5
<PAGE>
7. GENERAL
-------
7.1 This Agreement shall not be assignable.
7.2 This Agreement shall be binding upon, and shall enure for
the benefit of, the personal representatives of successors
in the title of the Vendor.
7.3 This Agreement shall so far as it remains to be performed
continue in full force and effect notwithstanding any
completion thereof.
7.4 This Agreement shall be construed in accordance with the
laws of England and the English Courts shall have
jurisdiction over any matter arising out of it.
7.5 The Vendor undertakes to the Company to execute all such
other documents and do all such other acts and things as
the Company shall require in order to perfect the right,
title and interest of the Company to the Sale Shares (and
this undertaking shall survive Completion).
7.6 The parties hereto reserve all of their contractual
remedies (arising both at common law and in equity)
including, without limitation, for specific performance,
in respect of any breach or non-performance of the
representations, warranties, covenants, undertakings and
agreements contained in this Agreement.
6
<PAGE>
AS WITNESS the hands of the parties or their duly authorised representatives on
the date shown on the first page.
SIGNED by EAGLE NOMINEES LIMITED
----------------------
acting by GERARD JAMES O'NEILL,
----------------------
its duly authorized attorney:
Signature:
Witness Name:
Address:
Occupation:
SIGNED by JOHN MCMONIGALL
----------------------
for and on behalf of
XPEDITE SYSTEMS LIMITED
- --------------------------------
in the presence of
Signature:
Witness name:
Address:
Occupation:
7
<PAGE>
EXHIBIT B
DATED , 199
(1) NATIONAL WESTMINSTER BANK PLC
(2) PHJ&W NO. 2 LIMITED
- --------------------------------------------------------------------------------
DEED OF GUARANTEE
- --------------------------------------------------------------------------------
National Westminster Bank Plc has executed this deed on the condition that the
deed shall not be taken to be delivered for the purposes of Section 36A
Companies Act 1985 (As Amended) until the deed has been formally dated by or on
behalf of National Westminster Bank Plc
Hammond Suddards
Solicitors
Trinity Court
16 John Dalton Street
Manchester
M60 8HS
Tel: 0161 830 5000
Fax: 0161 830 5001
Ref: GJO
<PAGE>
THIS DEED OF GUARANTEE is made on ________
BETWEEN:
- -------
(1) NATIONAL WESTMINSTER BANK PLC (Company No: 929027) whose principal
place of business for the purposes of this Guarantee is at 62 Green Street,
London, W1Y 4BA (the "Guarantor"); and
(2) PHJ&W NO. 2 LIMITED (Company No. 3406448) whose registered office
is at c/o Paul, Hastings, Janofsky & Walker LLP, 60 Lombard Street, London, EC3V
9EA (the "Purchaser")
RECITALS
- --------
(A) The definitions adopted in Clause 1 apply to these recitals.
(B) In consideration of the Purchaser entering into the Agreement the
Guarantor has agreed to guarantee certain of Apax's obligations
under the Agreement.
(C) This is the Apax Letter of Credit (as defined in the Agreement).
NOW THIS DEED WITNESSES as follows:
- -----------------------
1. INTERPRETATION
--------------
1.1 In this Guarantee, unless the context otherwise requires,
the following words and expressions shall bear the
following meanings:
EXPRESSION MEANING
- ---------- -------
"the Agreement" the share purchase agreement dated August 8,
1997 made between (1) Apax and others, (2) the
Purchaser and (3) Xpedite Systems, Inc., as the
same may be amended from time to time in
accordance with the terms thereof.
8
<PAGE>
"Apax" Apax Partners & Co Ventures Limited (in its
capacity as manager of Apax Ventures IV and as
manager of Apax Ventures IV International
Partners LP) whose registered office is at 15
Portland Place, London WIN 3AA.
"the Company" Xpedite Systems Limited (Company No. 2778084)
whose registered office is at Xpedite House,
Pioneer Business Park, Amy Johnson Way, Clifton
Moor, York YO3 8XT.
"Finally Determined" decided upon by a court of competent
jurisdiction or by an arbitrator where there are
no further rights of appeal or the time limits
for any such rights of appeal have lapsed, and
"Final Determination" shall be construed
accordingly.
"Qualifying Claim" as defined in the Agreement.
1.2 Unless the context otherwise requires, references to the
singular include the plural, references to any gender include
all other genders, and references to "persons" shall include
bodies corporate, unincorporated associations and
partnerships.
1.3 Clause headings are for information only and shall not affect
the construction of this Guarantee.
2. GUARANTEE
---------
2.1 In consideration of the Purchaser agreeing to Closing (as
defined in the Agreement), the Guarantor, subject to clause
2.3, hereby irrevocably and unconditionally guarantees and
undertakes to pay the Purchaser on demand all amounts not paid
by Apax to the Purchaser under or in connection with
Qualifying Claims, PROVIDED THAT the Guarantor's maximum
aggregate liability hereunder shall in no event exceed the sum
of US$5,000,000 together with any interest payable under
clause 2.2 for the payment of which sum to the Purchaser the
Guarantor hereby binds itself.
-2-
9
<PAGE>
2.2 The Guarantor agrees to pay interest on any sums payable by
the Guarantor under Clause 2.1 if it has not paid any sum
demanded within 7 days of receipt of such demand day by day
from the date of receipt of a demand until full discharge at
the rate of 1% per annum over the Guarantor's base rate from
time to time, compounded monthly.
2.3 The Purchaser shall not be entitled to make any claim or
demand under this Guarantee unless and until:
2.3.1 A Qualifying Claim has been Finally Determined or
Apax has agreed in writing that it is liable for a
Qualifying Claim; and
2.3.2 Apax fails to settle such Qualifying Claim within
five days following written demand being made by the
Purchaser.
3. GENERAL
-------
3.1 This Guarantee shall not be discharged nor shall the
Guarantor's obligations and liability be affected or impaired
by any thing or any circumstance which would not have
discharged or affected or impaired the Guarantor's liability
if the Guarantor had been a principal debtor to the Purchaser.
3.2 Subject to Clause 3.6, this Guarantee is and at all times
shall be a continuing security.
3.3 This Guarantee is and will remain the property of the
Purchaser.
3.4 No delay or omission on the part of the Purchaser in
exercising any right or remedy under this Guarantee shall
impair that right or remedy or operate as or be taken to be a
waiver of it; nor shall any single partial or defective
exercise of any such right or remedy preclude any other or
further exercise under this Guarantee of that or any other
right or remedy.
-3-
<PAGE>
3.5 The benefit of this Guarantee is personal to the Purchaser and
is not transferable or assignable without the Guarantor's
prior written consent.
3.6 Save in respect of claims received prior to that time, the
Guarantor's liability hereunder shall expire ("Expiry") on the
date Apax ceases to be liable for Qualifying Claims in
accordance with the provisions of the Agreement. Any claims or
demands must be received by the Guarantor before Expiry and
any claims, notices, statements or demands received by the
Guarantor after Expiry shall be ineffective for the purposes
of this Guarantee whether or not this Guarantee is returned to
the Guarantor for cancellation.
3.7 A demand or notice hereunder by the Purchaser shall be in
writing signed by the Purchaser (and shall be accompanied by a
copy of the order made by the court or arbitrator in making a
Final Determination or a copy of Apax's written agreement to
accepting liability for a Qualifying Claim) and may be served
on the Guarantor either by hand or by post. In the case of
delivery by hand, the demand or notice may be delivered to the
Guarantor at 62 Green Street, London, W1Y 4BA and shall be
treated as having been received on delivery. A demand or
notice sent by post may be addressed to the Guarantor at 62
Green Street, London, W1Y 4BA and shall be treated as having
been received on the day following the day on which it was
posted by first class pre-paid post and shall be effective
notwithstanding it be returned undelivered.
3.8 This Guarantee shall be governed by and construed in
accordance with English law.
3.9 This Guarantee may be executed in any number of counterparts
all of which taken together shall constitute one and the same
Guarantee and any of the parties may execute this Guarantee by
executing any such counterpart.
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<PAGE>
IN WITNESS whereof these presents have been duly executed as a deed the day and
year first above written.
EXECUTED (but not delivered until )
the date hereof) as a DEED by )
__________________________ as the )
attorney for and on behalf of )
NATIONAL WESTMINSTER )
BANK PLC in the presence of:- )
- -------------------------------------
Bank Official
National Westminster Bank plc
62 Green Street
London
W1Y 4BA
National Westminster Bank PLC has executed this deed on the condition that the
deed shall not be taken to be delivered for the purposes of Section 36A
Companies Act 1985 (As Amended) until the deed has been formally dated by or on
behalf of National Westminster Bank PLC.
EXECUTED (but not delivered until )
the date hereof) as a DEED by )
__________________________ for )
and on behalf of PHJ&W No. 2 )
in the presence of: )
- -------------------------------------
Name
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<PAGE>
EXHIBIT C
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), made as of __________,
1997, by and between XPEDITE SYSTEMS, INC. (collectively with its subsidiaries,
"XSI"), a Delaware corporation with its principal offices at 446 Highway 35,
Eatontown, NJ 07724, and DAVID PROCTOR (hereinafter "Executive"), an individual
residing at Warren House, Moor End, Acaster Malbis, York Y02 1UQ.
WHEREAS, Eagle Nominees Limited, the Executive's nominee, has entered
into an agreement with XSL dated August __, 1997 (the "Buyback Agreement"),
pursuant to which Xpedite Systems Limited, an English corporation ("XSL"), is to
purchase the Sale Shares (as defined in the Buyback Agreement);
WHEREAS, XSI, through its subsidiary PHJ&W No. 2, Limited, an English
corporation (the "Purchaser"), has agreed to acquire the whole (save as provided
in the Buyback Agreement) of the issued share capital of XSL having its
registered office at Xpedite House, Pioneer Business Park, Amy Johnson Way,
Clifton Moor, York, YO3 8XT, England pursuant to the terms of a Share Purchase
Agreement dated August 8, 1997 made among (1) the Executive and the other
stockholders of XSL, (2) XSI and (3) PHJ&W No. 2 Limited (the "Share Purchase
Agreement"). Where the context so permits, definitions adopted in the Share
Purchase Agreement shall have the same meanings in this Agreement; and
WHEREAS, XSI wishes to assure itself of the services of Executive for
the period provided in this Agreement, and Executive is willing to provide such
services to XSI for said period, and upon the other terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree
as follows:
1. SERVICES PROVIDED. XSI agrees to utilize the services of
Executive, and Executive agrees to provide such services, for the period stated
in Paragraph 2 hereof and upon the other terms and conditions herein provided.
2. TERM, DUTIES AND CONDITIONS PRECEDENT.
(a) Term of Agreement. The term of this Agreement
will commence on the Closing Date (the
<PAGE>
"Commencement Date") and will continue until the date three (3) years after the
Commencement Date. On each anniversary of the Commencement Date (each, an
"Anniversary Date"), this Agreement will be renewed for a new three-year term
commencing on such Anniversary Date unless either XSI or Executive notifies the
other in writing, no later than ninety (90) days prior to the Anniversary Date,
that it does not intend to renew this Agreement. If XSI notifies Executive that
it does not intend to renew this Agreement, such notice will be considered an
"Event of Termination" (as defined in Paragraph 5 herein), and benefits will be
payable to Executive as specified in Paragraph 5.
(b) Termination Prior to Expiration of the Term.
Notwithstanding the provisions of Section 2(a) hereof, this Agreement may also
be terminated forthwith by either party prior to the end of the initial term or
any renewal term hereof.
(c) Duties. During the period of Executive's employment
hereunder, Executive shall serve as (i) as long as XSI's business is conducted
through XSI (or another legal entity), Executive Vice President - European
Operations (or a position of similar responsibility but in any event reporting
directly to the President of XSI), or (ii) if the business of XSI ceases to be
conducted through a separate legal entity (I.E. XSI's business is conducted as a
"division" of a legal entity), as the principal officer responsible for European
operations (or a position of similar responsibility but in any event reporting
directly to the head of the division) in the division through which XSI's
business is conducted. Executive shall perform his duties primarily in the York,
England vicinity subject to reasonable travel obligations as may be necessary
for the proper performance of Executive's duties under this Agreement. Except
for illness, vacation periods, and reasonable leaves of absence, Executive shall
devote all of his business time, attention, skill and efforts to the faithful
performance of his duties in said office, and will use his reasonable efforts to
further XSI's business interests.
(d) Conditions Precedent. This Agreement is being executed
coincident with the acquisition of XSL by the Purchaser. As part of that
transaction, it is understood that Executive will purchase at least $2.0 million
of shares of common stock of XSI (the "Shares") at a price per share equal to
the fair market value thereof on the date of purchase; such purchase shall occur
within two business days after the completion of the transactions contemplated
by the
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<PAGE>
Share Purchase Agreement. Executive agrees not to sell or in any way dispose of
more than (i) 15% of the Shares during the first 12 months of this Agreement and
(ii) an aggregate of 25% of the Shares during the first 18 months of this
Agreement, unless, in either case, there is an "Event of Termination" pursuant
to Paragraph 5 hereof, or the liquidation or dissolution of XSI or the sale of
all or substantially all of XSI's stock or assets, in which case Executive would
be free to dispose of all the Shares.
3. COMPENSATION AND REIMBURSEMENT OF EXPENSES.
(a) Compensation. For all services rendered by Executive to XSI
during the term of this Agreement, XSI shall pay Executive a base salary of
(pound)120,000 per year (the "Base Salary"); plus an annual bonus of up to
(pound)48,000 (the "Bonus Amount"), which Bonus Amount is subject to adjustment
in any particular year as described below. The actual annual bonus payable in
any particular year shall be determined by taking into account the overall
composite performance of XSI during such year as compared to the goals for
revenue, EBITDA and net income (the "Goals") set forth in XSI's budget with
respect to such year.1 Up to 25% of the Bonus Amount may be payable based on
Executive's performance with respect to his direct responsibilities rather than
XSI corporate performance. In determining XSI's performance as compared to the
Goals, (i) extraordinary expenses incurred in connection with a sale of all or
substantially all of the assets of XSI or a liquidation or dissolution of XSI
after which XSI's business is to be continued by a successor entity (the
foregoing or any similar transaction, a "Sale") or a recapitalization of XSI or
other transaction pursuant to which XSI's outstanding debt is increased to $100
million or more and at least $60 million is distributed to XSI's shareholders (a
"Recapitalization"), shall not be taken into account and (ii) the Goals for any
particular year shall be amended as mutually agreed by Executive and XSI to take
into account any Recapitalization, acquisition, merger or similar transaction
which takes place during such year. If XSI achieves or exceeds the Goals for a
particular year, the annual bonus payable to Executive shall be equal to the
Bonus Amount with respect to such year. In the event XSI does not achieve the
Goals for a particular year, the bonus
- --------
1 For example, if XSI achieves 103% of the revenue Goal,
102% of the EBITDA Goal and 94% of the net income Goal,
the "overall composite performance" of XSI as compared
to the Goals would be equal to: (103 + 102 + 94) / 3 =
99.7%.
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<PAGE>
payable for such year shall be calculated as follows: (i) the bonus shall be
equal to the Bonus Amount with respect to such year reduced by five percent (5%)
for each one percent (1%) shortfall in XSI's performance for such year as
measured against the Goals, up to a five percent (5%) shortfall in such
performance, and (ii) if the shortfall in performance exceeds five percent (5%),
the bonus payable for such year shall be further reduced by fourteen and two-
tenths percent (14.2%) of the Bonus Amount for each one percent (1%) shortfall
in XSI's performance in excess of five percent (5%). For example, if XSI
achieved only ninety-four percent (94%) of the Goals for a particular year, the
bonus for such year would be equal to the Bonus Amount with respect to such
year, reduced by thirty-nine and two-tenths percent (39.2%). The Base Salary
shall be paid on a biweekly basis. The annual bonus shall be payable at the end
of each calendar year, in cash. The Base Salary shall increase on each
anniversary of the date hereof, and the Bonus Amount for each of XSI's fiscal
years during the term hereof shall increase, in each case by the greater of (x)
five (5%) or (y) the increase over the previous twelve (12) months in the Retail
Price Index as published by the United Kingdom government.
(b) Reimbursement of Expenses and Administrative Support. XSI
shall pay or reimburse Executive for all reasonable travel, relocation (if
applicable) and other expenses incurred by Executive in performing his
obligations under this Agreement. XSI further agrees to furnish Executive with
office space and administrative support, and any other assistance and
accommodations as shall be reasonably required by Executive in the performance
of his duties under this Agreement. In addition, XSI agrees to pay to Executive
an automobile allowance of (pound)750 monthly and to pay or reimburse Executive
for all gasoline (for business and private uses), insurance, parking,
maintenance and similar expenses during the term of this Agreement.
(c) Stock Options. The parties acknowledge that Executive shall
in the future be granted options to purchase stock of XSI pursuant to certain of
XSI's incentive stock option plans and pursuant to certain other such options
which may be granted at the discretion of the Board of Directors of XSI
reasonably consistent with grants made to other members of XSI's senior
management at Executive's level of responsibility.
(d) Vacation. Executive shall be entitled to five (5) weeks
paid vacation in each calendar year.
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<PAGE>
(e) Withholding and Deductions. All payments made under this
Agreement shall be subject to such withholding and deductions at the source as
from time to time are required to be made pursuant to any law, regulation or
order.
4. PARTICIPATION IN BENEFIT PLANS.
(a) Participation. In addition to the payments provided in
Paragraphs 3 and 5 hereof, to the extent legally permissible, Executive will
participate, for the term of this Agreement and during the Severance Period (as
defined herein), in all XSI benefit programs, including but not limited to group
hospitalization, health, dental care, death benefit plan, long-term disability,
pension or other retirement benefit plan or other present or future group
employee benefit plans or programs of XSI for which key executives are or shall
become eligible, on the same terms as other key executives of XSI.
(b) Incapacity. In the event that Executive shall, by reasons of
illness or mental or physical disability or incapacity, be unable to perform the
duties and responsibilities required to be performed by him on behalf of XSI,
the Base Salary payments as specified in Paragraph 3(a) herein shall continue
for an uninterrupted period of one hundred eighty (180) days, then such payments
shall be suspended. The Executive's entitlement to the Bonus Amount shall accrue
through such 180-day period. Such payments shall be resumed upon the assumption
by Executive of his activities on behalf of XSI as called for herein.
5. PAYMENTS TO EXECUTIVE UPON TERMINATION OF AGREEMENT.
(a) Termination. Upon the occurrence of an Event of Termination
(as hereinafter defined) during the term of this Agreement, the provisions of
this Paragraph 5 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:
(i) The termination by XSI of this Agreement for any reason
(including, but not limited to, XSI's election not to renew this Agreement
pursuant to Paragraph 2(a) hereof) other than "cause" (as defined in Paragraph 6
herein); or
(ii) Executive's termination of this Agreement, pursuant to:
-5-
<PAGE>
A. Material change by XSI of the Executive's responsibilities or
assignments, which change would cause Executive's responsibilities or
assignments to become of less responsibility or importance from the assignments
and responsibilities described in Paragraph 2 above, and any such material
change shall be deemed a continuing breach of this Agreement; or
B. Any other breach of this Agreement by XSI.
Upon the occurrence of any event described in clauses A or B above,
Executive shall have the right to elect to terminate this Agreement, upon not
less than thirty (30) days prior written notice given within a reasonable period
of time not to exceed, except in case of a continuing breach, three (3) calendar
months after the event giving rise to said right to elect.
(b) Continuation of Benefits. Upon the occurrence of an Event of
Termination, in addition to any amounts payable pursuant to Paragraph 3 hereof,
XSI shall pay semi-monthly to Executive the compensation described in Paragraph
3 herein, including the Base Salary and one twenty-fourth (1/24) of the annual
bonus last paid to Executive. Such payments shall commence on the first day of
the month following the date of termination hereof and shall continue for the
remaining term of this Agreement or twenty-four (24) months, whichever is
greater (the "Severance Period"). During the Severance Period, Executive shall
continue to receive all other benefits to which Executive was entitled under
Paragraphs 3 and 4 hereof.
(c) Offset. If Executive becomes employed, other than with XSI,
after an Event of Termination, but prior to the date at which the continued Base
Salary, Bonus and other payments would have expired, any salary received by
Executive as a result of such employment will be subtracted from any payments
due Executive from XSI under Paragraph 5(b) hereunder.
6. TERMINATION FOR BREACH BY EXECUTIVE.
(a) Conditions for Termination. Executive shall be considered in
breach of this Agreement, and the Agreement subject to termination by XSI, in
the following events:
(i) Willful disobedience of lawful instructions of the
Board of Directors of XSI by Executive
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<PAGE>
which continues after being afforded a reasonable opportunity to cure such
disobedience; or
(ii) The commission of any indictable offense or any
offense involving moral turpitude by
Executive; or
(iii) Gross negligence by Executive in carrying out
his duties on behalf of XSI.
(b) Notice. In the event XSI elects to terminate this Agreement
pursuant to Paragraph 6(a), XSI shall give a thirty (30) day written notice of
termination to Executive setting out, in detail, the reasons for termination.
Upon the expiration of such thirty (30) day notice period this Agreement shall
be wholly terminated subject to the payment to Executive of any remuneration or
other amounts owing pursuant hereto.
7. EFFECT OF PRIOR AGREEMENTS. This Agreement contains the full
and complete understanding between the parties hereto with respect to the
subject matter hereof and supersedes any prior agreement between XSI or XSL and
Executive.
8. BINDING AGREEMENT. This Agreement shall be binding upon, and
inure to the benefit of Executive and XSI and their respective permitted
successors and assigns. Notwithstanding any provision herein to the contrary, in
the event of a Sale (whether by an asset acquisition, merger, consolidation,
stock acquisition or similar transaction), this Agreement may be assigned by XSI
or assumed by a purchaser of XSI or XSI's assets.
9. MODIFICATION AND WAIVER.
(a) Amendment of Agreement. This Agreement may not be modified
or amended except by an instrument in writing signed by the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for
-7-
<PAGE>
the future or as to any act other than that specifically waived.
10. GOVERNING LAW, SUBMISSION TO JURISDICTION. This Agreement has
been executed and delivered in England, and its validity, interpretation,
performance, and enforcement shall be governed by the laws of England and Wales.
Each party hereto submits to the jurisdiction of the High Court of London in
connection with any action or proceeding arising out of or relating to this
Agreement. Each party hereby waives the defenses of forum non conveniens and
improper venue.
11. NOTICES.
(a) Any notices or other communications (including any notices or
other documents relating to service of legal process) required or permitted
hereunder shall be addressed as follows:
If to XSI to:
c/o Xpedite Systems, Inc.
446 Highway 35
Eatontown, New Jersey 07724
Attn: Roy B. Andersen, Jr.
If to Executive:
David Proctor
Warren House
Moor End
Acaster Malbis
York YO2 1UQ
England
or such other address as shall be furnished in writing by either party in
accordance with this Section 11, and any such notice or communication shall be
deemed to have been given on the date specified in Section 11(b) both for the
purposes of this Agreement and, in the context of service of legal process, for
the purposes of the Rules of the Supreme Court, although the parties reserve the
right to effect service of such legal process pursuant to such Rules.
(b) Notices or other communications shall be deemed given (i) if
delivered personally, upon delivery, (ii) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three business days after being mailed, (iii) if delivered
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<PAGE>
by overnight courier or similar service, upon delivery, or (iv) if given by
telecopy, upon confirmation of transmission by telecopy; PROVIDED, that if such
notice or other communications would be otherwise deemed given on a day which is
not a business day, the delivery shall be deemed given the first business day
following such day.
12. OWNERSHIP.
(a) Treatment of Improvements. Executive hereby
covenants and agrees that, during the continuance of his employment hereunder,
all rights, title and interest in and to any intellectual or industrial
property, including without limitation, all works, ideas, processes, systems,
inventions, and improvements to XSI's operations (hereinafter, collectively, the
"Improvements"), that are created or suggested by Executive in connection with
his duties at XSI, and each of them, together with all patents, copyrights,
trademarks, and trade secret rights therein, if any, shall be and remain the
exclusive property of XSI and of XSI's assignees and successors.
(b) Full Disclosure. Executive hereby covenants
and agrees to fully disclose all such Improvements, as and when such are created
and shall promptly upon XSI's request, and without further consideration other
than that provided for herein, but at no expense to Executive, to make all such
applications, execute all such papers, and do all such things as may be
necessary or desirable so that the ownership of such Improvements shall vest in
XSI and so that XSI may obtain, own and exploit, for its own benefit and in all
respects, such Improvements.
13. CONFIDENTIAL INFORMATION.
(a) Use of Information. Except in connection with
the performance of Executive's proper performance of his duties hereunder,
Executive shall not, either during the term of this Agreement or at any time
thereafter, disclose the private affairs of XSI or any confidential information
of XSI (including but not limited to customer lists, market research, business
plans and projections, trade secrets and the like) to any person other than the
officers and directors of XSI, or for XSI's purposes, and shall not use for his
own purposes or for any purpose other than those of XSI any such confidential
information which he may acquire in relation to the business and affairs of XSI;
provided that Executive shall not be
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<PAGE>
bound by this clause in respect of information entering the public domain
through no fault of Executive.
(b) Return of Information. Upon termination of this Agreement,
all documents, records, notebooks, computer discs, and similar repositories of
XSI information, including copies thereof, then in Executive's possession,
whether prepared by him or others, will be left with or returned to XSI. All XSI
information must be deleted from the hard drives of any computers Executive
owns.
14. NON-COMPETITION.
(a) Non-Solicitation. Executive acknowledges that XSI is, by its
nature, a worldwide business having customers throughout the world. Executive
shall not, without the written permission of XSI, during the term of this
Agreement and until the passing of the Severance Period, or, in the event of
there being no Severance Period, for a period of 18 months after termination of
this Agreement (collectively the "Non-Compete Period") within the United
Kingdom, Europe or the United States, solicit or hire the services of any
management-level employee of XSI who was employed with XSI at the termination
hereof for Executive's own purposes or for any other person or persons,
partnership, firm, association, syndicate, company or corporation engaged in or
concerned with or interested in a similar or competitive business as that
conducted by XSI or any other business now or at any time during the term of
this Agreement carried on by XSI (a "Competitive Business"). Without the written
permission of XSI, Executive also shall not, during the term of the Non-Compete
Period, engage in any such Competitive Business on his own account or become
interested therein, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, lender, trustee or
in any relation or capacity whatsoever. Executive also shall not on behalf of a
Competitive Business, without the written permission of XSI, during the term of
the Non-Compete Period solicit any customer of XSI that was a customer of XSI
and with which the Executive dealt during the term of this Agreement, it being
understood and agreed that each of the above combinations of time and area shall
be severable. If Executive has any questions or uncertainty about whether a
particular activity constitutes a violation of this Agreement, Executive shall
make inquiry of XSI's President prior to engaging in such activity.
(b) Severability. XSI and Executive agree that if a court of
competent jurisdiction shall limit,
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<PAGE>
restrict or otherwise change the geographical area or time period referred to in
Paragraph 14(a) hereof, that the limited, restricted or changed geographical
area or time period determined by the said court shall, for the purposes of the
said paragraph, be deemed to be the geographical area and/or time period
referred to in the said paragraph as if they were the original geographical area
and time period set out herein.
(c) Voidability. Notwithstanding the provisions of Paragraph
14(a) herein, the provisions of said Paragraph 14(a) shall be considered voided
upon a termination of this Agreement pursuant to the provisions of Paragraph
5(a) except when such Event of Termination is caused by notice not to renew this
Agreement as provided in Paragraph 2(a) herein. In this latter case the
provisions of Paragraph 14(a) shall apply.
15. MUTUAL RELEASE. At the end of the Severance Period, upon
receipt by Executive of all payments required by Paragraph 5(b) herein, the
parties hereto will be deemed to have mutually irrevocably and unconditionally
released all claims, promises, debts, causes of action or similar rights of any
type or nature that either party has or had which in any way relate to or arise
from this Agreement. The parties hereto further agree, upon and after the
effectiveness of such releases, not to criticize, denigrate or otherwise
disparage any other person or entity described in this Agreement.
-11-
<PAGE>
IN WITNESS THEREOF, XSI has caused this Agreement to be executed and
its seal to be affixed hereunto by its duly authorized officer, and Executive
has signed this Agreement, all as of the day and year first above written.
XPEDITE SYSTEMS, INC.
By:
-----------------------------
Name:
Title:
-----------------------------
David Proctor
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<PAGE>
EXHIBIT D
---------
Rules to Apply in Arbitration in addition to the
RULES OF THE LONDON COURT OF INTERNATIONAL ARBITRATION
------------------------------------------------------
The provisions of this Exhibit D relating to any arbitration
proceeding initiated in connection with that certain Share Purchase Agreement
dated as of August ___, 1997 among PHJ&W No. 2, Limited, Xpedite Systems, Inc.,
and the shareholders of Xpedite Systems Limited (as amended from time to time,
the "Agreement").
a. The arbitrators shall have the power and authority
to award relief under legal or equitable
principles, including interim or preliminary
relief and the parties hereto hereby consent to
the entry of any such interim, preliminary or
final relief by any court of competent
jurisdiction. Nothing herein shall limit the
right of any party, before and during such
arbitration, to have recourse to such judicial
remedies, including preliminary injunction and
attachment, as would be available in the absence
of Section 12.09 of the Agreement.
b. In deciding any matter submitted to them involving
this Agreement, the arbitrators shall be bound to
apply the respective contractual provisions of the
Agreement and shall be bound by any prior
determinations made by any other arbitrators
appointed under the Agreement. In no event shall
the arbitrators have the authority, by reason of
Section 12.09 of the Agreement or otherwise, to
render a decision that is contrary to the express
intent of the parties as set forth in the
Agreement.
c. All parties to the Agreement not initially named
as a party to an arbitration under the Agreement
shall be given notice of the commencement of the
arbitration and shall have the right to join as a
party to the arbitration, by written notice to all
other parties to this Agreement within thirty (30)
days after receipt of written notice of the
commencement of the arbitration. Any such party
<PAGE>
or parties receiving written notice that shall fail to
seek to join within such period of thirty (30) days shall
nonetheless be bound by the final award of the
arbitrators. Upon invitation by any party to this
Agreement, any person or persons not named as a party to
such arbitration shall have the right to join as a party
or parties to such arbitration and be bound by Section
12.09 of the Agreement and the final award of the
arbitrators, provided that a majority of the arbitrators
appointed for the arbitration shall determine that the
person or persons seeking to join the arbitration have a
material interest in the subject matter of the
arbitration.
d. The arbitrators shall, upon the request of any
party to the arbitration, issue a factually
detailed, reasoned written opinion of their
findings of fact and conclusions, legal or
otherwise. Upon the receipt by the requesting
party of that written opinion, the requesting
party shall have the right within ten (10) days to
file with the arbitrators a motion to reconsider,
and the arbitrators thereupon shall reconsider the
issues raised by that motion and either confirm or
change their majority decision, which shall then
be final and conclusive upon all parties in
accordance with Section 12.09 of the Agreement.
The costs of such a motion for reconsideration
shall be borne by the requesting party.
e. Judgment upon any award rendered by the
arbitrators may be entered in any court in any
country, or application may be made to such court
for a judicial acceptance of the award and an
order of enforcement, a the law of such
jurisdiction may require or allow. The parties
agree to exclude any right of application or
appeal to any courts, including those of the place
of arbitration, in connection with any question
either of law or of fact arising in the course of
the arbitration or with respect to any award made.
<PAGE>
Exhibit E
CLOSING DATE CERTIFICATE
------------------------
This Closing Date Certificate is delivered to PHJ&W No. 2 Limited (the
"Purchaser") in connection with the closing of the transactions contemplated by
that certain Share Purchase Agreement dated as of August 8, 1997 among (1) the
Purchaser, (2) Xpedite Systems, Inc., and (3) the shareholders of Xpedite
Systems Limited (including the undersigned) (as amended through the date of this
Certificate, the "Purchase Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Purchase
Agreement.
Subject to the terms of the Purchase Agreement (particularly, but without
limitation, Article XI), the undersigned hereby certifies to the following:
1. The representations and warranties of the Shareholders contained in
the Purchase Agreement are true on the date hereof, with the same effect as
though made on the date hereof; PROVIDED, that this certification will be deemed
true and correct unless the failure of such representations and warranties to be
true and correct (i) constitutes a Material Adverse Change or (ii) involves the
matters represented and warranted to in any of SECTION 2.03, 3.01, 3.02 or 3.03
of the Purchase Agreement and would cause any party to the Purchase Agreement to
be unable to complete the transactions contemplated thereby or (iii) is as a
result of the actual revenues, cash flow (I.E., earnings before interest, taxes,
depreciation and amortization) or net profit for the aggregate six-month period
covered by the June 1997 Accounts, being in any case less than 90% of the amount
thereof reflected in the June 1997 Accounts.
2. The Shareholders have performed and complied in all material respects
with all agreements and covenants required by the Purchase Agreement to be
performed and complied with by them prior to the date hereof; PROVIDED, that
this certification will be deemed true and correct unless the failure to perform
and comply with such agreements and covenants (i) constitutes a Material Adverse
Change or (ii) involves a breach of a covenant set forth in (A) SECTION 6.01(b),
with respect to increases in
<PAGE>
compensation and/or benefits only, (B) SECTION 6.02 - 6.07 (inclusive), (C)
SECTION 6.17 or (D) Section 6.22.
It is acknowledged by the Purchaser that David Proctor only signs this
certificate as a formality to the Closing and without assuming any liability
whatsoever solely as a result of his making the certifications herein.
IN WITNESS WHEREOF, each of the undersigned has executed this Certificate
as of this ____ day of ______________, 199 .
------------------------------
David Proctor
Apax Partners & Co. Ventures
Limited, as manager of Apax
Ventures IV and Apax IV
International Partners, L.P.
By:
------------------------------
Name:
Title:
-2-
<PAGE>
EXHIBIT 99.4
XPEDITE SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Xpedite Systems, Inc.
We have audited the accompanying consolidated balance sheets of Xpedite Systems,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Xpedite Systems,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
MetroPark, New Jersey
February 27, 1997
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
-------------------------
1996 1995
---- ----
Current assets:
Cash and cash equivalents.......................... $ 6,679,970 $ 9,076,250
Accounts receivable, net of reserve for
allowances and doubtful accounts of
$1,851,000 and $993,000 for 1996 and
1995, respectively.............................. 25,749,334 16,567,118
Deferred income taxes............................ 1,903,694 2,406,663
Other current assets............................. 1,489,318 2,324,129
----------- -----------
Total current assets............................. 35,822,316 30,374,160
Property, plant and equipment, net................. 20,500,426 16,235,393
Customer lists, net of accumulated
amortization of $2,004,000 and $897,000
for 1996 and 1995, respectively................... 8,232,144 6,935,206
Purchased software, net of accumulated
amortization of $2,027,000 and $886,000
for 1996 and 1995, respectively................... 3,156,044 3,591,852
Costs in excess of fair value of net assets
acquired, net of accumulated amortization
of $1,180,000 and $78,000 for 1996 and
1995, respectively................................ 10,609,687 8,226,593
Investments in affiliates, at cost................. 2,168,248 510,390
Loans to affiliate................................. 3,452,580 2,525,102
Deferred income taxes.............................. 1,879,917 1,815,237
Other assets....................................... 2,569,510 2,668,838
----------- -----------
Total.......................................... $88,390,872 $72,882,771
=========== ===========
See accompanying notes.
2
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 10,067,510 $ 10,712,562
Accrued expenses................................... 5,921,085 7,127,162
Income taxes payable............................... 7,131,347 3,254,114
Other current liabilities.......................... 223,818 588,115
Current portion of long-term debt.................. 7,763,459 10,652,747
Current portion of capital lease
obligations....................................... 241,995 307,232
---------- ----------
Total current liabilities........................ 31,349,214 32,641,932
Long-term debt..................................... 27,146,147 35,763,421
Long-term portion of capital lease
obligations....................................... 326,686 559,257
Deferred income taxes.............................. 3,692,134 4,786,300
Other liabilities.................................. 739,492 247,809
Commitments and contingencies...................... - -
Stockholders' equity (deficit):
Preferred Stock, $.01 par value,
authorized 1,000,000 shares;
none issued and outstanding in 1996
and 1995......................................... - -
Common Stock, $.01 par value, authorized
15,000,000; issued and outstanding
8,903,240 and 7,773,399 shares, for
1996 and 1995, respectively...................... 89,032 77,734
Additional paid-in capital........................ 64,782,539 48,921,115
Accumulated deficit............................... (39,518,372) (49,898,797)
Less: Treasury stock; 72,000 shares
at 1996 and 1995; at cost........................ (216,000) (216,000)
------------ ------------
Total stockholders' equity (deficit)............. 25,137,199 (1,115,948)
------------ ------------
Total.......................................... $ 88,390,872 $ 72,882,771
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
Net revenues:
Service revenues.............. $122,425,726 $ 51,840,379 $39,523,569
System sales and other........ 7,421,925 3,843,583 1,905,766
------------ ------------ -----------
Total net revenues........... 129,847,651 55,683,962 41,429,335
Cost of sales:
Operations, line charges and
support engineering 57,155,734 20,144,082 16,025,855
Cost of sales of systems...... 2,821,095 1,458,238 965,746
------------ ------------ -----------
Total cost of sales.......... 59,976,829 21,602,320 16,991,601
------------ ------------ -----------
Gross margin................... 69,870,822 34,081,642 24,437,734
Operating expenses:
Selling and marketing......... 28,578,884 15,059,118 11,180,076
General and administrative.... 8,332,255 3,964,401 2,746,325
Research and development...... 4,887,563 3,414,577 2,834,681
Depreciation and amortization. 7,619,330 2,722,930 1,432,079
Write off of in-process research
and development costs......... - 53,000,000 -
------------ ------------ -----------
Total operating expenses..... 49,418,032 78,161,026 18,193,161
------------ ------------ -----------
Operating income (loss)........ 20,452,790 (44,079,384) 6,244,573
Interest income................ 507,362 769,341 516,948
Interest expense............... (3,662,118) (535,889) (83,563)
Other income................... 254,599 22,878 -
------------ ------------ -----------
Income (loss) before income
taxes......................... 17,552,633 (43,823,054) 6,677,958
Income tax expense............. 7,119,171 2,740,890 1,950,400
------------ ------------ -----------
Net income (loss).............. $ 10,433,462 $(46,563,944) $ 4,727,558
============ ============ ===========
Net income (loss) per Common
Share......................... $ 1.20 $ (6.67) $ 0.71
============ =========== ===========
Weighted average shares
outstanding................... 8,716,300 6,982,200 6,600,000
============ =========== ===========
See accompanying notes.
4
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCK
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
--------- ------- ----------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994....... 4,160,690 $41,607 $ 1,608,382 $ (8,024,149) (75,000) $(225,000) $(6,599,160)
Exercise of stock options
and warrants.................. 191,272 1,912 133,273 - - - 135,185
8% Redeemable Preferred
Stock dividends............... - - (74,476) - - - (74,476)
Accretion of 8% Redeemable
Preferred Stock............... - - (288,791) - - - (288,791)
Conversion of 8% Redeemable
Preferred Stock............... 478,600 4,786 7,174,214 - - - 7,179,000
Issuance of Common
Stock......................... 1,650,000 16,500 21,989,195 - - - 22,005,695
Net income..................... - - - 4,727,558 - - 4,727,558
--------- ------- ----------- ------------ ------- --------- -----------
BALANCE, DECEMBER 31, 1994..... 6,480,562 64,805 30,541,797 (3,296,591) (75,000) (225,000) 27,085,011
Exercise of stock options
and warrants.................. 44,072 441 94,549 - - - 94,990
Issuance of Common Stock....... 1,249,000 12,490 18,254,135 - - - 18,266,625
Cumulative translation
adjustment.................... - - - (33,445) - - (33,445)
Treasury stock reissued........ - - 30,750 - 3,000 9,000 39,750
Treasury stock acquired........ - - - - (235) (4,935) (4,935)
Retirement of treasury
stock......................... (235) (2) (116) (4,817) 235 4,935 -
Net loss....................... - - - (46,563,944) - - (46,563,944)
--------- ------- ----------- ------------ ------- --------- -----------
BALANCE, DECEMBER 31, 1995..... 7,773,399 77,734 48,921,115 (49,898,797) (72,000) (216,000) (1,115,948)
Exercise of stock options...... 146,341 1,463 271,895 - - - 273,358
Issuance of Common Stock....... 632,500 6,325 10,305,823 - - - 10,312,148
Issuance of performance
stock options................. - - 2,036,474 - - - 2,036,474
Deferred compensation cost..... - - (1,942,405) - - - (1,942,405)
Conversion of Notes into
Common Stock.................. 351,000 3,510 5,189,637 - - - 5,193,147
Cumulative translation
adjustment.................... - - - (53,037) - - (53,037)
Net income..................... - - - 10,433,462 - - 10,433,462
--------- ------- ----------- ------------ ------- --------- -----------
BALANCE, DECEMBER 31, 1996..... 8,903,240 $89,032 $64,782,539 $(39,518,372) (72,000) $(216,000) $25,137,199
========= ======= =========== ============ ======= ========= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss)......................................... $ 10,433,462 $(46,563,944) $ 4,727,558
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 8,437,697 3,060,801 1,674,189
Write-off of in-process research and development......... - 53,000,000 -
Accretion on subordinated debt........................... 175,925 - -
Deferred income taxes.................................... (656,400) (2,012,700) 157,000
Change in operating assets and liabilities:
Accounts receivable..................................... (9,182,216) (839,721) (477,246)
Other current assets.................................... 934,139 355,833 (461,046)
Other assets............................................ (131,453) - 41,783
Accounts payable........................................ (645,052) (3,128,006) 1,147,423
Accrued expenses........................................ (1,206,077) 631,373 (1,926,770)
Deferred revenue........................................ - - (13,000)
Other liabilities....................................... 127,386 176,021 -
Income taxes payable.................................... 3,855,874 1,665,745 121,306
------------ ------------ ------------
Net cash provided by operating activities................. 12,143,285 6,345,402 4,991,197
INVESTING ACTIVITIES
Acquisition of property, plant and equipment.............. (8,964,368) (3,650,251) (4,280,337)
Acquisition of businesses................................. - (46,199,458) -
Acquisition of intangibles................................ (6,193,052) - -
Purchase of computer software............................. (272,417) (252,327) (365,028)
Purchase of held-to-maturity securities................... - (11,692,002) (5,818,012)
Sale of held-to-maturity securities....................... - 17,510,014 -
Investments in affiliates................................. (1,693,893) (4,599) (339,700)
Loans to affiliate........................................ (842,594) (1,622,513) (902,589)
------------ ------------ ------------
Net cash used in investing activities..................... (17,966,324) (45,911,136) (11,705,666)
FINANCING ACTIVITIES
Payments of acquisition liability......................... - - (600,000)
Proceeds from notes payable............................... 2,915,516 40,000,000 1,495,701
Payment of debt issuance costs............................ - (1,402,500) -
Repayments of other loans and notes payable............... (9,766,158) (292,892) (2,599,486)
Repayments of related party loans and notes payable....... - - (3,618,102)
Repayments of capital lease obligations................... (289,924) (79,917) (39,502)
Net proceeds from issuance of Common Stock................ 10,585,506 129,805 22,371,206
Redemption of Preferred Stock shares...................... - - (372,000)
Payment of Preferred Stock dividends...................... - - (74,476)
------------ ------------ ------------
Net cash provided by financing activities................. 3,444,940 38,354,496 16,563,341
Effect of exchange rate changes on cash................... (18,181) (33,445) -
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents.......... (2,396,280) (1,244,683) 9,848,872
Cash and cash equivalents at beginning of year............ 9,076,250 10,320,933 472,061
------------ ------------ ------------
Cash and cash equivalents at end of year.................. $ 6,679,970 $ 9,076,250 $ 10,320,933
============ ============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
XPEDITE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
The Company entered into capital lease agreements for equipment in the amount
of $161,200 in 1995.
The Company made interest payments of $4,008,087, $31,011, and $104,973
during 1996, 1995 and 1994, respectively. The Company made income tax payments
of $5,149,000, $3,103,000 and $1,663,000 during 1996, 1995 and 1994,
respectively.
The Company declared Preferred Stock dividends of $74,476 in 1994. No amounts
were payable in additional shares of Preferred Stock and $74,476 was payable in
cash. The carrying value of the Preferred Stock was increased by $288,791 during
1994, which represents the accretion of the difference between the carrying
value and the mandatory redemption value at the date of issue using the interest
method.
During 1995, the Company issued 3,000 treasury shares of Common Stock, as
part of a legal settlement with a former investor.
During 1994, 7,179 shares of Preferred Stock were converted into Common Stock
at a conversion price of $15.00 per share of Common Stock.
The purchase price for the businesses acquired in 1995 is allocated to the
assets acquired and liabilities assumed based on their estimated fair market
values as follows:
Fair Value of Assets Acquired:
Current assets excluding cash........... $11,466,998
Property, plant and equipment........... 7,956,162
In-process research and development..... 53,000,000
Customer lists.......................... 5,600,000
Purchased software...................... 2,700,000
Cost in excess of fair value of
net assets acquired ................. 8,304,201
Other assets............................ 1,561,401
Less Liabilities Assumed:
Current liabilities..................... (16,173,973)
Other liabilities....................... (5,040,388)
Common stock issued to sellers........... (18,266,625)
Subordinated debt issued to sellers...... (4,908,318)
-----------
Net Cash Paid............................ $46,199,458
===========
See accompanying notes.
7
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Xpedite Systems, Inc. (the "Company") was incorporated in Delaware in July
1988. The Company develops and markets fax communication services worldwide. The
Company generates revenues from the following: (i) usage fees charged for the
Company's fax broadcast service ("Fax Broadcast"), gateway messaging service
("Gateway Messaging") and international point-to-point fax service ("Point-to-
Point") to customers in diverse industries; (ii) sales of fax message handling
systems, including equipment; and (iii) royalties with respect to the use of the
Company's software. Revenues from the sales of systems are recognized when risk
of ownership and title passes to the customer. The Company performs ongoing
credit evaluations of customers and does not generally require collateral.
Reserves are maintained for potential credit losses and allowances, and such
losses and allowances have been within management's expectations.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements have been prepared on a consolidated
basis to include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany amounts have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The Company and each of its subsidiaries use their local currency as their
functional currency. Gains and losses from foreign currency transactions are
included in the determination of net income. Cumulative translation adjustments,
which result from the process of translating the consolidated financial
statements from the functional currencies of each subsidiary into the reporting
currency, are included as a component of stockholders' equity.
FOREIGN EXCHANGE FORWARD CONTRACTS
Foreign exchange forward contracts are legal agreements between two parties to
purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. The Company uses such
contracts to hedge risk of changes in foreign currency exchange rates associated
with certain obligations denominated in foreign currency. Such contracts are
designated as hedges; therefore, gains and losses are deferred until contracts
are settled and are included in interest income (expense) when the contracts are
settled.
The Company held contracts for German marks and Japanese yen of approximately
$3.4 million at December 31, 1995, and German marks of approximately $2.3
million at December 31, 1996, associated with the loans to affiliates (see Note
10) and intercompany balances with subsidiaries. Contracts for German marks have
maturity dates ranging from 1997 through 1999.
8
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1.BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN EXCHANGE FORWARD CONTRACTS (CONTINUED)
The fair value of such contracts at December 31, 1996, based upon current
market quotes for contracts with similar terms, approximated the carrying value
of such contracts. In the event of non-performance of contract terms by the
banks, the Company would be required to sell German marks at the prevailing
exchange rates.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The fair value of these
investments approximates cost.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
using the straight-line method over the following estimated useful lives of the
assets:
YEARS
-----
Buildings 25
Equipment 5
Furniture and fixtures 7
Leasehold improvements are amortized using the straight-line method over
the lesser of the term of the lease or the estimated useful life of the related
improvement.
PURCHASED SOFTWARE AND CUSTOMER LISTS
Purchased software is being amortized on a straight-line basis over the
estimated useful life of three to five years. Such amortization is greater than
the amount computed using the ratio that current gross revenues related to the
purchased software bear to the total of current and anticipated future gross
revenues related to the purchased software. Amortization of purchased software
amounted to $1,141,097, $337,871 and $242,110 during 1996, 1995 and 1994,
respectively.
9
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Customer lists are being amortized on a straight-line basis over the
estimated useful life of eight years. In the opinion of management, the customer
list assets will be recovered over a period of eight years based upon the
anticipated future revenue stream generated from the customer base existing on
the acquisition dates.
COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Costs in excess of the fair value of the tangible net assets and
identifiable intangible assets of businesses acquired are amortized on a
straight-line basis over estimated useful life ranging from ten to twenty years.
The Company assesses the recoverability of costs in excess of the fair value of
the net assets acquired by determining whether the carrying value of these
assets can be recovered through undiscounted forecasted future cash flows over
their remaining lives.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 as of January 1, 1995, which did not have a
material effect on the Company's consolidated financial position or results of
operations.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
STOCK BASED COMPENSATION
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock option
plans. Under APB 25, compensation expense is calculated at the time of option
grant based upon the difference between the exercise price of the option and the
fair market value of the Company's common stock at the date of grant, recognized
over the vesting period.
10
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs related to existing
software and systems as incurred.
NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) per Common Share for the three years ended December 31,
1996, is computed using the weighted average number of common shares and
dilutive common share equivalents outstanding. The amount of dilution, where
appropriate, is computed by application of the treasury stock method.
2. ACQUISITIONS
In September 1996, the Company purchased the assets of one of its Nodal
Partners in Korea, Posdata Company, Ltd. ("Posdata"), for a purchase price of
approximately $2.5 million. Further, in December 1996, a subsidiary of the
Company purchased from Pacific Star Services Pty Limited, a subsidiary of New
Zealand's national telephone company, Pacific Star Communications, Ltd.
("PacStar"), the assets of PacStar's "Fax 2000" enhanced facsimile services
business carried on in Australia. The purchase price for the Fax 2000 business
was approximately $1.3 million. The Company also purchased a customer list from
Xpedite Systems Limited (Note 10) for $1.3 million in March 1996.
The aforementioned acquisitions were accounted for as purchases. Accordingly,
the acquired assets (primarily customer lists) have been recorded at their
estimated fair market values at the date of acquisition.
On November 20, 1995, the Company purchased all of the outstanding capital
stock of Swift Global Communications, Inc. ("Swift"), ViTel International
Holding Company, Inc. ("ViTel") and Comwave Communications AG ("Comwave"). The
purchase prices for the acquisitions, including transaction costs, were
approximately $23,195,000, $41,540,000 and $11,340,000, respectively, which
includes a total of $2,000,000 held in escrow for settlement of certain
representations and warrantees. A portion of the purchase prices were paid
through the issuance of 1,249,000 shares of the Company's Common Stock valued at
$18,267,000, and subordinated notes payable to the sellers of ViTel with a
carrying value of approximately $4,908,000 (see Note 5). The acquisitions were
accounted for as purchases. Accordingly, the acquired assets and liabilities
assumed through these purchases have been recorded at their estimated fair
market values at the date of acquisition. Identifiable intangible assets
acquired included $53,000,000 of in-process research and development costs,
customer lists of $5,600,000, and purchased software of $2,700,000. Since the
technological feasibility of the in-process research and development costs had
not yet been established and the technology had no alternative future use at the
acquisition date, the in-process research and development costs were immediately
written-off and included in the results of operations as a non-recurring charge
for the year ended December 31, 1995.
11
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. ACQUISITIONS (CONTINUED)
A stockholder of the Company received $348,000 of fees for services provided
in connection with the November 1995 transactions.
The results of operations of the 1995 purchased businesses are included in
the accompanying consolidated statements of operations from the date of
acquisition. Unaudited proforma results as if the acquisitions had occurred on
January 1, 1995 and 1994, which includes the $53,000,000 write off of in-process
research and development costs, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Net revenues............... $107,099,000 $ 88,164,000
Net loss................... $(50,797,000) $(53,272,000)
Net loss per Common Share.. $ (6.28) $ (6.79)
</TABLE>
The proforma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented nor are they intended to be indicative of
results that may occur in the future.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land........................... $ 75,753 $ 75,753
Building....................... 103,977 103,977
Equipment...................... 26,135,687 17,880,624
Furniture and fixtures......... 3,537,759 1,681,859
Leasehold improvements......... 1,559,932 884,940
----------- -----------
31,413,108 20,627,153
Less accumulated depreciation
and amortization............ 10,912,682 4,391,760
----------- -----------
$20,500,426 $16,235,393
=========== ===========
</TABLE>
12
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Communication line charges $ 1,851,242 $ 1,434,367
Salaries and related benefits................ 3,281,096 3,213,181
Accrued interest............................. 64,410 467,671
Other........................................ 724,337 2,011,943
----------- ------------
$ 5,921,085 $ 7,127,162
=========== ============
5. LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
----------- ------------
Term loan.................................... $31,750,000 $ 40,000,000
Subordinated notes
to former owners............................ - 4,957,450
Notes payable to banks....................... 2,951,057 989,930
Notes payable to
former owners of ViTel...................... 208,549 468,788
----------- ------------
34,909,606 46,416,168
Less current maturities...................... (7,763,459) (10,652,747)
----------- ------------
$27,146,147 $ 35,763,421
=========== ============
</TABLE>
The Company entered into a credit agreement with a commercial bank which
provided a $40,000,000 term loan to finance the acquisition of Swift, ViTel, and
Comwave in November 1995 (see Note 2). The term loan is payable in quarterly
installments of $1,250,000 increasing periodically to $2,250,000 with a final
payment in August 2001. During 1996, the Company made prepayments of principal
on the term loan amounting to $3,250,000. The credit agreement also provides for
a $5,000,000 revolving loan limited to 80% of eligible accounts receivable, as
defined. The credit agreement expires in August 2001. A commitment fee is
payable at a rate of 0.5% per annum of the unused portion of the revolving loan.
There were no amounts outstanding under the revolving loan at December 31, 1996
or 1995.
At the Company's option, the term loan and revolving loan bear interest at
either (a) the Bank's Base Rate, defined as the higher of (i) 0.5% ("Base
Margin") in excess of the Federal Funds rate or (ii) the bank's prime rate plus
1.5%; or (b) at a rate equal to the LIBOR rate plus 2.75%. The Base Margin was
adjusted in November 1996, and will be adjusted thereafter, until maturity based
on the Company's outstanding indebtedness and results of operations. The Company
has elected to be charged interest at LIBOR (5.7%) plus 2.75% at December 31,
1996. Substantially all of the assets of the Company collateralize the term and
revolving loans.
13
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. LONG-TERM DEBT (CONTINUED)
The credit agreement contains certain financial covenants which include
minimum levels of net worth, current ratio, earnings before interest, taxes,
depreciation and amortization ("EBITDA") and indebtedness as compared to EBITDA.
The principal amounts of the subordinated notes issued in connection with the
acquisition of ViTel were approximately $5,133,000. The notes did not accrue
interest until May 20, 1996. Accordingly, the notes were recorded at their fair
value of $4,908,000 at the date of acquisition. The notes were prepaid in June
1996, with 351,000 shares of the Company's common stock.
The notes payable to banks consists of the following: (a) four notes in the
amount of $487,000 in the aggregate payable to Japanese banks bearing interest
at rates ranging from 2.4% to 3.8%. Principal and interest is payable monthly or
quarterly through September 1998, and (b) two notes in the amount of $2.1
million in the aggregate payable to a Korean bank bearing interest at rates
ranging from 14% to 15%, which were repaid in January 1997, and (c) a non-
interest bearing note in the amount of approximately $300,000 payable to PacStar
in connection with the PacStar acquisition, which is payable in April 1997.
The note payable to a former owner of ViTel is non-interest bearing.
Principal is payable semi-monthly through April 2000.
Aggregate maturities of long-term debt for the next five years and thereafter
are as follows: 1997- $7,763,459; 1998- $6,146,147; 1999- $7,000,000; 2000-
$8,000,000; 2001- $6,000,000; thereafter- $0.
The carrying amount of the Company's borrowings approximates the fair value.
Costs incurred in connection with obtaining the term and revolving loans
totaled $1,419,000 and are included in Other Assets in the accompanying
consolidated balance sheet. These costs are amortized on a straight line-basis
over the life of the credit agreement, which is six years. Accumulated
amortization totaled $260,000 and $26,000 at December 31, 1996 and 1995,
respectively.
14
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31, 1996, 1995 and 1994 are:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Federal:
Current................. $6,616,571 $ 3,971,390 $1,493,000
Deferred................ (582,493) (2,050,400) 122,000
State and local:
Current................. 1,159,000 782,200 300,400
Deferred................ (73,907) 37,700 35,000
---------- ----------- ----------
$7,119,171 $ 2,740,890 $1,950,400
========== =========== ==========
</TABLE>
Included in the December 31, 1996 federal current and deferred income tax
expense is approximately $1.4 million of foreign income tax expense.
The reconciliation of income taxes computed at the U.S. statutory federal tax
rate to income tax expense for the years ended December 31, 1996, 1995 and 1994
are:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- --------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at U.S.
statutory rate ...................... $6,143,421 35% $(14,900,000) (34%) $2,270,400 34%
Write-off of in process research
and development...................... 18,020,000 41
State income taxes, net of
federal income tax benefit .......... 753,023 4 541,000 1 221,000 3
Reduction in valuation
allowance ........................... (192,700) (1) (2,279,000) (5) (336,000) (5)
Other items ........................... 415,427 2 1,358,890 3 (205,000) (3)
---------- --- ------------ --- ---------- ---
Income tax expense .................... $7,119,171 40% $ 2,740,890 6% $1,950,400 29%
</TABLE>
15
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Reserve for allowances for doubtful
accounts.............................................. $ 944,000 $ 760,200
Accruals and reserves................................... 1,286,000 1,278,400
Future tax benefits of net operating
loss carryforwards.................................... 1,554,000 2,376,000
---------- ----------
Gross deferred tax asset................................ 3,784,000 4,414,600
---------- ----------
Deferred tax liabilities:
Fixed assets.......................................... 1,019,000 1,423,800
Intangibles........................................... 2,614,000 3,320,000
Other liabilities..................................... 59,000 42,500
---------- ----------
Gross deferred tax liability............................ 3,692,000 4,786,300
---------- ----------
Net deferred tax asset (liability)...................... 92,000 (371,700)
Valuation allowance for deferred
tax assets............................................ - (192,700)
---------- ----------
Net deferred tax assets (liability)..................... $ 92,000 $ (564,400)
========== ==========
</TABLE>
The Company has recorded a deferred tax asset of $1,554,000 at December 31,
1996 reflecting the benefit of $4,441,000 in loss carryforwards, which expire in
varying amounts between 2004 and 2007. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized.
As a result of certain transactions involving the Company's stock, an
ownership change, as defined in Section 382 of the Internal Revenue Code,
occurred in 1992. Consequently, future utilization of the Company's federal net
operating loss carryforwards are subject to an annual limitation of
approximately $640,000.
The Company has unremitted foreign earnings of approximately $4.6 million at
December 31, 1996. It is the Company's intention to permanently reinvest those
earnings in its foreign operations. Accordingly, no federal deferred taxes have
been provided on those earnings. If such earnings were to be remitted, it is
possible there would be withholding taxes (although not readily determinable) on
such remittances.
16
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under long-term lease
agreements. The obligations related to the leasing of equipment, are classified
as capital leases. Equipment under capital leases totaled $610,000 and $835,526,
net of accumulated depreciation, at December 31, 1996 and 1995, respectively.
The leases of real property are classified as operating leases and expire
through 2001. These leases are subject to increases in property taxes and
maintenance costs.
The following is a schedule of future minimum lease payments for capital and
operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1997 $283,636 $1,775,602
1998 211,285 1,339,672
1999 123,270 808,419
2000 9,776 562,154
2001 - 322,948
Thereafter - 15,700
--------- -----------
Total minimum lease payments 627,967 $4,824,495
===========
Less amount representing interest 59,286
---------
Present value of minimum lease
payments 568,681
Less current portion 241,995
---------
$326,686
=========
</TABLE>
Rent expense totaled $3,257,102, $1,201,632 and $895,730 for 1996, 1995 and
1994, respectively.
The Company is involved in litigation, as a defendant, incidental to the
conduct of its business. It is the opinion of management, after consultation
with counsel, that the outcome of such litigation will not have a material
adverse effect on the accompanying financial statements.
8. BENEFIT PLANS AND EQUITY AWARDS
In January 1996, the Company established an incentive stock option plan for
its officers and employees (the "1996 Plan"). A total of 750,000 shares of
Common Stock were reserved for issuance pursuant to options granted under the
1996 Plan.
In November 1993, the Company established an incentive stock option plan for
its officers and employees (the "1993 Plan"). A total of 450,000 shares of
Common Stock were reserved for issuance pursuant to options granted under the
1993 Plan.
17
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. BENEFIT PLANS AND EQUITY AWARDS (CONTINUED)
The 1992 Incentive Stock Option Plan (the "1992 Plan") was approved by the
Board of Directors in 1992 and authorized the issuance of up to 715,696 options.
Additionally, in April 1996, the Company reserved 200,000 shares of Common
Stock for issuance pursuant to options which may be awarded to certain executive
officers of the Company under the Officers' Contingent Stock Option Plan (the
"Plan"), upon achievement of certain performance targets. In July 1996, the
Company granted 92,500 of such options, at a purchase price of $0.00 per share.
Compensation expense related to these grants, calculated at the fair market
value of the Company's Common Stock at the date of grant, to be recognized over
the vesting period of 48 months, will total $2,036,474. The Company has
recognized compensation expense in 1996 of $94,069. These options expire on
April 21, 2006. In January 1997, the Company's Board of Directors resolved to
replace the unawarded "second tranche" of 100,000 performance options under the
Plan with a combination of Incentive Stock Options and cash bonus awards. Such
amendment to the Plan and the details thereof have not been finalized as yet.
During 1993, the Company issued 7,000 stock warrants to a consultant to
purchase shares of Common Stock at a purchase price of $0.50 per share. These
warrants expire December 31, 1999. Also during 1993, the Company issued 5,000
stock warrants to a stockholder of the Company to purchase shares of Common
Stock at a purchase price of $7.00 per share. These warrants expire November 16,
2003.
In February 1994, the Company granted warrants to purchase 10,000 shares of
Common Stock at a purchase price of $15.00 per share, to a new member of the
Board of Directors. During 1995, 3,334 of these warrants were exercised. The
remaining 6,666 warrants were canceled during 1995.
In April 1996, the Company issued warrants to members of the Board of
Directors to purchase 125,000 shares of Common Stock at a purchase price of
$17.50 per share. Subsequently, 8,334 warrants were forfeited due to the
resignation of a Board member. The remaining 116,666 warrants were all
outstanding at December 31, 1996.
FASB 123 requires pro forma information regarding net income and earnings
per share as if the Company has accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FAS 123. The fair
value of these equity awards was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions for
1995 and 1996, respectively: risk-free interest rates of between 6.07% and
6.17%; expected volatility of 0.55; expected option life of five years, and an
expected dividend yield of 0.0%.
For purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Pro forma net income............... $ 9,548,461 $ (47,151,498)
Pro forma net income per share
of common stock................. $ 1.11 $ (6.77)
</TABLE>
18
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. BENEFIT PLANS AND EQUITY AWARDS (CONTINUED)
Stock option plans' activity is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............... 803,963 $ 8.10 675,420 $ 6.23 604,450 $ 0.57
Canceled....................................... 33,476 $ 16.04 (6,319) $ 13.46 (12,608) $ 3.96
Granted........................................ 383,100 $ 12.62 170,600 $ 14.18 266,350 $ 15.10
Exercised...................................... 146,340 $ 1.87 (35,738) $ 0.78 (182,772) $ 0.58
Outstanding at end of year..................... 1,007,245 $ 10.46 803,963 $ 8.10 675,420 $ 6.23
Exercisable at end of year 501,018 397,943 210,993
======== ======== ========
Weighted average fair value of
options granted during the year $ 13.35 $ 10.24 $ 11.48
======== ======== ========
</TABLE>
Stock options outstanding at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE
RANGE OF EXERCISE OPTIONS AT REMAINING WEIGHTED AVERAGE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
- ----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
$ 0.00 92,500 8.3 $ 0.00
$ 0.50 237,628 5.7 $ 0.50
$ 3.00 - $ 3.42 3,270 6.6 $ 3.00
$ 7.00 1,189 6.8 $ 7.00
$ 13.75 - $17.50 672,658 8.4 $ 15.47
</TABLE>
The Company has a defined contribution 401(k) plan (the "Plan") which allows
all eligible employees to defer a portion of their income through contributions
to the Plan. Under the terms of the Plan, the Company contributes an amount
equal to 50% of the employee's elective deferrals up to 5% of the total annual
compensation paid to the Plan participant. The Company's expense under the Plan
for 1996, 1995 and 1994 was $ 629,054, $228,294 and $174,090, respectively.
19
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. PUBLIC OFFERINGS
In February 1994, the Company issued 1,650,000 shares of Common Stock in an
initial public offering. The Company used a portion of the net proceeds of the
offering to repay all outstanding indebtedness (except indebtedness related to
capital lease obligations) and to redeem 227 shares of Preferred Stock. At the
closing of the offering, 7,179 shares of Preferred Stock were converted into
Common Stock at a conversion price equal to the initial public offering price
($15.00 per share of Common Stock).
In August 1996, the Company completed an offering of 720,000 shares of its
common stock, at a price of $18.75 per share, less underwriting discounts and
commissions. Of the total shares sold, the Company issued 550,000 shares and
certain stockholders of the Company ("Selling Stockholders") sold 170,000
shares. In September 1996, the underwriters exercised their over-allotment
option, resulting in the issuance by the Company of an additional 82,500 shares
of common stock, and the sale of an additional 25,500 shares by the Selling
Stockholders. Proceeds of this offering, net of underwriting fees, amounted to
$11.2 million, of which $3.4 million was used to repay debt, and the balance was
used for other expenses related to the offering, working capital, and general
and corporate purposes.
10. SYSTEM AND MARKETING AGREEMENTS
In connection with its international expansion, the Company has entered
into relationships in Europe with Xpedite Systems, GmbH ("XSG"), Xpedite
Systems, S.A. ("XSSA") and Xpedite Systems, Ltd. ("XSL," and collectively with
XSG and XSSA, the "European Affiliates"). At the time of formation of each of
these entities, the Company entered into a Systems and Marketing Agreement and a
Put and Call Option Agreement (collectively, the "Put/Call Agreements") with
each European Affiliate and, in the case of the Put/Call Agreements, each
affiliate's shareholders. These agreements provide for the sale by the Company
to each European Affiliate of the Company's document distribution system, along
with a license to the software used to operate such system, joint marketing
efforts, and "put" and "call" rights which, upon the achievement of specified
levels of financial performance by the relevant European Affiliate and
fulfillment of certain other conditions, would enable or require the Company to
purchase interests in the relevant European Affiliate. The Company currently
owns 18.8% of XSSA and 19% of XSG, and has an option to purchase an additional
17% of XSG held by a significant shareholder of XSG. The Company has no current
ownership stake in XSL. Loans to the aforementioned European Affiliates total
approximately $3.5 million and $2.5 million at December 31, 1996 and 1995,
respectively, and reflected in the Company's consolidated balance sheets.
Because (i) Xpedite UK is likely to produce operating results in excess of
the minimum earnings required in order to enable the exercise of the put and
call option in the Xpedite UK Put/Call Agreement, and (ii) Xpedite Germany has
recently produced operating results indicating Xpedite Germany may attain the
minimum earnings required in order to enable the exercise of the put and call
option in the Xpedite Germany Put/Call Agreement, and if the financial
performance of Xpedite UK and Xpedite Germany continues, it is reasonably likely
that the Company could exercise or be subject to the exercise of these options
in early 1998 with respect to Xpedite UK and Xpedite Germany.
20
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. SYSTEM AND MARKETING AGREEMENTS (CONTINUED)
Assuming that Xpedite Germany achieves the minimum amount of earnings of
$1.1 million (at current exchange rates) contemplated by the Xpedite Germany
Put/Call Agreement and utilizing the Company's stock price and earnings at and
as of the twelve months ended December 31, 1996, the purchase price payable in
connection with the exercise of 100% of the put option with respect to Xpedite
Germany would be approximately $8.3 million, after exercise of the "special
option" granted to the Company to purchase approximately 17.5% of the
outstanding share of Xpedite Germany from a current shareholder for $33,000. The
actual amount of the purchase price will more than likely differ from this
amount due to the variable factors used to determine the purchase price.
Assuming that Xpedite UK continues its current earnings trend, and
utilizing the Company's stock price and earnings at and as of the twelve months
ended December 31, 1996, the purchase price payable in connection with the
exercise of 100% of the put option with respect to Xpedite UK would be
approximately $89.0 million. The actual amount of the purchase price will more
than likely differ from this amount due to the variable factors used to
determine the purchase price.
Xpedite France has not met the minimum amount of earnings necessary for the
put or call option to be exercisable, and therefore, due to the uncertainties as
to the ability of Xpedite France to achieve the required financial results in
the future, and the uncertainty of future events, the Company does not consider
the exercise of these options to be probable during the next eighteen months.
However, assuming that Xpedite France achieves the minimum amount of earnings of
$1.1 million (at current exchange rates) contemplated by the Xpedite France
Put/Call Agreement and utilizing the Company's stock price and earnings at and
as of the twelve months ended December 31, 1996, the purchase price payable in
connection with the exercise of 100% of the put option would be approximately
$11.3 million. The actual amount of the purchase price will more than likely
differ from this amount due to the variable factors used to determine the
purchase price.
If exercised, the purchase price payable in connection with the "put" and
"call" options is payable 20% in cash or negotiable securities and 80% in common
stock of the Company (in the case of Xpedite UK and Xpedite France), or a
combination of cash, common stock of the Company, or any negotiable security, at
the Company's option, in the case of Xpedite Germany. In addition to the
foregoing, the Company may purchase one or more of the European Affiliates
pursuant to negotiations with the stockholders thereof (a "Negotiated
Purchase"). The Company has had preliminary discussions with each of the
European Affiliates regarding a Negotiated Purchase. The Company cannot predict
the purchase price payable in connection with any such Negotiated Purchase or
whether any such Negotiated Purchase will occur.
In conjunction with its analysis of its strategic alternatives to enhance
stockholder value, the Company is considering effecting a recapitalization which
could entail a substantial increase in the Company's leverage and the
distribution to the Company's stockholders of a special dividend. The Company
believes that such a leveraged recapitalization would provide meaningful
liquidity to its stockholders and also would have a significant impact on the
Company's stock price. Accordingly, because one element of the formula utilized
to calculate the purchase price payable pursuant to any "put" or "call" option
is the Company's stock price, the Company believes that such a leveraged
21
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. SYSTEM AND MARKETING AGREEMENTS (CONTINUED)
recapitalization would result in a substantial reduction in the price paid in
connection with any exercise of a "put" or "call" option. There can be no
assurance that the Company will effect any such leveraged recapitalization. See
Note 12 for additional discussion of the Company's analysis of its strategic
alternatives.
The Company believes that its sources of capital, including internally
generated funds, and cash available pursuant to its Credit Facility will be
adequate to satisfy its debt requirements and anticipated capital needs for the
next twelve months. However, the Company may elect to finance its future capital
requirements through additional equity or debt financing. Further, if the
Company exercises or is subject to the exercise of the options described above,
or purchases one or more of the European Affiliates pursuant to a Negotiated
Purchase, and if the Company elects to finance such exercise or purchase using
cash, then the Company may be required to obtain additional equity or debt
financing. The Company cannot predict whether or not the purchase of all or any
portion of one or more of the European Affiliates will have a dilutive effect on
the Company's earnings, as such effect will be dependent upon purchase price
paid, the manner in which the purchase is financed and other variable factors.
If and when the put and call options are exercised, the investments in
Xpedite Germany, Xpedite UK and Xpedite France will be accounted for either on
the equity method of accounting or will be consolidated, depending on the
Company's percentage of ownership.
11. SEGMENT DATA AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment. The following table presents
financial information based on the Company's geographic segments for the years
ended December 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
NET OPERATING IDENTIFIABLE
1996 REVENUES INCOME ASSETS
- -------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
North America................... $ 91,387,431 $17,242,174 $66,282,306
Far East........................ 25,505,348 435,326 14,401,049
Europe.......................... 12,954,872 2,775,290 7,707,517
------------- ------------ ------------
Total........................... $129,847,651 $20,452,790 $88,390,872
============= ============ ============
</TABLE>
22
<PAGE>
XPEDITE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NET OPERATING IDENTIFIABLE
1995 REVENUES (LOSS) INCOME ASSETS
- ----------------------------- ----------- ------------- ------------
<S> <C> <C> <C>
North America................ $52,022,430 $(44,020,454) $49,650,056
Far East..................... 2,198,893 (102,167) 11,994,268
Europe....................... 1,462,639 43,237 11,238,447
------------ ------------- ------------
Total....................... $55,683,962 $(44,079,384) $72,882,771
============ ============= ============
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
In February 1997, the Company retained Merrill, Lynch & Co. ("Merrill") to
assist the Board of Directors of the Company (the "Board") in evaluating the
strategic direction of the Company, including the evaluation of possible
business combinations, a leveraged recapitalization or other methods for
enhancing stockholder value. The Board also appointed a special committee,
consisting of Philip A. Campbell and Robert Chefitz, to evaluate the strategic
alternatives that may be available to the Company to enhance stockholder value.
The special committee, with the assistance of Merrill, is continuing to evaluate
the Company's strategic alternatives.
In a related development, on February 7, 1997, the Company announced that
it had received a proposal (the "Proposal") from a group which included UBS
Capital Partners (an affiliate of Union Bank of Switzerland), Fenway Partners
and members of the Company's senior management to acquire the Company in a
transaction in which the Company's shareholders would receive $22.50 per share
in cash for their shares of Common Stock. The Proposal was subject to the
satisfaction of a variety of material conditions, including the negotiation of
satisfactory arrangements with Xpedite's affiliates in the United Kingdom and
Germany. The Proposal expired on March 7, 1997.
23
<PAGE>
PART I Xpedite Systems, Inc.
ITEM 1. Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets: (unaudited)
Cash and cash equivalents........................................................ $ 3,856,584 $ 6,679,970
Accounts receivable, net of reserve for allowances and doubtful accounts of
$2,172,000 at September 30, 1997 and $1,851,000 at December 31,1996............. 29,711,404 25,749,334
Deferred income taxes............................................................ 1,903,694 1,903,694
Other current assets............................................................. 3,714,860 4,290,034
------------- -------------
Total current assets......................................................... 39,186,542 38,623,032
Property, plant and equipment, net................................................. 22,837,557 20,500,426
Customer lists, net of accumulated amortization of $2,926,000 at September 30, 1997
and $2,004,000 at December 31, 1996............................................... 7,706,801 8,232,144
Purchased software, net of accumulated amortization of $3,517,000 at September 30,
1997 and $2,027,000 at December 31, 1996.......................................... 2,536,118 3,156,044
Costs in excess of fair value of net assets acquired, net of accumulated
amortization of $1,921,000 at September 30,1997 and $1,180,000 at December 31,
1996.............................................................................. 9,686,240 10,609,687
Investments in affiliates, at cost................................................. 2,247,711 2,168,248
Loans to affiliate................................................................. 3,662,161 3,452,580
Deferred income taxes.............................................................. 1,879,917 1,879,917
Other assets....................................................................... 4,173,221 2,569,510
------------- -------------
Total........................................................................ $ 93,916,268 $ 91,191,588
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 7,145,685 $ 10,067,510
Accrued expenses............................................................... 12,937,749 8,721,801
Current portion of long-term debt.............................................. 6,283,011 7,763,459
Current portion of capital lease obligations................................... 271,235 241,995
Income taxes payable........................................................... 5,483,421 7,131,347
Other current liabilities...................................................... 268,138 223,818
------------- -------------
Total current liabilities................................................... 32,389,239 34,149,930
Long-term debt..................................................................... 22,509,940 27,146,147
Long-term portion of capital lease obligations..................................... 312,193 326,686
Deferred income taxes.............................................................. 3,590,914 3,692,134
Other liabilities.................................................................. 782,668 739,492
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000; none issued and outstanding
at September 30, 1997 and December 31, 1996..................................... -- --
Common Stock, $.01 par value, authorized 15,000,000; issued and outstanding
9,107,563 at September 30, 1997, and 8,903,240 shares at December 31, 1996...... 91,076 89,032
Additional paid-in capital....................................................... 65,672,071 64,782,539
Accumulated deficit.............................................................. (29,893,545) (39,431,890)
Cumulative translation adjustment................................................ (1,322,288) (86,482)
Less: Treasury stock; 72,000 shares at September 30, 1997, and December 31, 1996;
at cost......................................................................... (216,000) (216,000)
------------- -------------
Total stockholders' equity................................................... 34,331,314 24,137,199
------------- -------------
Total........................................................................ $ 93,916,268 $ 91,191,588
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Xpedite Systems, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues:
Domestic service revenues........................... $ 75,134,253 $ 57,931,365 $ 25,900,159 $ 20,132,396
International service revenues...................... 43,242,148 31,384,851 15,725,912 11,168,384
System sales and other.............................. 4,006,888 5,451,028 1,014,595 1,870,473
------------- ------------- ------------- -------------
Total net revenues.............................. 122,383,289 94,767,244 42,640,666 33,171,253
Cost of sales:
Operations, line charges and support engineering.... 57,543,978 41,393,892 19,787,261 14,715,966
Cost of sales of systems............................ 1,228,901 2,021,610 209,962 461,992
------------- ------------- ------------- -------------
Total cost of sales (exclusive of depreciation and
amortization shown separately below).............. 58,772,879 43,415,502 19,997,223 15,177,958
------------- ------------- ------------- -------------
Operating expenses:
Selling and marketing.............................. 27,975,775 20,704,174 9,635,021 7,399,286
General and administrative......................... 6,818,266 6,172,830 2,385,154 2,158,328
Research and development........................... 3,655,114 3,687,757 1,242,097 1,204,361
Depreciation and amortization...................... 7,389,830 5,515,645 2,606,815 2,017,341
------------- ------------- ------------- -------------
Total operating expenses....................... 45,838,985 36,080,406 15,869,087 12,779,316
------------- ------------- ------------- -------------
Operating income.................................... 17,771,425 15,271,336 6,774,356 5,213,979
Interest income..................................... 289,615 356,137 112,969 110,706
Interest expense.................................... (2,129,336) (2,826,175) (695,092) (823,284)
Other income........................................ 56,154 146,773 132,963 16,712
------------- ------------- ------------- -------------
Income before income taxes.......................... 15,987,858 12,948,071 6,325,196 4,518,113
Income tax expense.................................. 6,392,888 5,276,302 2,520,153 1,815,485
------------- ------------- ------------- -------------
Net income.......................................... $ 9,594,970 $ 7,671,769 $ 3,805,043 $ 2,702,628
============= ============= ============= =============
Net income per Common Share......................... $ 1.03 $ 0.91 $ 0.41 $ 0.30
============= ============= ============= =============
Weighted average shares outstanding................. 9,359,100 8,415,100 9,391,500 8,890,800
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Xpedite Systems, Inc.
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK
------------------ PAID-IN ACCUMULATED TRANSLATION -------------------
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT SHARES AMOUNT TOTAL
--------- ------- ----------- ------------ ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996..... 8,903,240 $89,032 $64,782,539 $(39,431,890) $ (86,482) (72,000) $(216,000) $25,137,199
Exercise of stock options...... 187,491 1,876 572,880 -- -- -- -- 574,756
Issuance of performance stock
options...................... 19,582 196 (196) -- -- -- -- --
Deferred compensation cost..... -- -- 318,195 -- -- -- -- 318,195
Treasury stock acquired........ -- -- -- -- -- (2,750) (58,000) (58,000)
Retirement of treasury stock... (2,750 (28) (1,347) (56,625) -- 2,750 58,000 --
Cumulative translation
adjustment................... -- -- -- -- $(1,235,806) -- -- (1,235,806)
Net income..................... -- -- -- 9,594,970 -- -- -- 9,594,970
--------- ------- ----------- ------------ ----------- ------- --------- -----------
BALANCE, SEPTEMBER 30, 1997.... 9,107,563 $91,076 $65,672,071 $(29,893,545) $(1,322,288) (72,000) $(216,000) $34,331,314
========= ======= =========== ============ ============ ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Xpedite Systems, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................................... $ 9,594,970 $ 7,671,769
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 8,058,079 6,119,053
Other non-cash losses.............................................................. 266,615 182,001
Deferred income taxes.............................................................. (101,220) 60,076
Change in operating assets and liabilities:
Accounts receivable................................................................ (4,397,954) (6,768,726)
Other current assets............................................................... (227,488) (2,177,846)
Other assets....................................................................... (1,929,135) (76,960)
Accounts payable................................................................... (2,646,727) (2,834,878)
Accrued expenses................................................................... 4,453,369 2,743,952
Other liabilities.................................................................. (186,354) 795,355
Income taxes payable............................................................... (1,320,349) 1,372,843
------------ -------------
Net cash provided by operating activities............................................ 11,563,806 7,086,639
------------ -------------
INVESTING ACTIVITIES:
Acquisition of property, equipment, purchased software.............................. (8,192,079) (7,540,912)
Acquisition of businesses........................................................... -- (2,914,692)
Investments in affiliates........................................................... (84,340) (1,630,928)
Loans to affiliate.................................................................. (209,581) (842,594)
------------ -------------
Net cash used in investing activities................................................ (8,486,000) (12,929,126)
------------ -------------
FINANCING ACTIVITIES:
Proceeds from loans and notes payable............................................... -- 2,201,187
Repayments of loans and notes payable............................................... (5,978,672) (8,412,248)
Repayments of capital lease obligations............................................. (197,503) (176,897)
Net proceeds from issuance of Common Stock.......................................... 573,382 10,484,304
------------ -------------
Net cash (used in) provided by financing activities.................................. (5,602,793) 4,096,346
------------ -------------
Effect of exchange rate changes on cash.............................................. (298,399) (118,841)
------------ -------------
Decrease in cash and cash equivalents................................................ (2,823,386) (1,864,982)
Cash and cash equivalents at beginning of period..................................... 6,679,970 9,076,250
------------ -------------
Cash and cash equivalents at end of period........................................... $ 3,856,584 $ 7,211,268
============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information has been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such
information does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Xpedite Systems,
Inc. annual report on Form 10-K for the year ended December 31, 1996. Certain
prior years amounts have been reclassified to conform with the current year
presentation.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method it currently uses to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact
is expected to result in an increase in primary earnings per share for the
third quarter and nine months ended September 30, 1997 of $0.02 and $0.05 per
share, respectively, and an increase in primary earnings per share for the
third quarter and nine months ended September 30, 1996 of $0.02 and $0.05 per
share, respectively. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be material.
2. OFFERS TO PURCHASE THE COMPANY
The Company and Xpedite Acquisition Corp., a Delaware corporation
("Acquisition Corp."), whose stockholders include UBS Capital II LLC, Fenway
Partners Capital Fund, L.P., and certain of their affiliates (collectively,
the "Investors"), have entered into an Agreement and Plan of Merger dated as
of August 8, 1997 (the "Merger Agreement") under which Acquisition Corp.
would merge with and into the Company for a cash purchase price of $23.25 per
share of common stock, $0.01 par value per share (the "Common Stock") of the
Company, which values the Company at approximately $250 million including
existing indebtedness.
Concurrently with the execution of the Merger Agreement, certain
stockholders of the Company, including the members of the Board of Directors,
certain members of Senior Management (the "Management Buyers"), certain funds
managed by Patricof & Co. Ventures, Inc. ("Patricof"), and David, Stuart and
Robert Epstein (collectively, the "Epstein Family"), each entered into
individual Stockholder Agreements (the "Stockholder Agreements"), dated as of
August 8, 1997, with the Company and Acquisition Corp. Each Stockholder
Agreement provides, among other things, that the stockholder party thereto
will vote his or its shares, among other things, in favor of the merger of
Acquisition Corp. with and into the Company (the "Merger"), the approval of
the Merger Agreement and the approval of certain amendments to the Company's
certificate of incorporation. Pursuant to the Stockholder Agreement, each
stockholder gave Acquisition Corp. his or its irrevocable proxy to vote his
or its shares, among other things, in favor of the matters referred to above
and agrees to certain restrictions on transfer with respect to his or its
shares.
In addition, Xpedite Systems Holdings (UK) Limited, a United Kingdom
corporation and a wholly-owned subsidiary of the Company ("UK Acquisition
<PAGE>
Corp."), the Company, and the shareholders of Xpedite Systems Limited, a
United Kingdom corporation ("Xpedite UK") have entered into a Share Purchase
Agreement (the "UK Agreement") dated as of August 8, 1997, pursuant to which
UK Acquisition Corp. will acquire all of the outstanding share capital of
Xpedite UK for $87 million, subject to certain adjustments (the "UK
Acquisition"). The UK Acquisition is expected to be completed simultaneously
with the Merger. However, the UK Acquisition is not conditional upon the
completion of the Merger. In the event the Merger is not completed, the
Company will be required to raise the financing necessary to complete the UK
Acquisition.
The Merger Agreement, which is subject to completion of contemplated
financing and the closing of the UK Acquisition, requires shareholder and
regulatory approvals. The closing of the Merger Agreement is also subject to,
among other things, there being no regulatory change that would materially
and adversely affect the Company's ability to account for the Merger using
"recap accounting". To assist the Company in qualifying for "recap
accounting" treatment, certain of the Management Buyers have agreed to retain
certain of their shares of Common Stock in the Merger in lieu of receiving
cash therefor. In connection with the stockholder vote on the Merger
Agreement, stockholders of the Company will be offered the opportunity to
retain all, but not less than all, of their shares of Common Stock in the
Merger in lieu of receiving cash therefor. The Merger Agreement provides that
an aggregate of 205,000 shares of Common Stock must be retained in the Merger
by stockholders other than the Management Buyers. In the event holders of
more than 205,000 shares of Common Stock elect to retain their shares, the
number of shares to be retained by such stockholders will be reduced on a pro
rata basis to an aggregate of 205,000 shares. If holders of fewer than
205,000 shares of Common Stock elect to retain their shares, the Epstein
Family and Patricof have agreed to retain an aggregate of 205,000 shares
minus the number of shares of Common Stock that stockholders other than the
Management Buyers have elected to retain.
The Board of Directors of the Company has, by unanimous vote of the
directors voting (other than Roy B. Andersen, Jr., who did not attend or vote
at the meeting to approve the Merger Agreement due to his participation with
the Investors in the proposed Merger transaction), approved the Merger
Agreement and the UK Agreement. Subject to the disclosure set forth below,
both transactions would be expected to close in the fourth quarter of this
year, or in the first quarter of 1998.
On October 24, 1997, Premiere Technologies, Inc. ("Premiere") expressed
to the Special Committee of the Board of Directors an unsolicited indication
of interest (the "Proposal") that it would be prepared to enter into an
agreement pursuant to which it would acquire the Company. Premiere's Proposal
was non-binding and subject to certain conditions, including completion of
due diligence and a mutually acceptable merger agreement.
On November 5, 1997, the Company received from Premiere a written offer to
acquire the Company (the "Offer") in a stock-for-stock merger transaction (the
"Premiere Merger") which Premiere intends to qualify as a "pooling of interests"
for accounting purposes and to qualify as a tax-free reorganization. Under the
terms of Premiere's offer, each share of the Company's common stock would be
converted into $30 of Premiere's common stock, subject to certain adjustments,
with the precise exchange ratio to be based on the average trading price of
Premiere's common stock prior to closing. On November 11, 1997, Premiere
increased the Offer to $34 of Premiere's common stock, subject to certain
adjustments, with the precise exchange ratio to be based on the average trading
price of Premiere's common stock prior to closing (the "Amended Offer").
The Offer was and the Amended Offer is subject to certain conditions,
including the negotiation of a definitive merger agreement, consummation of
the Company's pending acquisition of Xpedite UK, the receipt of assurances
<PAGE>
from the Company's and Premiere's accountants regarding the ability of
Premiere to treat the Premiere Merger as a "pooling of interests" for
accounting purposes, the approval by the Company's stockholders of the
Premiere Merger and Premiere's stockholders of the issuance of additional
shares in the Premiere Merger and the receipt of required antitrust approvals.
Consistent with its fiduciary duties the Company's Board of Directors, along
with its financial and legal advisors, is considering this offer. At this time,
the Company's Board of Directors cannot predict whether the Amended Offer will
be acceptable to it, whether "pooling of interests" treatment can be obtained
for the proposed transaction, whether an agreement will be reached with Premiere
on a definitive merger agreement or that Premiere's stockholders will approve
the issuance of additional shares in the Premiere Merger.
<PAGE>
EXHIBIT 99.5
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Xpedite Systems Limited:
Report of Independent Accountants....................................... 2
Consolidated Profit and Loss Accounts for the years ended December 31,
1994, 1995, and 1996................................................... 3
Consolidated Balance Sheets, December 31, 1995 and 1996................. 4
Consolidated Cash Flow Statements for the years ended December 31, 1994,
1995, and 1996......................................................... 5
Notes to Consolidated Financial Statements.............................. 6
</TABLE>
1
<PAGE>
XPEDITE SYSTEMS LIMITED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of directors and
shareholders of Xpedite Systems Limited
We have audited the accompanying consolidated balance sheets of Xpedite
Systems Limited (the "company") and its subsidiary companies (the "group") at
31 December 1995 and 1996 and the related consolidated profit and loss
accounts, and cash flows for each of the three years ended 31 December, all
expressed in pounds sterling, and prepared on the basis set forth in Note 1 to
the consolidated financial statements. The financial statements are the
responsibility of the company's directors. Our responsibility is to express an
opinion on those financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which do not differ in any significant respect
from 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 from
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 group's financial position at 31
December 1995 and 1996 and the results of its operations and its cash flows
for each of the three years ended 31 December 1996, in conformity with
accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom differ in
certain significant respects from accounting principles generally accepted in
the United States of America. The application of the latter would have
affected the determination of the group's consolidated profit after taxation
for each of the three years ended 31 December 1996 and of consolidated
shareholders' equity and of the consolidated financial position at 31 December
1995 and 1996. Note 22 to the consolidated financial statements summarizes
these effects for each of the three years ended 31 December 1996 and at 31
December 1995 and 1996.
Price Waterhouse
Leeds, England
16 September 1997
2
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(In Pounds Sterling)
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
-----------------------------------------------------
NOTES 1994 1995 1996
----- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
TURNOVER
Continuing opera-
tions................ 1,144,318 4,396,376 15,892,498
Acquisitions.......... 2 -- 2,431,418 440,634
---------------- ---------------- -----------------
1,144,318 6,827,794 16,333,132
Cost of sales........... (884,375) (4,334,054) (8,984,235)
---------------- ---------------- -----------------
GROSS PROFIT............ 259,943 2,493,740 7,348,897
Administrative ex-
penses............... (1,011,573) (2,179,349) (2,631,380)
OPERATING PROFIT/(LOSS) 3
Continuing opera-
tions................ (751,630) 222,415 4,783,732
Acquisitions.......... -- 91,976 (66,215)
---------------- ---------------- -----------------
(751,630) 314,391 4,717,517
Exceptional write down
of fixed assets........ -- (390,548) --
Interest receivable..... 9,167 25,610 12,654
Interest payable........ 5 (584) (161,631) (456,203)
---------------- ---------------- -----------------
PROFIT/(LOSS) ON ORDI-
NARY ACTIVITIES BEFORE
TAXATION............... (743,047) (212,178) 4,273,968
Tax on profit/(loss) on
ordinary activities.... 6 -- (63,617) (894,372)
---------------- ---------------- -----------------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
AFTER TAXATION......... (743,047) (275,795) 3,379,596
Appropriations in re-
spect of nonequity
shares................. 7 (141,829) (315,186) (672,865)
---------------- ---------------- -----------------
PROFIT/(LOSS) FOR THE
FINANCIAL YEAR TRANS-
FERRED TO/(FROM) RE-
SERVES................. 13 (Pounds)(884,876) (Pounds)(590,981) (Pounds)2,706,731
================ ================ =================
</TABLE>
The financial statements are prepared on an unmodified historical cost
basis in pounds sterling. There are no recognized gains or losses other than as
shown above.
The above noted appropriations in respect of nonequity shares includes
amounts which cannot legally be declared as dividends and have been added back
as a movement on the profit and loss account reserve as shown in Note 13.
3
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEETS
(In Pounds Sterling)
<TABLE>
<CAPTION>
31 DECEMBER
--------------------------------------
NOTES 1995 1996
----- ------------------ ------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets.......... 8 1,466,680 1,864,630
------------------ ------------------
CURRENT ASSETS
Debtors........................ 9 2,833,101 4,761,650
Cash........................... 587,586 419,765
------------------ ------------------
3,420,687 5,181,415
CREDITORS (amounts falling due
within one year)................ 10 (4,091,619) (5,308,574)
------------------ ------------------
NET CURRENT LIABILITIES.......... (670,932) (127,159)
TOTAL ASSETS LESS CURRENT LIABIL-
ITIES........................... 795,748 1,737,471
------------------ ------------------
CREDITORS (amounts falling due
after more than one year)....... 11 (3,250,000) (3,515,000)
------------------ ------------------
(Pounds)(2,454,252) (Pounds)(1,777,529)
================== ==================
CAPITAL AND RESERVES
Called up share capital........ 12 3,749,274 5,329,033
Unissued nonequity share capi-
tal........................... 12 1,568,959 --
Profit and loss account........ 13 (1,582,074) 1,194,173
------------------ ------------------
3,736,159 6,523,206
Goodwill writeoff reserve........ 13 (6,190,411) (8,300,735)
------------------ ------------------
TOTAL SHAREHOLDERS' FUNDS DEFI-
CIT............................. (Pounds)(2,454,252) (Pounds)(1,777,529)
================== ==================
Equity interests................. (7,929,500) (7,323,093)
Nonequity interests.............. 5,475,248 5,545,564
------------------ ------------------
(Pounds)(2,454,252) (Pounds)(1,777,529)
================== ==================
</TABLE>
4
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
(In Pounds Sterling)
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
---------------------------------------------------------
NOTES 1994 1995 1996
----- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
CASH INFLOW/(OUTFLOW)
FROM OPERATING
ACTIVITIES............. 17 (595,776) 533,134 2,536,277
RETURNS ON INVESTMENTS
AND SERVICING OF
FINANCE
Interest received..... 9,167 25,610 12,653
Interest paid......... -- (33,336) (583,019)
Interest element of
hire purchase lease
payments............. (584) (295) (50)
----------------- ------------------ ------------------
NET CASH
INFLOW/(OUTFLOW) FROM
RETURNS ON INVESTMENTS
AND SERVICING OF
FINANCE................ 8,583 (8,021) (570,416)
TAXATION
Corporation tax paid.. -- (239,028) (5,500)
ACT paid.............. -- (221,639) --
----------------- ------------------ ------------------
-- (460,667) (5,500)
INVESTING ACTIVITIES
Deferred
consideration........ -- -- (154,086)
Payments to acquire
tangible fixed
assets............... (295,782) (1,093,675) (876,571)
Purchase of subsidiary
undertakings......... 18 -- (3,168,703) (2,105,523)
----------------- ------------------ ------------------
NET CASH OUTFLOW FROM
INVESTING ACTIVITIES... (295,782) (4,262,378) (3,136,180)
----------------- ------------------ ------------------
NET CASH OUTFLOW BEFORE
FINANCING.............. (882,975) (4,197,932) (1,175,819)
FINANCING
Issue of ordinary
share capital........ -- -- 10,000
Issue of A ordinary
share capital........ -- 50,000 --
Issue of cumulative
redeemable preference
shares............... 1,000,000 400,000 --
Secured loan repayable
within five years.... -- 4,000,000 1,000,000
Capital element of HP
hire purchase lease
payments............. (2,951) (2,942) (2,002)
----------------- ------------------ ------------------
NET CASH INFLOW FROM
FINANCING.............. 19 997,049 4,447,058 1,007,998
----------------- ------------------ ------------------
(DECREASE)/INCREASE IN
CASH................... 20 114,074 249,126 (167,821)
CASH AT 1 JANUARY....... 224,386 338,460 587,586
----------------- ------------------ ------------------
CASH AT 31 DECEMBER..... (Pounds) 338,460 (Pounds) 587,586 (Pounds) 419,765
================= ================== ==================
</TABLE>
5
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(In Pounds Sterling)
1 ACCOUNTING POLICIES
The financial statements have been prepared in pounds sterling under the
historical cost convention and in accordance with applicable accounting
standards. The principal accounting policies are set out below.
(1) Basis of consolidation
The group's financial statements consolidate the financial statements of
Xpedite Systems Limited and its subsidiaries. When businesses are acquired or
sold during the year, their results are included from or to the date on which
control passes.
(2) Turnover
Turnover represents the invoiced value of services provided in the year,
excluding Value Added Tax.
(3) Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation. The
cost of assets is written off in equal annual installments over estimated
useful lives, which are as follows:
<TABLE>
<S> <C>
Motor vehicles.................................................. 3 years
Computers, equipment and furniture.............................. 3 to 5 years
</TABLE>
(4) Foreign exchange
Transactions denominated in foreign currencies are converted into sterling
at the rates ruling at the transaction date. Assets and liabilities
denominated in foreign currencies are included in the balance sheet at the
rates prevailing at that date. Any translation differences arising are dealt
with in the profit and loss account.
(5) Lease and hire purchase arrangements
Assets held under hire purchase arrangements and their related obligations
are recorded at the value of the asset at inception. The amount by which
payments exceed the recorded liability are treated as finance charges and are
written off over the term of the hire purchase agreement so as to give a
constant rate of charge.
Rental costs under operating leases are charged to the profit and loss
account in the period in which they are incurred.
(6) Goodwill
Goodwill represents the difference between the value of a business acquired,
as represented by the consideration paid, and the fair value of the net assets
acquired and is written off to a goodwill reserve on consolidation.
(7) Taxation
The charge for taxation is based upon the results for the year and takes
into account deferred taxation, calculated on the liability method, which is
provided to the extent that the directors consider a liability will
crystallize in the foreseeable future.
6
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
2 INVESTMENTS IN SUBSIDIARIES
On 7 July 1995 the company acquired the whole of the issued ordinary share
capital of Transmit International Limited.
The aggregate book and fair values of the assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE TO GROUP
-------------------
<S> <C>
Tangible fixed assets................................... 390,548
Debtors................................................. 1,237,113
Cash.................................................... 354,695
Creditors (amounts falling due within one year)......... (1,849,895)
-----------------
Net assets acquired..................................... (Pounds) 132,461
=================
Consideration
Cash.................................................. 3,364,504
Cumulative redeemable A preference shares issued (Note
12).................................................. 1,074,274
Expenses of acquisitions.............................. 158,894
-----------------
4,597,672
Deferred consideration
Cash.................................................. 156,241
Cumulative redeemable A preference shares (Note 12)... 1,568,959
-----------------
1,725,200
-----------------
(Pounds)6,322,872
=================
Goodwill written off to reserves (Note 13).............. (Pounds)6,190,411
=================
</TABLE>
The following cumulative redeemable A preference shares were issued as fully
paid and cash payments made in satisfaction of the deferred consideration:
<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE
A PREFERENCE
CASH SHARES TOTAL
--------------- ----------------- -----------------
<S> <C> <C> <C>
12 January 1996.......... 90,900 909,900 1,000,800
15 February 1996......... 60,986 609,859 670,845
11 September 1996........ 2,200 50,000 52,200
--------------- ----------------- -----------------
(Pounds)154,086 (Pounds)1,569,759 (Pounds)1,723,845
=============== ================= =================
</TABLE>
The par value of the redeemable A preference shares was considered to be
equivalent to their fair market value at the date of question.
The total deferred consideration of (Pounds)1,723,845 when compared to the
original estimate of (Pounds)1,725,200 provided at 31 December 1995, resulted
in a downward revision of (Pounds)1,355 to goodwill in 1996. The level of
deferred consideration was based on sales levels for the six month period
ended 31 December 1995. These targets were substantially achieved.
7
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
2 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
The results of Transmit International Limited from 1 January 1995 to the
date of acquisition were as follows compared with its results for the previous
year:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
31 DECEMBER 1994 7 JULY 1995
---------------- ---------------
<S> <C> <C>
Turnover.................................. 3,472,499 2,558,838
Cost of sales............................. (1,939,758) (1,625,914)
--------------- ---------------
Gross profit.............................. 1,532,741 932,924
Other operating expenses.................. (762,110) (469,922)
--------------- ---------------
Operating profit.......................... 770,631 463,002
Interest.................................. 3,458 24,438
--------------- ---------------
Profit before taxation.................... 774,089 487,440
Taxation.................................. (239,028) (168,343)
--------------- ---------------
Profit after taxation..................... (Pounds)535,061 (Pounds)319,097
=============== ===============
</TABLE>
Transmit International Limited recognized no gains or losses other than the
profit for the periods.
On 15 March 1996 the company acquired the whole of the issued ordinary share
capital of Connaught Commercial Services Limited.
The aggregate book and fair values of the assets acquired were as follows:
<TABLE>
<CAPTION>
FAIR VALUE
BOOK VALUE ADJUSTMENTS TO GROUP
---------- ----------- -----------------
<S> <C> <C> <C>
Intangible fixed assets........... 2,676,550 (2,676,550) --
Debtors........................... 336,810 (18,618) 318,192
Creditors (amounts falling due
within one year)................. (324,348) -- (324,348)
--------- ---------- -----------------
Net liabilities acquired.......... 2,689,012 (2,695,168) (6,156)
Intangible assets held for sale... 1,152,150 -- 1,152,150
-----------------
Net assets acquired............... (Pounds)1,145,994
-----------------
Consideration:
Cash............................ 3,146,613
Expenses of acquisition......... 111,060
-----------------
(Pounds)3,257,673
-----------------
Goodwill written off to reserves
(Note 13)........................ (Pounds)2,111,679
-----------------
</TABLE>
On the day of acquisition of Connaught Commercial Services Limited, the
company sold intangible assets, representing customer lists for U.S.A. and
Germany based customers, at estimated book value to Xpedite Systems, Inc. and
Xpedite Systems GmbH for total cash consideration of (Pounds)1,152,150.
8
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
2 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
The results of Connaught Commercial Services Limited for the 26 weeks ended
13 March 1996, were as follows:
<TABLE>
<S> <C>
Turnover..................................................... 224,859
Cost of sales................................................ (173,356)
--------------
Gross profit................................................. 51,503
Other operating expenses..................................... (32,878)
--------------
Profit before taxation....................................... 18,625
Taxation..................................................... (6,156)
--------------
Profit after taxation........................................ (Pounds)12,469
==============
</TABLE>
The principal activity of the subsidiary undertakings was the provision of
fax broadcast services in the United Kingdom and both have ceased to trade in
the period since acquisition. The subsidiary undertakings are registered in
England.
3 OPERATING PROFIT/(LOSS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- ---------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Operating profit/(loss) is stated after
charging:
Rentals under operating leases
Plant and machinery...................... 41,382 54,071 57,147
Land and buildings....................... 33,011 73,965 86,675
Depreciation
Owned assets............................. 132,122 251,825 476,305
Assets held under hire purchase
contracts............................... 4,638 2,316 2,316
Auditors' remuneration....................... 5,000 12,000 12,000
Staff costs (Note 4)......................... 508,728 1,244,439 2,007,962
======= ========= =========
</TABLE>
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS
<TABLE>
<CAPTION>
1994 1995 1996
--------------- ----------------- -----------------
<S> <C> <C> <C>
Staff costs during the
year comprised:
Salaries (including
directors'
emoluments).......... 455,306 1,123,651 1,847,884
Social security
costs................ 53,422 120,788 160,078
--------------- ----------------- -----------------
(Pounds)508,728 (Pounds)1,244,439 (Pounds)2,007,962
=============== ================= =================
Remuneration of Chair-
man.................... (Pounds)Nil (Pounds)Nil (Pounds)Nil
=============== ================= =================
Remuneration of highest
paid director.......... (Pounds)74,656 (Pounds)225,183 (Pounds)73,888
=============== ================= =================
</TABLE>
No pension contributions are made in respect of directors.
The average number of persons employed by the group during the year was:
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER
------ ------ ------
<S> <C> <C> <C>
Sales................................................. 11 15 12
Administration........................................ 9 18 51
--- --- ---
20 33 63
=== === ===
</TABLE>
9
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
5 INTEREST PAYABLE
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Hire purchase interest..... 584 295 50
Interest on loans repayable
within five years......... -- 161,336 456,153
--------------- --------------- ---------------
(Pounds)584 (Pounds)161,631 (Pounds)456,203
=============== =============== ===============
6 TAXATION
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Current year corporation
tax at 33%................ -- 63,717 1,081,289
Prior years................ -- -- (186,917)
--------------- --------------- ---------------
(Pounds)-- (Pounds)63,717 (Pounds)894,372
=============== =============== ===============
The tax charges have been reduced due to the utilization of tax losses
brought forward from previous years.
7 APPROPRIATIONS IN RESPECT OF NONEQUITY SHARES
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cumulative redeemable pref-
erence share dividends
(Note 12)................. 141,829 224,020 237,500
Cumulative redeemable A
preference share
redemption premium (Note
12)....................... -- 91,166 435,365
--------------- --------------- ---------------
(Pounds)141,829 (Pounds)315,186 (Pounds)672,865
=============== =============== ===============
</TABLE>
10
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
COMPUTERS,
FREEHOLD MOTOR EQUIPMENT
PROPERTY VEHICLES AND FURNITURE TOTAL
-------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
COST
At 1 January 1995..... -- 11,595 812,235 823,830
Assets of acquired
business............. -- -- 659,342 659,342
Additions............. -- -- 1,093,675 1,093,675
Exceptional write
down................. -- -- (659,342) (659,342)
-------------- ------------- ----------------- -----------------
At 1 January 1996..... -- 11,595 1,905,910 1,917,505
Additions............. 90,000 -- 786,571 876,571
-------------- ------------- ----------------- -----------------
At 31 December 1996... 90,000 11,595 2,692,481 2,794,076
============== ============= ================= =================
DEPRECIATION
At 1 January 1995..... -- 5,797 190,887 196,684
Assets of acquired
business............. -- -- 268,794 268,794
Charge for the year... -- 2,316 251,825 254,141
Exceptional write
down................. -- -- (268,794) (268,794)
-------------- ------------- ----------------- -----------------
At 1 January 1996..... -- 8,113 442,712 450,825
Charge for the year... -- 2,316 476,305 478,621
-------------- ------------- ----------------- -----------------
At 31 December 1996... -- 10,429 919,017 929,446
============== ============= ================= =================
NET BOOK AMOUNT
At 31 December 1996... (Pounds)90,000 (Pounds)1,166 (Pounds)1,773,464 (Pounds)1,864,630
============== ============= ================= =================
At 31 December 1995... (Pounds)Nil (Pounds)3,482 (Pounds)1,463,198 (Pounds)1,466,680
============== ============= ================= =================
</TABLE>
The net book amount at 31 December 1996 includes no amount (1995
(Pounds)5,798) in respect of equipment held under hire purchase arrangements.
9 DEBTORS
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
<S> <C> <C>
Trade debtors........................... 2,435,896 4,294,176
Amounts owed by related parties (Note
21).................................... 378,750 304,373
Other debtors and prepayments........... 18,455 163,101
----------------- -----------------
(Pounds)2,833,101 (Pounds)4,761,650
================= =================
</TABLE>
10 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
<S> <C> <C>
Bank loan (Note 11)..................... 750,000 1,485,000
Hire purchase liabilities............... 2,002 --
Trade creditors......................... 1,686,357 1,533,210
Dividend payable........................ -- 603,349
Amounts owed to related parties (Note
21).................................... 804,642 243,299
Other creditors and accruals............ 450,714 96,120
Corporation tax......................... 10,322 905,349
Social security and other taxes......... 231,341 442,247
Deferred purchase consideration......... 156,241 --
----------------- -----------------
(Pounds)4,091,619 (Pounds)5,308,574
================= =================
</TABLE>
11
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
11 CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR)
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
<S> <C> <C>
Bank loan................................ (Pounds)3,250,000 (Pounds)3,515,000
================= =================
</TABLE>
The loan is wholly repayable within five years and is secured by a mortgage
over the assets of the company and its subsidiary undertakings. The bank loan
carries interest at a rate equal to 1.75% above LIBOR. The average interest
rate for 1996 was 8.6% and for 1995 was 8.5%.
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
<S> <C> <C>
Aggregate amounts repayable
Within one year........................ 750,000 1,485,000
Between one and two years.............. 750,000 1,515,000
Between two and five years............. 2,500,000 2,000,000
----------------- -----------------
(Pounds)4,000,000 (Pounds)5,000,000
================= =================
</TABLE>
12 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
NUMBER (Pounds) NUMBER (Pounds)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Authorized
Ordinary shares of (Pounds)1.. 83,333 83,333 83,333 83,333
A ordinary shares of
(Pounds)1.................... 250,000 250,000 250,000 250,000
Cumulative redeemable prefer-
ence shares of (Pounds)1..... 2,775,000 2,775,000 2,775,000 2,775,000
Cumulative redeemable A pref-
erence shares of (Pounds)1... 2,712,094 2,712,094 2,712,094 2,712,094
Cumulative redeemable B pref-
erence shares of (Pounds)1... 6,238,778 6,238,778 6,238,778 6,238,778
---------- ---------- ---------- ----------
12,059,205 12,059,205 12,059,205 12,059,205
========== ========== ========== ==========
Issued and fully paid
Ordinary shares of (Pounds)1.. 50,000 50,000 60,000 60,000
A ordinary shares of
(Pounds)1.................... 250,000 250,000 250,000 250,000
Cumulative redeemable prefer-
ence shares of (Pounds)1..... 2,375,000 2,375,000 2,375,000 2,375,000
Cumulative redeemable A pref-
erence shares of (Pounds)1... 1,074,274 1,074,274 2,644,033 2,644,033
Cumulative redeemable B pref-
erence shares of (Pounds)1... -- -- -- --
---------- ---------- ---------- ----------
3,749,274 3,749,274 5,329,033 5,329,033
========== ========== ========== ==========
</TABLE>
During the year ended 31 December 1995 the authorized numbers of ordinary
and A ordinary shares were increased to 83,333 and 250,000 respectively. Two
new classes of cumulative preference share were created during the year ended
31 December 1995.
During the year ended 31 December 1995 400,000 cumulative redeemable
preference shares and 50,000 A ordinary shares were issued at par to existing
shareholders. In addition 1,074,274 cumulative redeemable A preference shares
were issued to finance the acquisition of Transmit International Limited (Note
2).
12
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
12 CALLED UP SHARE CAPITAL (CONTINUED)
During the year ended 31 December 1996, 10,000 ordinary shares were issued
for cash at par and 1,569,759 cumulative redeemable A preference shares were
issued at par. The preference shares were issued as part of the consideration
for the acquisition of Transmit International Limited.
The A ordinary and ordinary shares have equal voting rights. None of the
cumulative redeemable preference shares have voting rights. The A and B
cumulative redeemable preference shares rank pari passu with the cumulative
redeemable preference shares for capital distribution purposes.
The A ordinary shares rank pari passu with the ordinary shares for dividend
and in priority to them for capital distribution purposes, but behind the
cumulative redeemable preference shares for both.
The cumulative redeemable A preference shares are redeemable at a premium
representing 17.5% of the paid up amount in issue per annum. The accumulated
premium at 31 December 1996 was (Pounds)526,531 (1995 (Pounds)91,166). The
shares are redeemable at the earlier of:
. a request from holders of these shares on the anniversary of the date of
issue
. an agreement being reached for the sale of the ordinary and A ordinary
shares
. 1 January 1998.
The cumulative redeemable B preference shares are entitled to receive a
dividend at the annual rate of 15% of the paid up amount. No cumulative
redeemable B preference shares have been issued. The cumulative redeemable A
preference share dividend is to be paid in priority to dividends on cumulative
redeemable B preference shares and both in priority to the dividends on
cumulative redeemable preference shares.
No dividends were payable in respect of the cumulative redeemable preference
shares in respect of accounting periods up to 31 December 1994. Subject to the
availability of sufficient distributable reserves, dividends are to be
declared payable in respect of subsequent years at the annual rate of 10% of
the paid up amount. The dividend amount in respect of 1996 was (Pounds)237,500
(1995 (Pounds)224,020, declared in 1996, (Pounds)141,824 declared in 1996).
Dividends are payable on redemptions of the shares. The cumulative redeemable
preference shares and redeemable preference shares are redeemable when
agreement is reached for sale of the ordinary and A ordinary shares.
13 RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS ACCOUNT GOODWILL WRITEOFF RESERVE
------------------------------------- --------------------------------------
1995 1996 1995 1996
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
At 1 January............ (1,306,279) (1,582,074) -- (6,190,411)
Profit/(loss) for the
financial year......... (590,981) 2,706,731 -- --
Goodwill written off
(Note 2)............... -- -- (6,190,411) (2,111,679)
Goodwill adjustment re
prior year acquisition
(Note 2)............... -- -- -- 1,355
Adjustment in respect of
premium on redemption
of preference shares... 91,166 435,365 -- --
Preference share
dividend (from prior
year declared)/not
declarable............. 224,020 (365,849) -- --
------------------ ----------------- ------------------ ------------------
At 31 December.......... (Pounds)(1,582,074) (Pounds)1,194,173 (Pounds)(6,190,411) (Pounds)(8,300,735)
================== ================= ================== ==================
</TABLE>
13
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
14 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1995 1996
--------------- ------------------ ------------------
<S> <C> <C> <C>
Profit/(loss) on ordi-
nary activity for the
year................... (743,047) (275,795) 3,379,596
Dividends declared on
cumulative redeemable
preference shares...... -- -- (603,349)
New unissued cumulative
redeemable A preference
shares................. -- 1,568,959 --
Adjustment to cumulative
redeemable A preference
shares................. -- -- 800
New share capital is-
sued................... 1,000,000 1,524,274 10,000
Adjustment to goodwill.. -- -- 1,355
Goodwill written off on
acquisition............ -- (6,190,411) (2,111,679)
--------------- ------------------ ------------------
Net addition
to/(reduction in)
shareholders' funds.... 256,953 (3,372,973) 676,723
Shareholders' funds at 1
January................ 661,768 918,721 (2,454,252)
--------------- ------------------ ------------------
Shareholders' funds at
31 December............ (Pounds)918,721 (Pounds)(2,454,252) (Pounds)(1,777,529)
=============== ================== ==================
</TABLE>
15 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
<S> <C> <C>
Authorized and contracted................ (Pounds)276,315 (Pounds)810,000
=============== ===============
</TABLE>
16 OPERATING LEASE COMMITMENTS
The group was committed to make the following payments in respect of
operating leases in the subsequent year:
<TABLE>
<CAPTION>
LAND AND BUILDINGS OTHER
----------------------------- -----------------------------
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Leases which expire:
Within less than two
years................ (Pounds)15,555 (Pounds) 8,128 (Pounds)23,833 (Pounds)16,230
Within two to five
years................ (Pounds)45,385 (Pounds)48,025 (Pounds) 7,620 (Pounds)13,752
============== ============== ============== ==============
</TABLE>
17 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO CASH INFLOW (OUTFLOW) FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1994 1995 1996
---------------- --------------- -----------------
<S> <C> <C> <C>
Operating
profit/(loss).......... (751,630) 314,391 4,717,517
Depreciation charge..... 136,760 254,141 478,621
Increase in debtors..... (257,196) (1,278,535) (1,610,357)
(Decrease)/increase in
creditors.............. 276,290 1,243,137 (1,049,504)
---------------- --------------- -----------------
Net cash
inflow/(outflow) from
operating activities... (Pounds)(595,776) (Pounds)533,134 (Pounds)2,536,277
================ =============== =================
</TABLE>
14
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
18 ANALYSIS OF OUTFLOW OF CASH IN RESPECT OF THE PURCHASE OF SUBSIDIARY
UNDERTAKINGS
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------------- -----------------
<S> <C> <C> <C>
Cash consideration paid... -- 3,364,504 3,146,613
Cash received on disposal
of intangible assets..... -- -- (1,152,150)
Cash balances acquired.... -- (354,695) --
Expenses.................. -- 158,894 111,060
----------- ----------------- -----------------
(Pounds)-- (Pounds)3,168,703 (Pounds)2,105,523
=========== ================= =================
</TABLE>
19 ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
LOAN AND HIRE
ISSUED PURCHASE LEASE
SHARE CAPITAL OBLIGATIONS
----------------- -----------------
<S> <C> <C>
At 1 January 1994...................... 1,225,000 7,395
Cash inflow from financing............. 1,000,000 (2,451)
----------------- -----------------
At 1 January 1995...................... 2,225,000 4,944
Cash inflow from financing............. 450,000 3,997,058
Shares issued for noncash considera-
tion.................................. 1,074,274 --
----------------- -----------------
At 1 January 1996...................... 3,749,274 4,002,002
Cash inflows from financing............ 10,000 997,998
Shares issued for noncash considera-
tion.................................. 1,569,759 --
----------------- -----------------
At 31 December 1996.................... (Pounds)5,329,033 (Pounds)5,000,000
================= =================
</TABLE>
20 RECONCILIATION OF CASHFLOW TO MOVEMENT IN CASH
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash balance............... (Pounds)338,460 (Pounds)587,586 (Pounds) 419,765
=============== =============== ================
Cash inflow/(outflow)...... (Pounds)114,074 (Pounds)249,126 (Pounds)(167,821)
=============== =============== ================
</TABLE>
21 RELATED PARTIES
Xpedite Systems Inc ("XSI") a US corporation, had, during the period of
these financial statements, an option to acquire, under certain conditions at
some future date, shares of the company. XSI has similar arrangements with a
French company, Xpedite Systems SA ("XSF") and with a German company Xpedite
Systems GmbH ("XSG") which are engaged in the same area of business as Xpedite
Systems Limited. Under the terms of a license agreement between the company
and XSI, royalty payments are made to XSI as a fixed percentage of sales less
communication costs. During the ordinary course of business the company has
entered into certain transactions with XSI, XSF and XSG which are summarized
below:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Sales by the group................... 224 568 889
=== === =====
Purchase of tangible fixed assets.... 139 935 609
=== === =====
Charges payable by the group, re-
flected in cost of sales............ 67 338 2,048
=== === =====
Proceeds from sale of intangible as-
sets................................ -- -- 1,152
=== === =====
</TABLE>
15
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
22 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES
These consolidated financial statements of the group have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP") which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("US GAAP"). The
effects of significant differences between UK GAAP and US GAAP, insofar as
they relate to the group, are as follows:
(a) Goodwill and other intangible assets
Under UK GAAP goodwill arising on consolidation may be written off directly
to reserves. Under US GAAP goodwill, representing the excess of consideration
paid over the fair value of the net assets of businesses acquired is
amortized, the estimated period of useful life, not to exceed 40 years. US
GAAP requires valuation of identifiable acquired intangible assets. For US
GAAP purposes the company, having evaluated their reasonable lives, is
amortizing goodwill and other acquired intangible assets arising on
acquisitions over a period of ten years. Goodwill is not an allowable charge
for taxation purposes in the United Kingdom.
For UK GAAP purposes, the company recorded fixed assets acquired in 1995 in
the acquisition of Transmit International Limited at book value which
approximated the fair value in use at the time of acquisition. The assets were
subsequently abandoned resulting in a loss for UK GAAP purposes of
(Pounds)390,548.
For US GAAP purposes, such assets have been accounted for as assets to be
disposed of at their disposed value of nil. Accordingly, for US GAAP purposes
the loss on disposal has been reversed with a corresponding increase in
goodwill.
(b) Deferred income taxes
Under UK GAAP, deferred income taxes are accounted for, in calculating the
effect of such difference in accounting policy, to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred income taxes are accounted for on
all temporary differences between the book and tax values of assets and
liabilities. A valuation allowance is established where it is more likely than
not that they will be realised.
The company has no significant deferred tax assets or liabilities, other
than net operating losses existing as of 31 December 1995 and 1994. Due to the
company's recurring losses, prior to 1996, at 31 December 1995 and 1994 the
company considered it more likely than not that the deferred tax asset arising
from the net operating losses would not be realized and established a
valuation allowance for the full amount of the deferred tax asset. Such net
operating loss was fully realized in 1996, however, giving rise to a tax
benefit in 1996 of (Pounds)386,000. Accordingly, there are no US GAAP
differences with respect to deferred taxes.
(c) Redeemable equity
Under UK GAAP, redeemable preference shares are included in shareholders'
funds with disclosure within the nonequity element. Under US GAAP, redeemable
preference shares do not form part of shareholders' equity.
16
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(In Pounds Sterling)
22 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
The effects on the group's reported results of the significant differences
between UK GAAP and US GAAP, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
-----------------------------------------------------
1994 1995 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Profit after taxation in
accordance with UK
GAAP................... (743,047) (275,795) 3,379,596
Adjustments:
Reclassification of
exceptional write
down of fixed assets
to goodwill.......... -- 390,548 --
Goodwill amortiza-
tion................. -- (320,934) (825,005)
---------------- ---------------- -----------------
Net income/(loss) in ac-
cordance with US GAAP.. (Pounds)(743,047) (Pounds)(206,181) (Pounds)2,554,591
================ ================ =================
</TABLE>
The effects on equity shareholders' funds of the significant differences
between UK GAAP and US GAAP are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
-----------------------------------
1995 1996
------------------ ---------------
<S> <C> <C>
Shareholders' equity:
Equity shareholders' fund in
accordance with UK GAAP deficit..... (2,454,252) (1,777,529)
Adjustments:
Redeemable preference shares......... (5,475,248) (5,545,364)
Goodwill............................. 6,260,025 7,546,698
------------------ ---------------
Shareholders' equity in accordance with
US GAAP............................... (Pounds)(1,669,475) (Pounds)223,605
================== ===============
</TABLE>
There are certain differences between the classification of cash flow items
between UK GAAP and US GAAP. Following is condensed cash flow information
prepared in accordance with US GAAP.
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flow from opera-
tions................... (587,193) 64,446 1,960,361
Cash flow from investing
activities.............. (295,782) (4,262,378) (3,136,180)
Cash flow from financing
activities.............. 997,049 4,447,058 1,007,998
--------------- --------------- ---------------
Net increase/(decrease)
in cash................. 114,074 249,126 (167,821)
Cash at beginning of
year.................... 224,386 338,460 587,586
--------------- --------------- ---------------
Cash at end of year...... (Pounds)338,460 (Pounds)587,586 (Pounds)419,765
=============== =============== ===============
</TABLE>
17
<PAGE>
INDEX TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Unaudited Profit and Loss Account for the nine months ended
September 30, 1997..................................................... 2
Consolidated Unaudited Balance Sheet, September 30, 1997................ 3
Consolidated Unaudited Cash Flow Statement for the nine months ended
September 30, 1997..................................................... 4
Notes to Consolidated Financial Statements.............................. 5
</TABLE>
1
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED UNAUDITED PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1997
(In Pounds Sterling)
<TABLE>
<CAPTION>
1996 1997
----------------- -----------------
<S> <C> <C>
TURNOVER
Continuing operations 11,761,012 14,811,912
Acquisitions 440,634 -
----------------- -----------------
12,201,646 14,811,912
Cost of sales (6,916,902) (6,926,236)
----------------- -----------------
GROSS PROFIT 5,284,744 8,885,676
Administrative expenses (2,052,921) (2,333,054)
----------------- -----------------
OPERATING PROFIT/(LOSS)
Continuing operations 3,298,038 6,552,622
Acquisitions (66,215) -
----------------- -----------------
3,231,623 6,552,622
Interest payable (net) (328,842) (161,782)
----------------- -----------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2,902,981 6,390,840
Tax on profit on ordinary activities (570,863) (1,936,879)
----------------- -----------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 2,332,118 4,453,961
Appropriations in respect of non-equity shares (498,377) (523,717)
----------------- -----------------
PROFIT FOR THE FINANCIAL PERIOD TRANSFERRED
TO RESERVES (Pounds)1,833,741 (Pounds)3,930,244
================= =================
</TABLE>
-2-
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED UNAUDITED BALANCE SHEET--30 SEPTEMBER 1997
(In Pounds Sterling)
<TABLE>
<CAPTION>
31 December 30 September
1996 1997
------------------ -----------------
<S> <C> <C>
FIXED ASSETS
Tangible fixed assets 1,864,630 2,903,051
------------------ -----------------
CURRENT ASSETS
Debtors 4,761,650 5,344,938
Cash 419,765 118,395
------------------ -----------------
5,181,416 5,463,333
CREDITORS (amounts falling due within one year) (5,308,574) (5,329,722)
------------------ -----------------
NET CURRENT (LIABILITIES)/ASSETS (127,159) 133,611
TOTAL ASSETS LESS CURRENT LIABILITIES 1,737,471 3,036,672
------------------ -----------------
CREDITORS (amounts falling due after more than
one year) (3,515,000) (620,000)
------------------ -----------------
(Pounds)(1,777,529) (Pounds)2,416,672
================== =================
CAPITAL AND RESERVES
Called up share capital 5,329,033 5,329,033
Profit and loss account 1,194,173 5,388,374
------------------ -----------------
6,523,206 10,717,407
Goodwill write-off reserve (8,300,735) (8,300,735)
------------------ -----------------
TOTAL SHAREHOLDERS' FUNDS (Pounds)(1,777,529) (Pounds)2,416,672
================== =================
</TABLE>
-3-
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED UNAUDITED CASH FLOW STATEMENT
FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1997
(In Pounds Sterling)
<TABLE>
<CAPTION>
Notes 1996 1997
----- --------------- ---------------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 2 883,277 6,690,555
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received 4,554 32,378
Interest paid (460,262) (195,294)
--------------- ---------------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (455,708) (162,916)
TAXATION
Corporation tax paid - (969,807)
--------------- ---------------
INVESTING ACTIVITIES
Deferred consideration (153,286) -
Payments to acquire tangible fixed assets (659,180) (1,479,202)
Purchase of subsidiary undertakings 3 (1,802,861) -
--------------- ---------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (2,615,327) (1,479,202)
--------------- ---------------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING (2,187,758) 4,078,630
FINANCING
Additional secured loan repayable within five years 2,000,000 -
Repayment of secured loan - (4,380,000)
Capital element of HP hire purchase lease payments (2,002) -
--------------- ---------------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING 4 1,997,998 (4,380,000)
--------------- ---------------
DECREASE IN CASH 5 (169,760) (301,370)
CASH AT 1 JANUARY 587,586 419,765
--------------- ---------------
CASH AT 30 September (Pounds)397,826 (Pounds)118,395
=============== ===============
</TABLE>
-4-
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(In Pounds Sterling)
1 BASIS OF PREPARATION
The unaudited consolidated financial statements for the nine months ended 30
September 1996 and 1997 have been prepared in pounds sterling in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"). See Note 5 for a summary of significant differences between UK GAAP
and accounting principles generally accepted in the United States of America
("US GAAP") as they relate to Xpedite Systems Limited and its subsidiary
undertakings (together the "group") to the extent such principles relate to
the presentation of abbreviated interim financial information. These
financial statements have been prepared in accordance with accounting
principles consistent with those applied in the preparation of the audited
financial statements for the three years ended 31 December 1996.
In the opinion of management, all adjustments considered necessary for a fair
presentation of results for the periods reported have been included. The
adjustments consist only of normal recurring adjustments. Operating results
for the nine months ended 30 September 1997 are not necessarily indicative of
the results that may be expected for the year ending 31 December 1997.
The bank loan carries interest at a rate 1.75% above LIBOR. The average rate
for the 1997 period was 9.2% and for the 1996 period 8.6%.
2 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITIES
1996 1997
--------------- -----------------
Operating profit 3,231,823 6,552,622
Depreciation charge 360,337 440,771
Increase in debtors (880,445) (583,288)
(Decrease)/increase in creditors (1,828,438) 280,450
--------------- -----------------
(Pounds)883,277 (Pounds)6,690,665
=============== =================
3 ANALYSIS OF OUTFLOW OF CASH IN RESPECT OF THE PURCHASE OF SUBSIDIARY
UNDERTAKINGS
1996 1997
----------------- -----------------
Cash consideration paid 2,955,011 -
Cash received on disposal of
intangible assets (1,152,150) -
----------------- -----------------
(Pounds)1,802,861 (Pounds)-
================= =================
-5-
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(In Pounds Sterling)
4 ANALYSIS OF CHANGES IN FINANCING
Loan and hire
Issued purchase lease
share capital obligations
----------------- ---------------
At 1 January 1997 5,329,033 5,000,000
Cash outflows from financing - (4,380,000)
----------------- ---------------
At 30 September 1997 (Pounds)5,329,033 (Pounds)620,000
================= ===============
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES
These consolidated financial statements of the group have been prepared in
accordance with accounting principles generally accepted in the United
Kingdom ("UK GAAP") which differ in certain significant respects from
accounting principles generally accepted in the United States of America ("US
GAAP"). The effects of significant differences between UK GAAP and US GAAP.
Insofar as they relate to the group, are as follows:
(a) Goodwill and other intangible assets
Under UK GAAP goodwill arising on consolidation may be written off
directly to reserves. Under US GAAP goodwill, representing the excess of
consideration paid over the fair value of the net tangible assets of
businesses acquired is amortised, over the estimated period of useful
life, not to exceed 40 years. US GAAP requires valuation of identifiable
acquired intangible assets. For US GAAP purposes the company, having
evaluated their reasonable lives, is amortising goodwill and other
acquired intangible assets arising on acquisitions over a period of ten
years. Goodwill is not an allowable charge for taxation purposes in the
United Kingdom.
(b) Deferred income taxes
Under UK GAAP, deferred income taxes are accounted for, in calculating
the effect of such difference in accounting policy, to the extent that it
is considered probable that a liability or asset will chrystallise in the
foreseeable future. Under US GAAP, deferred income taxes are accounted
for on all temporary differences between the book and tax values of
assets and liabilities and deferred tax assets are recognised, net of a
valuation allowance, where it is more likely than not that they will be
realised.
The company has no significant deferred tax assets or liabilities.
(c) Redeemable equity
Under UK GAAP, redeemable preference shares are included in shareholders'
funds with disclosure within the non-equity element. Under US GAAP,
redeemable preference shares do not form part of shareholders' equity.
-6-
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(In Pounds Sterling)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
The effects on net income of the significant differences between UK GAAP and
US GAAP are as follows:
Nine months ended 30 September
-------------------------------------
1996 1997
----------------- -----------------
Profit after taxation in accordance
with UK GAAP 2,332,118 4,453,961
Adjustments:
Goodwill amortisation (593,659) (851,948)
----------------- -----------------
Net income in accordance with US GAAP (Pounds)1,738,459 (Pounds)3,802,013
================= =================
The effects on shareholders' equity of the significant differences between UK
GAAP and US GAAP are as follows:
30 September 1997
-----------------
Shareholders' equity:
Shareholders' funds in accordance with UK GAAP 2,416,672
Adjustments:
Redeemable preference shares (5,891,644)
Goodwill 8,894,750
-----------------
Shareholders' equity in accordance with US GAAP (Pounds)3,419,778
=================
There are certain differences between the classification of cash flow items
between UK GAAP and US GAAP. Following is condensed cash flow information
prepared in accordance with US GAAP.
1996 1997
--------------- ---------------
Cash flow from operations 427,569 5,557,832
Cash flow from investing activities (2,616,327) (1,479,202)
Cash flow from financing activities 1,997,998 (4,380,000)
--------------- ---------------
Net decrease in cash (189,760) (301,370)
Cash at 1 January 587,586 419,765
--------------- ---------------
Cash at 30 September (Pounds)397,826 (Pounds)118,395
=============== ===============
-7-
<PAGE>
EXHIBIT 99.6
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information gives
effect to Premiere Technologies, Inc.'s ("Premiere" or the "Company")
contemplated merger (the "Merger") with Xpedite Systems, Inc. ("Xpedite") as
though such transaction occurred on January 1, 1994. The Company and Xpedite
entered into a definitive merger agreement on November 13, 1997. Under the terms
of the merger agreement, the Company will exchange its common shares for
Xpedite's using an exchange ratio which values Xpedite's shares at $34 per share
and the Company's shares at its average trading price for the 20 trading days
preceding the date on which Xpedite stockholders vote on the Merger. Except in
certain limited circumstances, the exchange ratio is subject to a maximum and
minimum ratio of the number of Company's shares to be issued for each share of
Xpedite's of 1.25 and .8675 per share, respectively. The pro forma unaudited
combined financial information reflect this transaction assuming an exchange
ratio of 1.25 shares of the Company's stock for each outstanding share of
Xpedite.
The unaudited pro forma condensed combined statement of operations also
gives effect to the contemplated acquisition (the "XSL Acquisition") by Xpedite
of Xpedite Systems Limited ("XSL"), its United Kingdom affiliate, as though such
transaction occurred effective January 1, 1996. The unaudited pro forma
condensed combined balance sheet also gives effect to the acquisition of XSL as
though the transaction occurred September 30, 1997. These companies entered into
a definitive agreement on August 8, 1997 under which Xpedite agreed to pay
approximately $87 million in cash to acquire XSL. The XSL Acquisition will be
accounted for under the purchase method of accounting. The historical financial
statements of XSL are presented herein on a basis consistent with generally
accepted accounting principles of the United States.
In addition, the unaudited pro forma condensed 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.
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 in
Xpedite, adjusted to equivalent shares of the Company for all periods presented.
Certain balance sheet and income statement amounts in the pro forma
financial information of Xpedite have been reclassified to conform with the
unaudited pro forma combined financial information presentation and disclosure
practices of Premiere.
The unaudited pro forma condensed 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 acquisitions of Xpedite and XSL occurred at the beginning of
the periods presented nor is it indicative of future financial position or
results of operations. The unaudited pro forma combined financial information is
based on the respective historical financial statements for Premiere, TeleT,
Xpedite and XSL and should be read in conjunction with the respective historical
financial statements incorporated by reference herein.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
XPEDITE
----------------------------------------------- PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA PREMIERE/ PREMIERE/
HISTORICAL ------------------- XSL XSL XPEDITE XPEDITE
PREMIERE XPEDITE XSL ACQUISITION ACQUISITION MERGER MERGER
---------- -------- -------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current Assets:
Cash, cash equivalents
and investments...................... $183,838 $ 3,857 $ 191 $ - $ 4,048 $ - $187,886
Accounts receivable.................... 14,142 29,711 8,635 (622)E 37,724 51,866
Deferred taxes, net.................... 14,146 1,904 - - 1,904 - 16,050
Prepaid expenses and other -
current assets....................... 9,053 3,715 - - 3,715 - 12,768
-------- ------- ------- ------- -------- ------- --------
Total current assets................... 221,179 39,187 8,826 (622) 47,391 - 268,570
-------- ------- ------- ------- -------- ------- --------
Property and equipment, net.............. 49,121 22,838 4,690 - 27,528 2,536 C 79,185
Deferred taxes, net...................... 7,535 1,880 - - 1,880 - 9,415
Strategic alliance contract
intangible, net........................ 28,898 - - - - 28,898
Goodwill................................. 17,488 9,686 11,139 66,401 F 88,114 - 105,602
888 G
Other assets............................. 26,674 20,326 - 3,000 H 27,000 (2,536)C 51,138
(981)I
4,655 J
-------- ------- ------- ------- -------- ------- --------
Total Assets:............................ $350,895 $93,917 $24,655 $73,341 $191,913 $ - $542,808
======== ======= ======= ======= ======== ======= ========
Liabilities and Shareholders' Equity:
Current liabilities:
Current portion of long term debt...... $ 7,157 $ 6,554 $ - $(6,050)K $ 504 $ - $ 7,661
Accounts payable & accrued expenses.... 49,252 25,835 8,610 (622)E 32,571 - 81,823
(1,252)K
Accrued restructuring and other
special charges...................... 33,855 - - - - 34,000 D 67,855
-------- ------- ------- ------- ------- ------- --------
Total current liabilities.............. 90,264 32,389 8,610 (7,924) 33,075 34,000 157,339
-------- ------- ------- ------- ------- ------- --------
Long term Liabilities:
Long term debt......................... 5,587 22,822 1,002 (22,500)K 91,406 96,993
(1,002)K
91,084 J
Payable to shareholders of
Xpedite Systems Limited.............. - - - 28,777 G 28,777 - 28,777
Convertible subordinated notes, net.... 167,107 - - - - - 167,107
Deferred taxes, net.................... - 3,591 - 930 L 4,521 - 4,521
Other accrued liabilities.............. 9,777 783 9,518 (9,518)K 783 - 10,560
-------- ------- ------- ------- ------- ------- --------
Total long-term liabilities............ 182,471 27,196 10,520 87,771 125,487 - 307,958
-------- ------- ------- ------- ------- ------- --------
Shareholders' Equity:
Common stock........................... 323 91 501 (501)M 91 23 A 437
Preferred stock........................ - - 8,108 (8,108)K - - -
Additional paid in capital............. 161,007 65,672 - - 65,672 (239)A 226,440
Treasury stock......................... - (216) - - (216) 216 A -
Cumulative translation adjustment...... 52 (1,321) - - (1,321) - (1,269)
Accumulated deficit.................... (83,222) (29,894) (3,084) 3,084 M (30,875) (34,000)D (148,097)
(981)I
-------- ------- ------- ------- ------- ------- --------
Total equity............................. 78,160 34,332 5,525 (6,506) 33,351 (34,000) 77,511
-------- ------- ------- ------- ------- ------- --------
Total liabilities and
shareholders' equity................... $350,895 $93,917 $24,655 $73,341 $191,913 $ - $542,808
======== ======= ======= ======= ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
UNAUDITED
(In thousands except per share amounts)
<TABLE>
<CAPTION>
XPEDITE
------------------------------------------------ PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA PREMIERE/ PREMIERE/
HISTORICAL -------------------- XSL XSL XPEDITE XPEDITE
PREMIERE XPEDITE XSL ACQUISITION ACQUISITION MERGER MERGER
--------- ---------- -------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $167,364 $122,383 $24,237 $(1,188)N $143,934 $ - $311,298
(1,498)O
Cost of services........................... 45,020 58,773 9,697 (1,188)N 65,819 (14,442)C 96,397
(1,463)O
-------- -------- ------- ------- -------- ------- --------
Gross margin............................... 122,344 63,610 14,540 (35) 78,115 14,442 214,901
Operating expenses: -------- -------- ------- ------- -------- ------- --------
Selling, general and administrative...... 78,367 38,449 3,096 - 41,545 13,774 C 133,686
Depreciation and amortization............ 12,822 7,390 1,789 281 P 10,184 668 C 23,674
403 Q
499 S
(178)R
Restructuring and other special charges.. 73,597 - - - - - 73,597
Accrued settlement costs................. 1,500 - - - - - 1,500
-------- -------- ------- ------- -------- ------- --------
Total operating expenses................. 166,286 45,839 4,885 1,005 51,729 14,442 232,457
-------- -------- ------- ------- -------- ------- --------
Operating income (loss).................... (43,942) 17,771 9,655 (1,040) 26,386 - (17,556)
Other income (expense):
Interest, net............................ (61) (1,839) (265) 2,447 S (7,376) - (7,437)
(7,719)R
Other, net............................... 186 56 - - 56 - 242
-------- -------- ------- ------- -------- ------- --------
Net income (loss) before income taxes...... (43,817) 15,988 9,390 (6,312) 19,066 - (24,751)
Provision (benefit) for income taxes....... (9,273) 6,393 3,169 (2,108)T 7,454 (1,819)
-------- -------- ------- ------- -------- ------- --------
Net income (loss).......................... $(34,544) $ 9,595 $ 6,221 $(4,204) $ 11,612 $ - $(22,932)
======== ======== ======= ======= ======== ======= ========
Net income (loss) attributable to common
shareholders for primary net income (loss)
per share................................ $(34,544) $ 9,595 $ 11,612 $(22,932)
======== ======== ======== ======= ========
Net income (loss) attributable to common
shareholders for primary net income (loss) per
share.................................... $ (1.10)(1)$ 1.03 $ 1.24 $ (0.54)(1)
======== ======== ======== ======= ========
Shares used in computing net income (loss)
per common and common equivalent shares
for primary.............................. 31,518 9,359 9,359 1,977 B 42,854
======== ======== ======== ======= =========
____________
(1) For the nine months ended September 30, 1997, net income (loss)per share was not
calculated under the modified treasury stock method as the results were
antidilutive. Accordingly, basic net income (loss) per share was used for the nine
months ended September 30, 1997.
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
UNAUDITED
(In thousands except per share amounts)
<TABLE>
<CAPTION>
PREMIERE XPEDITE
-------------------------------------------------- ----------------------
(1) (2) PRO FORMA HISTORICAL
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------------------
PREMIERE TELET TELET PREMIERE XPEDITE XSL
---------- ---------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................... $197,474 $ 251 $ - $197,725 $129,847 $25,599
Cost of services.............................. 55,601 - - 55,601 59,977 14,081
-------- ------ -------- -------- -------- -------
Gross margin.................................. 141,873 251 - 142,124 69,870 11,518
-------- ------ -------- -------- -------- -------
Operating expenses:
Selling, general and administrative......... 108,544 885 109,429 41,797 3,374
Depreciation and amortization............... 14,184 - 54 U 14,238 7,620 2,043
Write off of in-process research
and development costs..................... 11,030 - (11,030)V - - -
Accrued settlement costs.................... 1,250 - - 1,250 - -
-------- ------ -------- -------- -------- -------
Total operating expenses.................... 135,008 885 (10,976) 124,917 49,417 5,417
-------- ------ -------- -------- -------- -------
Operating income (loss)....................... 6,865 (634) 10,976 17,207 20,453 6,101
Other income (expense):
Interest, net............................... (1,690) - (112)W (1,802) (3,155) (696)
Other, net.................................. (286) (13) - (299) 254 -
-------- ------ -------- -------- -------- -------
Net income (loss) before income taxes......... 4,889 (647) 10,864 15,106 17,552 5,405
Provision (benefit) for income taxes.......... 1,372 (252) 4,236 X 5,356 7,119 1,401
-------- ------ -------- -------- -------- -------
Net income (loss)............................. $ 3,517 $ (395) $ 6,628 $ 9,750 $ 10,433 $ 4,004
======== ====== ======== ======== ======== =======
Net income attributable
to common shareholders for primary
net income per share........................ $ 3,488 (3) $ 9,721 $ 10,433
======== ======== ========
Net income attributable
to common shareholders for primary
net income per share........................ $ 0.12 (5) $ 0.33 (5)$ 1.20
======== ======== ========
Shares used in computing net income
per common and common equivalent
shares for primary.......................... 29,213 498 Y 29,711 8,716
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
XSL XSL PREMIERE/XPEDITE PREMIERE/XPEDITE
ACQUISITION ACQUISITION MERGER MERGER
------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Revenues...................................... $ (2,012)N $150,783 $ - $348,508
(2,651)O
Cost of services.............................. (2,012)N 69,940 (17,946)C 107,595
(2,106)O
-------- -------- -------- --------
Gross margin.................................. (545) 80,843 17,946 240,913
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative......... - 45,171 17,128 C 171,728
Depreciation and amortization............... 375 P 11,136 818 C 26,192
667 Q
665 R
(234)S
Write off of in-process research
and development costs..................... - - - -
Accrued settlement costs.................... - - - 1,250
-------- -------- -------- --------
Total operating expenses.................... 1,473 56,307 17,946 199,170
-------- -------- -------- --------
Operating income (loss)....................... (2,018) 24,536 - 41,743
Other income (expense):
Interest, net............................... 4,377 R (9,714) - (11,516)
(10,240)S
Other, net.................................. - 254 - (45)
-------- -------- -------- --------
Net income (loss) before income taxes......... (7,881) 15,076 - 30,182
Provision (benefit) for income taxes.......... (2,525)T 5,995 - 11,351
-------- -------- -------- --------
Net income (loss)............................. $ (5,356) $ 9,081 $ - $ 18,831
======== ======== ======== ========
Net income attributable
to common shareholders for primary
net income per share........................ $ 9,081 $ 18,802 (4)
======== ========
Net income attributable
to common shareholders for primary
net income per share......................... $ 1.04 $ 0.48 (6)
======== ========
Shares used in computing net income
per common and common equivalent
shares for primary.......................... 8,716 579 B 39,006
======== ======== ========
</TABLE>
- -----------------
(1) Excludes effect of extraordinary loss of $59, 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").
(3) Amount includes preferred dividends of $29 assumed under the modified
treasury stock method.
(4) Amount includes preferred dividends of $29.
(5) Fully diluted net income per share is antidilutive. Accordingly,
fully diluted net income per share is not presented.
(6) Net income per share was not calculated under the modified treasury stock
method as the results were antidilutive. Accordingly, basic net income per
share was used.
See Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
UNAUDITED
(In thousands except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL PREMIERE/XPEDITE PREMIERE/XPEDITE
PREMIERE XPEDITE MERGER MERGER
---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues.................................................. $147,543 $ 55,684 $ - $203,227
Cost of services.......................................... 43,868 21,602 (6,192)C 59,278
-------- -------- ------- --------
Gross margin.............................................. 103,675 34,082 6,192 143,949
-------- -------- ------- --------
Operating expenses:
Selling, general and administrative..................... 83,719 22,437 5,854 C 112,010
Depreciation and amortization........................... 10,453 2,724 338 C 13,515
Write off of in-process research and development costs.. - 53,000 - 53,000
Accrued settlement costs................................ 2,500 - - 2,500
-------- -------- ------- --------
Total operating expenses................................ 96,672 78,161 6,192 181,025
-------- -------- ------- --------
Operating income (loss)................................... 7,003 (44,079) - (37,076)
Other income (expense):
Interest, net........................................... (4,323) 234 - (4,089)
Other, net.............................................. 1,506 23 - 1,529
-------- -------- ------- --------
Net income (loss) before income taxes..................... 4,186 (43,822) - (39,636)
Provision for income taxes................................ 15 2,740 - 2,755
-------- -------- ------- --------
Net income (loss)......................................... $ 4,171 $(46,562) $ - $(42,391)
======== ======== ======= ========
Net income (loss) attributable to common
shareholders for primary net income per share........... $ 4,222 (1) $(46,562) $(42,699)(3)
======== ======== ========
Net income (loss) attributable to common
shareholders for fully diluted net income per share..... $ 4,541 (2) $ - $ - (4)
======== ======== ========
Net income (loss) per common and common equivalent shares
for primary shares...................................... $ 0.15 $ (6.67) $ (1.37)(4)
======== ======== ========
Net income (loss) per common and common equivalent shares
for fully diluted shares............................... $ 0.14 $ - $ - (4)
======== ======== ========
Shares used in computing net income (loss) per common and
common equivalent shares for primary.................... 28,718 6,982 4,087 B 31,204
======== ======== ======= ========
Shares used in computing net income (loss) per common and
common equivalent shares for fully diluted................ 31,814 - - (4)
======== ======== ========
- --------------------
(1) Amount includes preferred dividends of $308 and net interest expense reduction of $359 under the modified treasury stock
method.
(2) Amount includes interest expense reduction of $370 under the modified treasury
stock method.
(3) Amount includes preferred dividends of $308.
(4) Net income (loss) per share was not calculated under the modified treasury stock method as the results were antidilutive.
Accordingly, basic net income (loss) per share was used.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
</TABLE>
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
UNAUDITED
(In thousands except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
(2) ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL PREMIERE/XPEDITE PREMIERE/XPEDITE
PREMIERE XPEDITE MERGER MERGER
---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues...................................................... $119,136 $41,429 $ - $160,565
Cost of services.............................................. 33,907 16,992 (4,607)C 46,292
-------- ------- ------- --------
Gross margin.................................................. 85,229 24,437 4,607 114,273
-------- ------- ------- --------
Operating expenses:
Selling, general and administrative......................... 82,208 16,761 4,365 C 103,334
Depreciation and amortization............................... 9,598 1,432 242 C 11,272
Restructuring and other special charges..................... 6,655 - - 6,655
-------- ------- ------- --------
Total operating expenses.................................... 98,461 18,193 4,607 121,261
-------- ------- ------- --------
Operating income (loss)....................................... (13,232) 6,244 - (6,988)
Other income (expense):
Interest, net............................................... (4,386) 434 - (3,952)
Other, net.................................................. 245 - - 245
-------- ------- ------- --------
Net income (loss) before income taxes......................... (17,373) 6,678 - (10,695)
Provision (benefit) for income taxes.......................... (909) 1,950 - 1,041
-------- ------- ------- --------
Net income (loss)............................................. $(16,464) 4,728 - (11,736)
======== ======= ======= ========
Net income (loss) attributable to common
shareholders for primary net income (loss) per share........ $(16,784)(1) $4,728 $(12,056)(1)
======== ======= ========
Net income (loss) attributable to common
shareholders for primary net income (loss) per share........ $ (1.25)(3) $ .71 $ (0.49)(3)
======== ======= ========
Shares used in computing net income (loss)
per common and common equivalent shares for primary......... 13,468 6,600 4,736 B 24,804
======== ======= ======= ========
</TABLE>
- ------------
(1) Amount includes preferred dividends of $320.
(2) Excludes effect of extraordinary gain of $(945), net of tax effect.
(3) For the year ended December 31, 1994, net income (loss) per share was not
calculated under the modified treasury stock method as the results were
antidilutive. Accordingly, basic net income (loss) per share was used for
the year ended December 31, 1994.
See Notes to Unaudited Pro Forma Condensed Combined
Financial Statments.
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
Pro Forma Adjustments - The Merger
Pro Forma Adjustments have been made to:
(A) Reflect the issuance of shares of Premiere common stock in exchange for all
of the outstanding Xpedite common stock.
(B) Give effect to additional shares of Premiere common stock issued to Xpedite
stockholders in connection with the Merger as though such shares were
issued January 1, 1994.
(C) Conform Xpedite to accounting policies followed by Premiere.
(D) Reflect transaction expected and restructuring and related costs (including
severance costs, charges for asset impairment and closing certain
facilities) expected to be incurred in connection with the Premiere/Xpedite
merger. Such costs, which will be incurred by both Premiere and Xpedite,
are reflected as an increase in accumulated deficit and accrued liabilities
net of income tax effects. The amount reflects a current estimate based on
available information and may vary from the amounts ultimately incurred.
Pro Forma Adjustments - XSL Acquisition.
A preliminary allocation of the purchase price of XSL is presented in the pro
forma condensed combined financial statements. A final allocation of the
purchase price to the XSL assets acquired and liabilties assumed is dependent
upon certain valuations and studies which will be performed at a future date.
While management believes that consideration in excess of the historical book
value of XSL's assets and liabilities will be primarily comprised of goodwill,
such amount may be allocated to certain research and development projects and
other intangible assets. To the extent a portion of the purchase price is
allocated to research and development projects for which technological
feasibility has not been established, a charge, which may be material to the
combined operations of Premiere and Xpedite, will be recorded in a period
subsequent to the merger of these companies. Pro forma adjustments necessary to
reflect the XSL Acquisition as though such transaction occurred effective
January 1, 1996 have been made to:
(E) To eliminate amounts due from XSL to Xpedite.
(F) To record costs in excess of fair value of net assets of XSL.
(G) To record payment of $57 million cash consideration due at closing of the
XSL Acquisition, related fees and an obligation of approximately $30
million due six months after closing of the XSL Acquisition.
(H) To record the estimated fair value of XSL customer list.
(I) To eliminate debt issue costs on existing Xpedite debt.
(J) To record acquisition financing, refinancing of Xpedite's existing credit
facility and related debt issuance costs.
(K) To record refinancing of Xpedite's existing credit facility and the
elimination of existing XSL debt, preferred stock and related accrued
dividends which were not assumed.
(L) To record a deferred tax liability related to the difference in basis in
tax and financial reporting purposes for customer lists acquired from
XSL.
(M) To record the elimination of the existing common shareholders stock and
retained earnings of XSL as a result of the acquisition of XSL by Xpedite
which is accounted for under the purchase method of accounting.
(N) To eliminate telecommunications costs incurred by Xpedite and XSL
delivered on behalf of each.
(O) To eliminate system sales from the Xpedite to XSL and royalty revenue
from Xpedite charged to XSL.
(P) To record amortization related to the estimated fair value of the
customer list of XSL assuming an eight year useful life.
(Q) To record amortization of costs in excess of fair value of net assets
acquired of XSL assuming a 40 year useful life.
(R) To record interest and amortization of debt issuance costs related to the
acquistion financing and the refinancing of Xpedite's existing credit
facility.
(S) To eliminate historical interest expense and related amortization of debt
costs on existing Xpedite and XSL debt to be refinanced in connection with
the XSL Acquisition. The pro forma condensed combined statements of
operations do not include an extraordinary charge of approximately $1.0
million related to unamortized debt issue costs which will be written off
upon the repayment of existing indebtedness.
(T) To record the tax effect on all adjustments.
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:
(U) 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.
(V) Reverse the nonrecurring charge for in process research and development.
(W) Reflect reduction in interest income resulting from cash paid in
acquisition.
(X) Reflect income tax effect of pro forma adjustments.
(Y) Give effect to additional shares issued in connection with the acquisition
as though such shares were issued January 1, 1996.
<PAGE>
EXHIBIT 99.7
PREMIERE TECHNOLOGIES,INC.
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Premiere Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of PREMIERE
TECHNOLOGIES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31,
1995 and 1996 and the related consolidated statements of operations,
shareholders' (deficit) equity and cash flows for the years ended December 31,
1994, 1995 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Premiere
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for the years ended December
31, 1994, 1995 and 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 1, 1997
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.....................................................................$ 8,243 $ 15,936
Investments................................................................................... 3,516 67,334
Accounts receivable (less allowance for doubtful accounts of $967 and $1,371, respectively)... 12,937 14,604
Prepaid expenses and other.................................................................... 5,393 9,486
Deferred taxes, net........................................................................... 3,002 4,168
-------- --------
Total current assets........................................................................ 33,091 111,528
-------- --------
PROPERTY AND EQUIPMENT........................................................................... 66,910 89,563
Less: accumulated depreciation............................................................... (32,067) (42,707)
-------- --------
Net property and equipment.................................................................. 34,843 46,856
-------- --------
OTHER ASSETS:
Deferred taxes, net........................................................................... 614 5,346
Strategic alliance contract intangible, net (Note 2).......................................... - 29,814
Other......................................................................................... 9,583 7,997
-------- --------
$ 78,131 $201,541
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..............................................................................$ 11,171 $ 16,785
Accrued sales taxes........................................................................... 7,538 9,652
Other accrued liabilities..................................................................... 15,233 20,085
Current maturities of long-term debt.......................................................... 11,881 16,167
Current portion of capital lease obligations.................................................. 3,361 3,819
-------- --------
Total current liabilities................................................................... 49,184 66,508
-------- --------
LONG-TERM LIABILITIES:
Long-term debt................................................................................ 26,759 19,994
Obligations under capital leases.............................................................. 10,649 7,449
Other accrued liabilities..................................................................... 3,178 3,057
-------- --------
Total long-term liabilities................................................................. 40,586 30,500
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY
Series A convertible redeemable 8% cumulative preferred stock, $.01 par value; 5,000,000
shares authorized, 128,983 and 0 shares issued and outstanding, respectively, converted
to common stock............................................................................. 3,907 -
Common stock, $.01 par value; 150,000,000 shares authorized, 19,867,832 and 31,645,386
shares issued and outstanding, respectively................................................. 198 316
Additional paid-in-capital.................................................................... 29,146 147,029
Subscriptions receivable...................................................................... (2,437) -
Stock warrants outstanding.................................................................... 244 -
Accumulated deficit........................................................................... (42,697) (42,812)
-------- --------
Total shareholders' equity.................................................................. (11,639) 104,533
-------- --------
$ 78,131 $201,541
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
-3-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:........................................... $119,136 $147,543 $197,474
COST OF SERVICES:................................... 33,907 43,868 55,601
-------- -------- --------
GROSS MARGIN........................................ 85,229 103,675 141,873
-------- -------- --------
OPERATING EXPENSES:
Selling, genral and administrative................ 82,208 83,719 108,544
Depreciation and amortization..................... 9,598 10,453 14,184
Charge for purchased research and development..... - - 11,030
Restructuring and other special charges (Note 13). 6,655 - -
Accrued settlement costs.......................... - 2,500 1,250
-------- -------- --------
Total operating expenses........................ 98,461 96,672 135,008
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income................................... 272 489 2,808
Interest expense.................................. (4,658) (4,812) (4,498)
Gain on contract termination (Note 6)............. - 1,193 -
Other, net........................................ 245 313 (286)
-------- -------- --------
Total other income (expense).................... (4,141) (2,817) (1,976)
-------- -------- --------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY (GAIN) LOSS............... (17,373) 4,186 4,889
PROVISION FOR (BENEFIT FROM) INCOME
TAXES............................................. (909) 15 1,372
-------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY (GAIN)
LOSS.............................................. (16,464) 4,171 3,517
EXTRAORDINARY (GAIN) LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF TAX EFFECT OF $598,0,($37) (Note 6)........ (945) - 59
-------- -------- --------
NET INCOME (LOSS)................................... (15,519) 4,171 3,458
PREFERRED STOCK DIVIDENDS........................... 320 308 29
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS............................... $(15,839) $3,863 $3,429
======== ======== ========
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON SHAREHOLDERS FOR:
Primary net income (loss) per share............... $(15,839) $ 4,222 $ 3,429
======== ======== ========
Fully diluted net income (loss) per share......... $ - $ 4,541 $ -
======== ======== ========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARES:
Primary........................................... $ (1.18) $ 0.15 $ 0.12
======== ======== ========
Fully Diluted..................................... $ - $ 0.14 $ -
======== ======== ========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON AND COMMON EQUIVALENT
SHARES (in thousands):
Primary........................................... 13,468 28,718 29,213
======== ======== ========
Fully Diluted..................................... - 31,814 -
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-4-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
SERIES A
(FORMERLY TOTAL
SERIES 1994) ADDITIONAL STOCK SHAREHOLDERS'
PREFERRED COMMON PAID-IN- SUBSCRIPTIONS WARRANTS ACCUMULATED (DEFICIT)
STOCK STOCK CAPITAL RECEIVABLE OUTSTANDING DEFICIT EQUITY
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........$ 849 $100 $ 24,537 $ (120) $ 159 $(27,099) $(1,574)
Issuance of stock warrants........ - - - - 85 - 85
Issuance of Series A (formerly
Series 1994) preferred stock,
net of related offering
expenses of $93,500............. 3,907 - - - - - 3,907
Conversion of Series A preferred
stock........................... (849) 16 833 - - - -
Conversion of subordinated
convertible debentures.......... - 18 747 - - - 765
Subscriptions receivable
payments received............... - - - 45 - - 45
Exercise of stock options......... - - 48 - - - 48
Other equity transactions......... - - (2,119) - - (340) (2,459)
Shareholder distributions,
primarily S-corporation
distributions (Note 8).......... - - - - - (2,111) (2,111)
Net loss.......................... - - - - - (15,519) (15,519)
------- ---- -------- ------- ----- -------- -------
BALANCE, December 31, 1994........$ 3,907 $134 $ 24,046 $ (75) $ 244 $(45,069) $(16,813)
Subscriptions receivable
on loans to shareholders........ - 56 2,306 (2,362) - - -
Exercise of stock options......... - 8 362 - - - 370
Income tax benefit from
exercise of stock options....... - - 2,622 - - - 2,622
Other equity transactions......... - - (190) - - (319) (509)
Shareholder distributions,
primarily S-corporation
distributions (Note 8).......... - - - - - (1,480) (1,480)
Net Income........................ - - - - - 4,171 4,171
------- ---- -------- ------- ----- -------- -------
BALANCE, December 31, 1995........$ 3,907 $198 $ 29,146 $(2,437) $ 244 $(42,697) $(11,639)
Conversion of Series A
Preferred Stock to common
stock........................... (3,907) 31 3,876 - - - -
Conversion of stock warrants
to common stock................. - 6 238 - (244) - -
Subscriptions receivable on
loans to shareholders........... - - - 2,437 - - 2,437
Issuance of common stock:
Initial public offering......... - 46 74,571 - - - 74,617
TeleT Communications LLC........ - 5 7,495 - - - 7,500
Strategic alliance contract
Intangible...................... - 21 25,174 - - - 25,195
Income tax benefit from
exercise of stock options....... - - 6,886 - - - 6,886
Exercise of stock options......... - 9 311 - - - 320
Other equity transactions......... - - (668) - - (23) (691)
Shareholder distributions,
primarily S-corporation
distributions (Note 8).......... - - - - - (3,550) (3,550)
Net income........................ - - - - - 3,458 3,458
------- ---- -------- ------- ----- -------- -------
BALANCE, December 31, 1996........$ - $316 $147,029 $ - $ - $(42,812) $104,533
======= ==== ======== ======= ===== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-5-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................... $(15,519) $ 4,171 $ 3,458
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization................................ 9,598 10,453 14,184
Amortizaton of note discount................................. 11 47 9
Restructuring and other special charges...................... 6,655 - -
Charge for purchased research and development................ - - 11,030
Gain on sale of assets....................................... 7 17 13
(Benefit from) provision for income taxes.................... (909) 15 1,372
(Gain) loss on early extinguishment of debt.................. (1,543) - 97
Changes in assets and liabilities:
Accounts receivable, net.................................. (2,039) (3,696) (1,668)
Prepaid expenses and other................................ 1,084 (5,314) (2,525)
Accounts payable.......................................... 5,530 1,368 5,514
Accrued expenses.......................................... 4,219 6,498 5,405
-------- -------- --------
Total adjustments...................................... 22,613 9,388 33,431
-------- -------- --------
Net cash provided by operating activities.............. 7,094 13,559 36,889
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments, net.................................... (4,937) (1,655) (67,182)
Purchase of property and equipment, net......................... (13,252) (12,183) (21,905)
Acquisition of TeleT Communications LLC......................... - - (2,870)
Strategic alliance contract intangible.......................... (24) - (4,777)
Increase in accrued construction costs.......................... - 884 562
Due from related parties, net................................... - (232) 60
-------- -------- --------
Net cash used in investing activities.................. (18,213) (13,186) (96,112)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net.................. 3,907 - -
Proceeds from issuance of common stock, net..................... - - 74,617
Proceeds from payment of subscriptions receivable............... 45 - 2,437
Proceeds from exercise of stock options......................... - 358 317
Shareholder distributions, primarily S-corporation distributions (2,111) (1,480) (3,550)
Other equity transactions....................................... (2,073) (205) (1,343)
Principal payments under borrowing arrangements................. (16,752) (8,571) (7,547)
Proceeds from issuance of debt.................................. 26,837 13,421 3,985
Early extinguishment of debt.................................... - - (2,000)
-------- -------- --------
Net cash provided by financing activities.............. 9,853 3,523 66,916
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................................... (1,266) 3,896 7,693
CASH AND CASH EQUIVALENTS, beginning of period.................... 5,613 4,347 8,243
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 4,347 $ 8,243 $ 15,936
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.......................................... $ 3,526 $ 4,570 $ 4,516
Yield enhancement fee........................................... $ 1,250 - -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Stock issued for subscriptions receivable....................... - $ 2,362 -
Equity issued for TeleT Communications LLC...................... - - $ 7,500
Equity issued for strategic alliance contract intangible........ - - $ 25,195
NONCASH TRANSACTIONS:
Assets acquired with TeleT Communicatons LLC acquistion......... - - $ 627
Liabilities assumed with TeleT Communications LLC acquisition... - - $ 100
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND NATURE OF BUSINESS
Premiere Technologies, Inc. (the "Company" or "Premiere") was incorporated
in Florida in July 1991. On December 18, 1995, Premiere merged into a wholly
owned Georgia subsidiary in order to effect a reincorporation from Florida to
Georgia (the "Reincorporation Merger"). The Company's principal business
operations are carried out primarily through its wholly owned subsidiaries,
Premiere Communications, Inc. ("PCI" or "Premiere Communications"), which was
organized in October 1991 and began operations in January 1992; Voice-Tel
Enterprises, Inc. ("VTE"); and VoiceCom Holdings, Inc. ("VoiceCom"). Through
Premiere Communications, the Company provides a comprehensive, integrated suite
of information and telecommunications services to a wide range of users. The
Company delivers its services through its computer telephony platform, which
provides users with a single, user-friendly point of access to the Company's
services. The platform is accessible from virtually any telephone in the world
and is also designed to communicate with PCs, facsimile machines and pagers. The
Company's proprietary software, together with the modular and scalable
architecture and open-systems design of the platform, enables the Company to
customize its services at the individual subscriber level and to easily expand
system capacity.
During the third quarter of 1997, the Company acquired VoiceCom Holdings,
Inc. ("VoiceCom"), a provider of voice messaging, interactive voice response and
other enhanced communications services. This transaction has been accounted for
as a pooling-of-interests and the Company's financial statements have been
restated for all periods presented to include VoiceCom. In connection with the
acquisition, the Company issued approximately 446,000 shares of its common
stock. See Note 3--Acquisitions.
On June 12, 1997, the Company announced the completion of the previously
announced acquisitions of Voice-Tel Enterprises, Inc. ("VTE"), its affiliate
Voice-Tel Network Limited Partnership ("VTNLP"), VTN, Inc. ("VTN"),the general
partner of VTNLP, and substantially all of the approximately 100 independently
owned and operated Voice-Tel franchise businesses (the "Franchisees"). The
acquisitions of VTE, VTNLP, VTN, and the Franchisees are sometimes referred to
collectively as the "Voice-Tel Acquisitions." See Note 3 - Acquisitions.
The Voice-Tel Acquisitions provide interactive digital voice and data
messaging products on a service bureau basis through approximately 200 service
centers in the United States, Puerto Rico, Canada, Australia and New Zealand,
reaching approximately 90% of the United States and 100% of the Canadian,
Australian and New Zealand populations with local access. VTNLP, an affiliate of
VTE acquired by the Company, owns and leases various components of and operates
a digital frame relay network that connects and provides message transmission
capabilities to and from the local voice messaging centers.
The Company acquired substantially all of the assets and business
operations of TeleT Communications LLC ("TeleT") on September 18, 1996 through
its wholly owned subsidiary, PTEK Acquisition Corporation (the "Sub"), which was
formed in 1996. The Sub was subsequently merged into Premiere Communications on
December 31, 1996. Additionally, on November 13, 1996, the Company acquired all
of the outstanding shares of EBIS Communications, Inc. that it did not already
own. See Note 3 - Acquisitions.
The Company issued 4,570,000 shares of its $0.01 par value common stock in
an initial public offering in March 1996. Proceeds to the Company, net of the
underwriting discount and expenses of the offering, were $74.6 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PRESENTATION
The consolidated financial statements of the Company have been prepared to
give retroactive effect to the acquisitions of VoiceCom, VTE, VTN and the
Franchisees which qualified for pooling-of-interests treatment under GAAP. The
accompanying consolidated statements of Premiere Technologies, Inc. and
subsidiaries do not extend through the dates of consumation. However, as
required under SEC rules and interpretations and GAAP, the financial statements
have been retroactively restated.
Certain prior years' data presented in the consolidated financial
statements have been reclassified to conform with the current year presentation.
The Company declared a 24-to-1 stock split through the declaration of a stock
dividend for each share of common stock outstanding on December 18, 1995. All
references to the number of common shares and per share amounts have been
restated to reflect the effect of the split.
In connection with the Reincorporation Merger, the designation of the
Series 1994 preferred stock was changed to Series A preferred stock.
-7-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, cash and cash equivalents include cash
on hand and highly liquid money market investments. See Note 11 of Notes to
Consolidated Financial Statements for property purchased under capital leases.
INVESTMENTS
The Company follows the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for debt and equity
securities at the time of purchase and a reevaluation of such designation as of
each balance sheet date. At December 31, 1995 and 1996, investments consisted of
commercial paper, United States Treasury bills with maturities within 90 days,
municipal bonds, coupon municipals, auction rate preferred investments with
various maturities and other equity instruments. Management considers all debt
instruments as "held to maturity" and all equity instruments as "available for
sale." Debt instruments are carried at cost, and equity instruments are carried
at the lower of cost or market. As cost approximates market, there were no
unrealized gains or losses at December 31, 1995 or 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is provided
for using the straight-line method over the estimated useful lives of the
assets, commencing when the assets are placed in service. The estimated useful
lives are ten years for furniture and fixtures, seven years for office equipment
and five years for computer equipment. The cost of installed equipment includes
expenditures for installation. Assets recorded under capital leases and
leasehold improvements are depreciated over the shorter of their useful lives or
the term of the related lease. Accrued construction costs consist of payables
and accruals related to property, equipment and leasehold improvements under
construction.
DEFERRED CHARGES
The Company has capitalized costs related to the development of proprietary
software which is licensed to customers and which is used internally for
processing communications card calls. All costs in the software development
process that are classified as research and development are expensed as incurred
until technological feasibility has been established. Once technological
feasibility has been established, such costs are considered for capitalization.
The Company's policy is to amortize capitalized software costs by the greater of
(a) the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining estimated life of the product, including
the period being reported on. Additionally, as part of the TeleT acquisition,
the Company recorded software development costs for technologically feasible in-
process research and development. The valuation of this acquired developed
software was $500,000 as of the date of the acquisition, based on an independent
appraisal. The total accumulated amortization for all capitalized software
development was $109,652 and $180,536 at December 31, 1995 and 1996,
respectively.
-8-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LONG-LIVED ASSETS
In 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The effect of adopting SFAS No. 121 was not material.
The Company periodically reviews the values assigned to long-lived assets,
such as property and equipment, software costs and intangibles, to determine
whether any impairments are other than temporary. Management believes that the
long-lived assets in the accompanying balance sheets are appropriately valued.
In November 1996, the Company entered into a strategic alliance agreement
with WorldCom, the fourth largest long-distance carrier in the United States, in
which WorldCom is required, among other things, to provide the Company with the
right of first opportunity to provide enhanced computer telephony services for a
period of at least 25 years. In connection with this agreement, the Company
issued to WorldCom 2,050,000 shares of common stock valued at approximately
$25.2 million (based on an independent appraisal) and paid WorldCom $4.7
million in cash. As required by SFAS No. 121, this intangible has been reviewed
for possible impairment based on events or changes in circumstances that
indicate the carrying value may not be recoverable. Based on such review,
management believes that this intangible asset is appropriately valued. This
intangible will be reviewed periodically, and there can be no assurance that
future reviews will not require a write-down of this asset.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees." Effective in 1995, the Company adopted the disclosure option of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
that companies which do not choose to account for stock-based compensation as
prescribed by the statement shall disclose the pro forma effects on earnings and
earnings per share as if SFAS No. 123 had been adopted. Additionally, certain
other disclosures are required with respect to stock compensation and the
assumptions used to determine the pro forma effects of SFAS No. 123. See
Note 9 -Stock Options, Warrants and Benefit Plans.
REVENUE RECOGNITION
The Company recognizes revenues when services are provided. Subscriber
services revenues consist of services related to the Company's communications
cards, including Premiere WorldLink, AFCOM and co-branded cards and voice
messaging services. Subscriber services revenues from communications cards are
based primarily on per minute charges. Subscriber services revenues from voice
messaging services include service initiation fees, monthly voice mailbox fees
and usage fees. License fees represent charges to companies which have license
relationships with the Company for the use of the Company's computer telephony
platform. License fees are contracted on a long-term basis with each licensee
and are generally based on a per minute charge and, in certain circumstances, a
per service charge.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." In accordance with this statement, deferred income taxes are
recorded using enacted tax laws and rates for the years in which the taxes are
expected to be paid. Deferred income taxes are provided for items when there is
a temporary difference in recording such items for financial reporting and
income tax reporting. See Note 12 - Income Taxes.
Many of the Franchisees included herein that were acquired in conjunction
with the pooling-of-interests transactions discussed in Notes 1 and 3 were
either S Corporations or partnerships. In accordance with SFAS No. 109 and APB
No. 16, no tax provision relating to these entities has been included in the
accompanying financial statements as these Franchisees would not have recorded a
provision had they been stand-alone entities.
-9-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRO FORMA NET INCOME (LOSS) PER SHARE
Primary net income (loss) per share is computed under the modified treasury
stock method using the weighted average number of shares of common stock and
dilutive common stock equivalent shares ("CSEs") from stock options outstanding
during the period at the weighted average market value of stock prices during
the period. For periods prior to the Company's initial public offering, earnings
per share were calculated pursuant to Securities and Exchange Commission Staff
Accounting Bulletins. Under the modified treasury stock method, proceeds from
the exercise of CSEs consist of the exercise price of the CSEs, as well as the
related income tax benefit to the Company. CSE proceeds are assumed to be
applied first to repurchase up to 20% of the Company's common stock and then to
repay outstanding long-term indebtedness. Any remaining CSE proceeds are assumed
to be invested in United States government securities.
In determining the Company's primary net income (loss) per share under the
modified treasury stock method, net income (loss) per share applicable to common
shareholders has been adjusted on a pro forma basis to reflect the decrease in
interest expense related to a capitalized lease obligation and to notes payable
outstanding during the period. To the extent that excess proceeds from the
assumed exercise of outstanding options and tax benefits from the assumed
exercise were in excess of the capitalized lease obligation and the notes
payable, an increase in interest income related to the investment of such excess
proceeds in United States government securities is reflected in adjusted net
income per share applicable to common shareholders. The pro forma net interest
adjustment to primary net income (loss) per share under the modified treasury
stock method was approximately $359,000 for the year ended December 31, 1995.
For the year ended December 31, 1994, net income (loss) per share were not
calculated under the modified treasury stock method as the results were
antidilutive. Accordingly, basic net income (loss) per share was used for the
year ended December 31, 1994.
Fully diluted net income per common and common equivalent shares is
computed by including convertible instruments which are not CSEs in the weighted
average per share calculation (using the modified treasury stock method) at
period-end market value of stock prices. To the extent that the convertible
securities are antidilutive, they are not included in the fully diluted net
income (loss) per common and common equivalent shares. To the extent that
period-end market value of stock prices is less than the average market value
for the period, then the average market value is used for fully diluted net
income (loss) per common and common equivalent shares. For all periods presented
except the year ended December 31, 1995, the fully diluted calculation is
antidilutive. Accordingly, fully diluted net income (loss) per share data is
only presented for the year ended December 31, 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 ("SFAS 128"), Earnings Per Share, which is effective for fiscal
years ending after December 15, 1997. Early adoption is not permitted. SFAS 128
may significantly change reported net income per share for companies with
complex capital structures, such as the Company, as compared to the modified
treasury stock method. The pro forma effect of giving treatment to SFAS 128 is
as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 December 31, 1996
----------------------------------------------------------------------------
Historical Pro forma Historical Pro forma Historical Pro forma
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic or primary as applicable $(1.18) $(1.18) $0.15 $0.19 $0.12 $0.12
Diluted (1) $ -- $ -- $0.14 $0.14 $ -- $ --
</TABLE>
- -----------
(1) Diluted net income per share is not presented where antidilutive.
In addition, during 1997 the FASB has issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Company does not believe that these
statements will significantly change its financial statement disclosures.
REGULATION
The Company is subject to regulation by the FCC and by various state public
service and public utility commissions. As an international presence is
established, the Company will be subject to regulation by various other
regulatory agencies.
SOURCE OF SUPPLIES
The Company does not own a transmission network and, accordingly, relies on
both facilities-based and nonfacilities-based long-distance carriers and other
companies to provide transmission of its subscribers' long-distance calls.
Although management feels that alternative telecommunications facilities could
be found in a timely manner, disruption of these services for more than a brief
period would have an adverse effect on operating results. During 1995 and 1996,
certain carriers utilized by the Company experienced regional network outages.
The effect of these outages on the Company was not material.
-10-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DEPENDENCE ON CONTRACTUAL RELATIONSHIPS
The Company has licensing relationships with companies that have chosen to
outsource part or all of their communications card services to Premiere.
License fees accounted for approximately 4.0% and 7.0% of Premiere's 1995 and
1996 revenues, respectively. One licensee, Communications Network Corporation
("CNC"), accounted for approximately 25.3% of Premiere's year ended 1995 license
fees and approximately .9% of the Company's total 1995 revenues. CNC accounted
for approximately 19.6% of Premiere's 1996 license fees and approximately 1.4%
of the Company's total 1996 revenues. On August 6, 1996, CNC was placed into
bankruptcy under Chapter 11 of the Bankruptcy Code. CNC owed the Company
approximately $627,000 as of December 31, 1996. However, CNC's transmission
provider, WorldCom Network Services, d/b/a WilTel ("WilTel"), is also obligated
to pay this amount to the Company. In addition, WorldCom accounted for
approximately 43.5% of the Company's 1996 license fees and approximately 3.0%
of the Company's total 1996 revenues.
The Company intends to increase its number of licensees and its licensee
transaction volume in the future. The Company's success depends in part upon the
ultimate success or failure of its licensees. The telecommunications industry is
intensely competitive and rapidly consolidating. The majority of companies that
have chosen to outsource communications card services to Premiere are small or
medium-sized telecommunications companies that may be unable to withstand the
intense competition in the telecommunications industry. During the past 12
months, one licensee, in addition to CNC, ceased doing business with the Company
primarily due to financial difficulties. Licensees that ceased doing business
with the Company due to financial difficulties contributed in the aggregate
approximately $2.9 million of Premiere's 1996 revenues. Although the Company was
able to add new licensees in 1996, there can be no assurance that the failure of
one or more of the Company's licensees to develop and sustain a market for the
Company's services, or termination of one or more of the Company's licensing
relationships, will not have a material adverse effect on the Company's
business, operating results or financial condition.
Historically, the businesses acquired in the Voice-Tel Acquisitions have
relied on sales through Amway for a substantial portion of their revenue. Such
sales accounted for approximately 27.5% and 23.7% of the Company's revenue for
1995 and 1996, respectively. Although Amway has indicated a desire to continue
to use the Company for its voice messaging services following the Voice-Tel
Acquisitions, there is no assurance that the relationship will continue at
historical levels or at all, nor is there any assurance of long term price
protection for services provided to Amway. Loss or natural diminution in the
Amway relationship, or a decrease in average sales price without an offsetting
increase in volume, could have a material adverse effect on the results of
operation and financial condition of the Company.
DEPENDENCE ON SWITCHING FACILITIES AND COMPUTER TELEPHONY PLATFORMS AND FRAME
RELAY NETWORK; DAMAGE, FAILURE AND DOWNTIME
The Company currently maintains switching facilities and computer telephony
platforms in Atlanta, Georgia, Dallas, Texas, and London, England. The Company's
network service operations are dependent upon its ability to protect the
equipment and data at its switching facilities against damage that may be caused
by fire, power loss, technical failures, unauthorized intrusion, natural
disasters, sabotage and other similar events. The Company has taken precautions
to protect itself and its subscribers from events that could interrupt delivery
of the Company's services. These precautions include physical security systems,
uninterruptible power supplies, on-site power generators sufficient to continue
operation of the Company's network in the event of a power outage for four days,
upgraded backup hardware and chemical fire protection systems. The Company's
network is further designed such that the data on each network server is
duplicated on a separate network server. Notwithstanding such precautions, there
can be no assurance that a fire, act of sabotage, technical failure, natural
disaster or a similar event would not cause the failure of a network server and
its backup server, other portions of the Company's network, or the facilities as
a whole, thereby resulting in an outage of the Company's services and having a
material adverse effect on the Company.
FACTORS IMPACTING FUTURE SUCCESS
The future success of the Company is dependent upon a number of factors,
including the effect of rapid technological changes affecting the markets for
Premiere's products and services and management's ability to effectively respond
to those changes, including the development, implementation, marketing and
support of new or improved products and services to respond to the changing
environment; the success of Premiere's marketing arrangements, including its
strategic and licensing relationships with various parties including WorldCom;
the effects of intense competition in information and telecommunications
services markets, including, among other things, the consequential effects on
the prices that Premiere may charge for its products and services; the outcome
of
-11-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
pending litigation; the risks of potential claims of trademark, patent or
copyright infringement from competitors and other parties, including the expense
of defending claims that Premiere may consider unmeritorious; management's
ability to integrate the operations of TeleT, which was acquired in September
1996, or the operations of any other entity that Premiere may acquire in the
future without, among other things, incurring unexpected obligations or
experiencing unexpected management distractions; the effects in connection with
any potential acquisition of the write-off of acquisition expenses, the write-
off of software development costs and the amortization of expenses related to
goodwill and other intangible assets; Premiere's ability to expand successfully
internationally; the effect of regulatory changes in the telecommunications
industry; and the risk of dependence on key managerial personnel. In addition,
the market price of Premiere's stock may from time to time be significantly
volatile as a result of, among other things: Premiere's operating results; the
operating results of other information and telecommunications companies; future
issuances by Premiere of securities, including options to purchase its stock;
and changes in the performance of the stock market in general.
3. ACQUISITIONS
VoiceCom Acquisition
During the third quarter of 1997, the Company acquired VoiceCom through the
issuance of approximately 446,000 shares of its common stock. This transaction
was accounted for under the pooling-of-interests method and the Company's
financial statements have been restated for all periods presented to include
VoiceCom.
Voice-Tel Acquisitions
On June 12, 1997, the Company announced the acquisitions of VTE, VTNLP,
VTN, and the Franchisees. The Company issued approximately 7.4 million shares of
its common stock, paid approximately $16.2 million in cash and assumed
approximately $21.3 million in indebtedness, net of cash acquired.
Most of the transactions were structured as tax-free mergers or share
exchanges and were accounted for under the pooling-of-interests method of
accounting. Accordingly, the financial results of the Company have been restated
for all periods presented to include the results of operations of the Voice-Tel
Acquisitions that qualified for pooling-of-interests treatment. See Note 13
Subsequent Events for discussion of the Voice-Tel Acquisitions.
The Company purchased 15 of the Franchisees and the limited partner
interest in VTNLP for an aggregate of approximately $15.5 million in cash and
approximately 94,000 shares of its common stock. The excess of the purchase
price over the fair value of the net assets acquired is recorded as an
intangible asset.
<PAGE>
The reconciliation below details the effects of the pooling-of-interests
combinations described above on the previously reported revenues, net income and
earnings per share of the Company.
(In thousands, except per share data) 1994 1995 1996
- ------------------------------------- ---- ---- ----
Revenue:
Premiere, as previously reported $ 9,995 $ 22,326 $ 52,079
Voice-Tel Acquisitions 58,211 77,570 100,728
VoiceCom Acquisition 57,346 56,527 55,320
Effects of intercompany transactions (6,416) (8,880) (10,653)
-------- -------- --------
Premiere, as restated $119,136 $147,543 $197,474
-------- -------- --------
Net Income (Loss):
Premiere, as previously reported $ (180) $ 1,918 $ (956)
Voice-Tel Acquisitions (6,975) 2,515 3,307
VoiceCom Acquisition (8,673) (753) 442
Effects of intercompany transactions 309 491 665
-------- -------- --------
Premiere, as restated $(15,519) $ 4,171 $ 3,458
-------- -------- --------
Net Income (Loss) Per Share:
Premiere, as previously reported $ (0.10) $ 0.10 $ (0.05)
-------- -------- --------
Premiere, as restated $ (1.18) $ 0.14 $ 0.12
-------- -------- --------
Intercompany transactions primarily represent royalty payments and related
credits between VTE, VTN, VTNLP and the Franchisees prior to the combination of
the Voice-Tel Acquisitions with the Company.
TeleT Acquisition
On September 18, 1996, the Company acquired substantially all of the assets
and business operations of TeleT for 498,187 shares of the Company's common
stock (the "Shares") and approximately $2,870,000 in cash. TeleT is an Internet-
based technology development company focused on applications that create an
interchange between telephone and computer resources. The Company financed the
cash portion of the purchase price from working capital.
An aggregate of 75,000 of the Shares were placed in escrow pursuant to an
Escrow Agreement among the Company and the Members of TeleT to secure certain
indemnification obligations of those Members. All Shares issued are subject to
lock-up agreements prohibiting the sale of such Shares for a weighted average
period of one year following the closing of the Acquisition. Pursuant to the
Acquisition, the Company granted registration rights to the holder of 320,833 of
the Shares. The registration rights are subordinate to the lock-up restrictions
applicable to such Shares. Also pursuant to the Acquisition, Premiere entered
into employment agreements with the two senior executives of TeleT.
In connection with this acquisition, the Company allocated approximately
$11.0 million of the purchase price to incomplete research and development
projects. Accordingly, this cost was expensed as of the Acquisition date. This
allocation represents the estimated value related to the incomplete projects
determined by an independent appraisal. The development of these projects had
not yet reached technological feasibility, and the technology had no alternative
future use. The technology acquired in the acquisition of TeleT required
substantial additional development by the Company.
This acquisition has been accounted for under the purchase method of
accounting and the results of TeleT's operations since the Acquisition date have
been included with those of the Company.
The table below reflects the historical results of the Company and the
historical results of the Company and TeleT, as adjusted for pro forma purchase
accounting adjustments to reflect additional depreciation and amortization of
acquired software, and the related pro forma income tax effects of the
adjustments. The charge for purchased research and development has been
excluded from the pro forma results of operations since it has no continuing
effect on operations. Pro forma results for fiscal year 1995 are not presented
as the pro forma results do not differ materially from the historical results of
the Company. These pro forma amounts are provided for informational purposes
only and are not necessarily indicative of actual operating results.
-12-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In addition, they are not intended to be projections of future results and do
not reflect any synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------
(in thousands)
Historical As Adjusted
---------- -----------
<S> <C> <C>
Revenues $197,474 $197,725
Net income $ 3,458 $ 9,691
Net income (loss) per share $ 0.12 $ 0.33
</TABLE>
4. SUBSCRIPTIONS RECEIVABLE
The founders of the Company purchased their shares of common stock by
giving the Company a total of $150,000 in nonrecourse, noninterest-bearing
notes, of which $50,000 were short-term and $100,000 were due no later than June
30, 1999 (the "Founders Notes"). In addition, in November 1995, certain
officers gave to the Company full-recourse notes to finance the exercise of
stock options (the "1995 Notes"). See Note 11 - Commitments and Contingencies.
These notes were paid in full subsequent to the initial public offering in March
1996. The outstanding principal and accrued interest balance of $2,436,703 of
the Founders Notes and the 1995 Notes were reflected as a reduction to
shareholders' equity at December 31, 1995.
5. PROPERTY AND EQUIPMENT
Balances of major classes of property and equipment and the related
accumulated depreciation at December 31, 1995 and 1996 were as follows:
(in thousands)
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Computer and telecommunications equipment $ 60,918 $ 76,742
Furniture and fixtures 1,464 2,733
Office equipment 2,442 3,570
Leasehold improvements 1,202 5,068
Construction in progress 884 1,450
--------------- ----------------
66,910 89,563
Less accumulated depreciation (32,067) (42,707)
--------------- ----------------
Property and equipment, net $ 34,843 $ 46,856
=============== ================
</TABLE>
The assets under capital leases included in property and equipment in the
consolidated balance sheets at December 31, 1995 and 1996 were as follows: (in
thousands)
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Telecommunications equipment $ 14,344 $ 17,305
Less accumulated depreciation (5,718) (7,202)
--------------- ----------------
Property and equipment, net $ 8,626 $ 10,103
=============== ================
</TABLE>
-13-
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. NOTES PAYABLE
Pursuant to a loan agreement dated May 26, 1992, the Company borrowed
$1.0 million from a small business investment company ("SBIC"). The loan was
scheduled to mature in May 1997, with interest accruing at 12.5%. On December
23, 1993, the Company borrowed an additional $1.0 million from the same SBIC.
The additional loan was scheduled to mature in December 1998, with interest
accruing at 12%. The loans were secured by accounts receivable, contract rights,
chattel paper and general intangibles. In connection with the original loan, the
Company issued to the SBIC 424,392 stock warrants at $0.042 per share. The fair
value of the stock at the date of the transaction was estimated by the board of
directors to be $0.042 per share. Accordingly, the Company discounted the note
by $159,147, resulting in an effective interest rate of 17.3%, In December 1993,
the Company issued to the SBIC 144,000 stock warrants at $0.042 per share in
conjunction with the additional loan. The fair value of the stock at the date of
the transaction was estimated by the board of directors to be $0.54 per share.
The loan was discounted by $72,000, resulting in an effective interest rate of
13.0%. Stock warrants of $231,147 are included in stock warrants outstanding in
the accompanying balance sheets at December 31, 1995. Both of these loans were
repaid subsequent to the Company's initial public offering. The previously
mentioned stock warrants were exercised during the year ended December 31, 1996;
thus, the balance of the loans and the stock warrants at December 31, 1996 was
$0.
In October 1996, the Company established a $5 million unsecured revolving
line of credit (the "Facility") with NationsBank, N.A. to facilitate interim
long-term capital equipment financing needs. The interest rate, at the option
of the Company, is prime, adjusted daily, or LIBOR plus 1.75%, adjusted every
30, 60 or 90 days. The Company elected the LIBOR option, for which the rate was
6.625% at December 31, 1996. Interest is payable monthly and principal at
maturity, which is September 30, 1997. Fees associated with the Facility were
$3,000. There is an additional commitment fee of 0.125% on the unused
availability of the Facility, which is payable quarterly. As of December 1,
1997, the Company had no borrowings under the Facility.
The Company, from the acquisition of Voicecom, has a revolving credit
facility with a commitment up to $6,000,000. Aggregate borrowings cannot exceed
80% of the VoiceCom eligible trade accounts receivable. The revolving credit
line is payable to Congress Financial Corporation (Congress) and repayments are
facilitated through lock box sweeps. Repayments are collateralized by trade
accounts receivable. A commitment fee of .5% per annum on the unused portion of
the line and interest at prime plus 2% per annum are payable monthly. Under the
Agreement, the Company must maintain certain financial ratios. The term of the
Agreement ended on August 30, 1996, subject to year-to-year options for renewal
by the parties. Congress agreed to extend the Renewal Date for an additional
period ending August 30, 1997.
The Company, from the acquisition of Voice Com, had an unsecured
subordinated note payable at December 31, 1995, held by MCI Telecommunications
Corporation (MCI). The interest rate was 10% per annum, paid monthly, in
arrears. During 1995, the Company ceased making payments due to various claims
that the Company made against MCI. In January 1997, the Company and MCI agreed
to settlement of these claims in exchange for forgiveness of the outstanding
notes payable and agreement by the Company to pay $650,000 in nine installments
ending September 30, 1997. The Company recognized a gain arising from this
settlement of approximately $1,193,000 in 1995.
An extraordinary gain of approximately $945,000, net of applicable income
taxes, was recognized in connection with a refinancing by the Company's VoiceCom
subsidiary. VoiceCom replaced a term note with a revolving credit facility and
other subordinated debt instruments. The extraordinary gain resulted from the
early extinguishment of VoiceCom's term note.
<PAGE>
The Company has the following notes payable and long-term debt at
December 31: (in thousands)
1995 1996
--------- ---------
Notes payable to shareholders or related
parties of shareholders due between January
1997 and June 2001, at interest ranging
from 8% to 16% 19,595 17,601
Notes payable to banks due between
June 1997 and August 2001, at interest
ranging from 6% to 18% 13,334 16,250
Other notes payable due between
September 1995 and April 1998 at
interest ranging from 8% to 15% 5,711 2,310
------- -------
Total notes payable and debt 38,640 36,161
Less current portion (11,881) (16,167)
------- -------
Total long-term notes payable and debt $26,759 $19,994
======= =======
<PAGE>
Maturities of long-term debt are as follows: (in thousands)
1997 $16,167
1998 5,993
1999 12,375
2000 1,612
2001 14
-------
$36,161
=======
7. FINANCIAL INSTRUMENTS
In 1995, the Company adopted SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," which requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet.
The carrying amount of cash and investments approximates fair value because
their maturity is generally less than one year in duration.
The carrying amounts of notes payable and capital lease obligations
approximate fair value at December 31, 1995 and 1996.
8. SHAREHOLDERS' EQUITY
In connection with the Reincorporation Merger, each outstanding share of
common stock was converted into one share of $0.01 par value common stock of the
Georgia corporation, and each outstanding share of the Series 1994 Preferred
Stock was converted into one share of Series A Preferred Stock. Premiere
thereafter declared a 24-to-1 stock split through the declaration of a 23-share
-14-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
common stock dividend for each share of common stock outstanding on December 18,
1995.
On January 18, 1996, the Company notified the holder of the Series A
Preferred Stock of the Company's intention to redeem the preferred stock and the
holder elected to convert all of the shares of the Series A Preferred Stock into
3,095,592 shares of $0.01 par value common stock at $93 per share (presplit).
The Series A Preferred Stock was fully cumulative, and the holders of the shares
were entitled to receive dividends at a rate of 8%. The Company accrued $308,419
and $29,337 of dividends payable, plus accrued interest, if applicable, during
the year ended December 31, 1995 and 1996, respectively. The dividends were
payable annually on March 31, commencing on March 31, 1995. All accrued but
unpaid dividends accrue interest after each annual dividend date at a rate of
8%. No dividends were paid during the year ended December 31, 1995, and $676,981
in dividends was paid during the year ended December 31, 1996.
During 1995 and 1996, stock options were exercised under the Company's
stock option plans. None of the options exercised qualified as incentive stock
options, as defined in Section 422 of the Internal Revenue Code (the "Code").
Accordingly, common stock and additional paid-in capital increased from the
proceeds of the exercises totaling $64,001 and $2,656,405, respectively, for the
year ended December 31, 1995 and $8,035 and $308,481, respectively, for the
year ended December 31, 1996. Additionally, $2,621,673 and $6,886,091 were
recorded as an increase in additional paid-in capital due to the tax benefit to
be realized by the Company as a result of the exercise of such options during
the years ended December 31, 1995 and 1996, respectively.
Many of the Franchisees that were merged with the Company were either S-
corporations or partnerships. Distributions made to shareholders of such
entities were primarily income tax related.
9. STOCK OPTIONS, WARRANTS AND BENEFIT PLANS
1994 STOCK OPTION PLAN
In March 1994, the board of directors adopted a stock option plan under
which 960,000 shares of common stock were available to be granted (the "1994
Stock Option Plan") to employees, consultants, and others rendering services to
the Company. Options for all such shares had been granted as of December 31,
1995. Options granted under the 1994 Stock Option Plan are not incentive stock
options ("ISOs") as defined in Section 422 of the Code. The 1994 Stock Option
Plan is administered by a stock option plan committee (the "1994 Stock Option
Plan Committee") consisting of the president of the Company and two members of
the board of directors selected by the president.
The stock option agreements governing options granted under the 1994 Stock
Option Plan provide for an exercise price equal to the fair market value at the
date of the option grant as determined by the 1994 Stock Option Plan Committee
and generally vest ratably over the three years following the grant date.
Generally, the options are nontransferable.
The Company has granted nonqualified options and warrants to purchase
common stock to officers, directors and key employees of the Company as well as
to other individual third parties rendering services to the Company. The
exercise price of the options granted to date has been at the market value of
the shares on the date of grant, which prior to a public trading market for the
Company's common stock was determined by the board of directors based upon
arm's-length trade information and other analysis. Generally, the options vest
over three years and expire eight years from the date of grant.
1995 STOCK PLAN
The board of directors has adopted, and the Company's shareholders have
approved, the Premiere Technologies, Inc. 1995 Stock Plan (the "1995 Stock
Plan"), the primary focus of which is to provide an incentive to key employees
who are in a position to make significant contributions to the Company. Under
the 1995 Stock
-15-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Plan, the stock plan committee of the board (the "1995 Stock Plan Committee")
has discretion to award stock options, Stock Appreciation Rights ("SARs") and
restricted stock to employees. A total of 1,500,000 shares of common stock has
been reserved for issuance pursuant to the exercise of options or the grant of
restricted stock awards. Options may be either ISOs, which permit the deferral
of taxable income related to the exercise of such options, or nonqualified
options not entitled to such deferral.
The 1995 Stock Plan is administered by the 1995 Stock Plan Committee.
Subject to the provisions of the 1995 Stock Plan, this committee, at its
discretion, selects the recipients of awards and the number of shares or options
granted thereunder and determines other matters such as (i) vesting schedules,
(ii) the exercise price of options (which cannot be less than 100% of the fair
market value of the common stock on the date of grant for ISOs), (iii) the
duration of awards (which cannot exceed ten years), and (iv) the price of SARs.
DIRECTORS' COMPENSATION
Directors are reimbursed for reasonable expenses incurred by them in
connection with their attendance at board meetings. Directors are also eligible
to receive options, SARs, and restricted stock grants under the 1995 Stock Plan.
Additionally, in December 1991, the Company's board of directors authorized the
issuance of warrants to acquire up to 419,328 shares of common stock for $0.42
per share, the fair value at the date of grant, to each of the Company's
nonmanagement directors. The warrants issued in 1991 vested over a three-year
period, provided that the individual was serving on the board of directors on
such dates. Pursuant to this action of the board of directors, George W. Baker,
a current member of the Company's board of directors, was granted warrants to
acquire 86,832 shares of common stock and former members of the board of
directors were granted warrants to acquire 332,496 shares of common stock.
In May 1993, the board of directors issued warrants to acquire 72,000
shares of common stock at a price of $0.52 per share, the fair value at the date
of grant, to Buford H. Ortale who was, at that time, a member of the Company's
board of directors and is now a holder of approximately 3% of the Company's
outstanding common stock in consideration of his election to the board of
directors and his investment in the Company.
In December 1993, the board of directors granted options to acquire 240,000
and 84,000 shares of common stock at an exercise price of $0.52 per share, the
fair value at the date of grant, to Buford H. Ortale and George L. MacKay,
respectively, who were at the time members of the Company's board of directors.
In July 1995, the board of directors granted each director warrants to
acquire 24,000 shares of common stock for $0.71 per share, the fair value at the
date of grant, which vested in 1995, provided that the director was a member of
the board of directors on that date. In addition, Eduard Mayer was granted
warrants to acquire 86,400 shares of common stock at $0.71 per share, the fair
value at the date of grant, in recognition of his exemplary service on the board
of directors.
In July 1996, the board of directors granted each nonemployee director
warrants to acquire 10,000 shares of common stock for $18.50 per share, the fair
value at the date of grant, which vested at December 31, 1996, provided that the
director was a member of the board of directors on that date.
-16-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OPTION AND WARRANT ACTIVITY
In November 1995, Boland T. Jones, D. Gregory Smith, and Leonard A.
DeNittis exercised options to acquire 2,277,864, 2,277,864 and 996,552 shares of
common stock, respectively. Pursuant to the terms of each of their employment
agreements, the Company loaned such officers $825,000, $825,000 and $688,000,
respectively, to fund the exercise of these options. The loans were evidenced
by recourse promissory notes bearing interest at 6.55%, which were secured by a
pledge of the common stock acquired upon the exercise of the options. These
loans and accrued interest were repaid in full in 1996. Additionally, loans
were made as part of the exercise of these options to assist the officers in
paying the associated taxes. The loans to such officers for taxes totaled
$73,086, $73,086, and $22,048, respectively, and were also repaid in full in
1996.
In July 1995, the board of directors authorized the sale of warrants to
acquire 24,000 shares of common stock at $0.71 per share for $1,000 to an
individual who became the Company's senior vice president of finance and legal
in November 1995.
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted with an exercise price equal to the fair value of the Company's
common stock on the date of grant. The Company adopted SFAS No. 123 for
disclosure purposes in January 1995. For SFAS No. 123 purposes, the fair value
of each option grant has been estimated as of the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.26 percent, expected life of 2.34 years, dividend
rate of zero percent, and expected volatility of 42 percent. Using these
assumptions, the fair value of the stock options granted in 1996 is $8,402,324,
which would be amortized as compensation expense over the vesting period of the
options. Options generally vest over three or four years. Had compensation
cost been determined consistent with SFAS No. 123 utilizing the assumptions
detailed above, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1995 1996
- ------------------------------------- ------------ ------------
<S> <C> <C>
Net Income (loss):
As Reported................................ $4,171 $3,458
Pro forma.................................. $3,981 $2,077
Primary net income (loss) per share:
As Reported................................ $ 0.15 $ 0.12
Pro forma.................................. $ 0.14 $ 0.07
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years.
A summary of the status of the Company's stock options plans at December
31, 1994, 1995 and 1996 and for the years then ended is presented in the table
and narrative below:
-17-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNDER APB NO. 25:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
----------- -------------
<S> <C> <C>
Options outstanding, March 31, 1994................... 8,628,034 $0.13 - 88.55
Granted............................................ 111,037 0.54 - 0.71
Exercised.......................................... (1,182) 6.44 - 48.30
Forfeited.......................................... (267,428) 0.52
-----------
Options outstanding, December 31, 1994................ 8,470,461 $0.13 - 88.55
===========
</TABLE>
In November 1995, the Company granted a total of 4,256,400 options to
employees at $1.61 per share, the fair market value on the grant dates. The
fair market value for the options granted in November 1995 was supported by an
independent appraisal. The remaining 1,009,200 options granted in 1995 were
granted at various dates throughout the year prior to November 1995.
UNDER SFAS NO. 123:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE
- ----------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Options outstanding at December 31, 1994................... 8,470,461 $ 0.39
Granted................................................. 5,292,447 1.44
Exercised............................................... (5,832,170) 0.43
Forfeited............................................... (395,347) 0.45
----------------- -------------------
Options outstanding at December 31, 1995................... 7,535,391 1.07
Granted................................................. 1,332,088 18.89
Exercised............................................... (1,372,369) 0.51
Forfeited............................................... (88,778) 18.03
----------------- -------------------
Options outstanding at December 31, 1996................... 7,406,332 $ 4.27
================= ===================
Exercisable at end of year................................. 1,741,543 $ 1.51
================= ===================
Weighted average fair value of options granted in 1996..... $ 6.46
===================
</TABLE>
Of the 7,406,332 employee and director options outstanding at December 31,
1996, (i) 146,016 options have an exercise price of $0.13, with a remaining
contractual life of 2.5 years, of which all are exercisable, (ii) 1,197,730
options have exercise prices between $0.42 and $0.52, with a weighted average
exercise price of $0.50 and a weighted average remaining contractual life of 4.5
years, of which all are exercisable, (iii) 750,320 options have an exercise
price of $0.71, with a weighted average remaining contractual life of 6.2 years,
of which 64,880 are exercisable, (iv) 3,987,580 options have an exercise price
of $1.61, with a weighted average remaining contractual life of 6.8 years, of
which 1,223,504 are exercisable, (v) 495,350 options have exercise prices
between $15.125 and $19.375, with a weighted average exercise price of $16.61
and a weighted average remaining contractual life of 8.1 years, of which 30,000
are exercisable, (vi) 764,449 options have exercise prices between $20.00 and
$25.25, with a weighted average exercise price of $20.31 and a weighted average
remaining contractual life of 6.7 years, of which 39,400 are exercisable.
In the year ended December 31, 1994, the Company entered into an agreement
with a hotel management company. The agreement, which expired June 30, 1995,
represented a variable stock option plan (with a measurement date upon vesting)
whereby the Company granted stock options to the hotel management company based
on the level of call traffic handled at certain properties. The options were
exercisable at $0.00042 per share and vested over three years. A total of
59,981 options were earned under the agreement. During
-18-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the years ended December 31, 1994 and 1995, 25,581 and 16,925 options vested,
respectively. All of the vested options under this agreement were exercised in
1996.
EMPLOYEE BENEFITS
The Company has two employee benefit plans which include components which
were created under Section 401(k) of the Internal Revenue Code.
Effective May 1, 1993 the Company established an employee savings plan
related to VTE, which was created under Section 401(k) of the Internal Revenue
Code. All employees of VTE who are 21 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 up to 15% of their
compensation up to a maximum amount determined pursuant to IRS regulations.
In 1995, the Company adopted a tax-qualified profit-sharing plan for
eligible employees that also includes a 401(k) component (the "Profit Sharing
Plan"). All full-time employees are eligible to participate in the Profit
Sharing Plan upon the attainment of age 21 and completion of three months of
service. Under the Profit Sharing Plan, an employee may elect to defer up to
15% of his compensation and direct the Company to contribute such deferred
amounts to the Profit Sharing Plan. Each year, the Company determines whether to
make a discretionary matching contribution equal to a percentage, determined by
the Company, of the employee's deferred compensation contribution. The Company
has not made any matching contributions to the Profit Sharing Plan. Accordingly,
no compensation expense related to the Profit Sharing Plan has been recognized
in the accompanying financial statements. All contributions to the Profit
Sharing Plan by or on behalf of employees are subject to annual limits
prescribed by the Code. Contributions under both plans are immaterial for all
periods presented.
In July 1994, the Company began offering a medical and dental health plan
to its employees. The Company was self-insured for certain health and dental
benefits up to a maximum amount per month of approximately $10,000 based on
claims history and current employment levels through January 1996. The Company
accrued for estimated losses occurring from both asserted and unasserted claims.
The estimate of the liability for unasserted claims arising from unreported
incidents was based on an analysis of historical claims data. The cost of such
claims was approximately $35,000 and $135,000 for the periods December 31, 1994
and 1995, respectively. In February 1996, the Company changed its medical and
dental plan insurance provider and is no longer self-insured.
10. RELATED-PARTY TRANSACTIONS
The Company has in the past entered into agreements and arrangements with
certain officers, directors and principal shareholders of the Company involving
loans of funds, grants of options and warrants and the acquisition of a
business. Certain of these transactions may be on terms more favorable to
officers, directors and principal shareholders than they could acquire in a
transaction with an unaffiliated party. The Company adopted a policy requiring
that, in the future, all material transactions between the Company and its
officers, directors or other affiliates must (i) be approved by a majority of
the disinterested members of the board of directors of the Company and (ii) be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
In September 1993, the Company loaned a total of $65,000 to the three
principal officers of the Company to purchase 219,984 shares of stock and
175,992 stock purchase warrants exercisable at $0.125 per share from one of the
Company's board members. The loans, which were interest-free, were repaid
during 1996.
In prior years, the Company advanced $25,000 to certain officers and
shareholders of the Company to purchase the common stock and debentures of
another shareholder, and $5,000 was repaid during the year ended December 31,
1994. The board of directors forgave $10,000 during the year ended
December 31, 1994. The advances were repaid during 1996.
During the year ended December 31, 1994, management made salary advances of
$25,000 and $35,849, respectively, to certain officers of the Company. During
the year ended December 31, 1995, $50,000 of these amounts were repaid. The
balance was repaid during 1996.
During the year ended December 31, 1994, the Company paid shareholder fees
for consulting services of $170,000; of these fees $120,000 related to the
Company's refinancing activities.
-19-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In November 1995, the Company loaned a certain officer $90,000 in
connection with the officer's transition from his previous employer to the
Company. This unsecured loan is evidenced by a promissory note bearing interest
at 6.11%, the interest on which is payable beginning in November 1997 and
continuing each year until November 1999. Principal is to be repaid in five
equal annual installments, with accrued interest, commencing in November 2000;
however, pursuant to the officer's employment agreement, the officer may be
required to make earlier payments from certain bonus compensation paid to the
officer under such employment agreement.
In November 1995, the Company loaned three officers a total of $2,338,000,
to fund the exercise of stock warrants and options which were repaid in full in
1996. These loans were evidenced by recourse promissory notes bearing interest
at 6.55%, which were secured by a pledge of the common stock acquired upon the
exercise of the warrants and options. All principal and accrued interest were
to be paid in November 2005; however, if any of the common stock securing the
promissory notes was sold, the net proceeds of such sale were to be applied to
the outstanding principal and interest due under that promissory note.
Additionally, the Company loaned such officers an additional total amount of
$168,220 to assist the officers in paying the federal and state income taxes
associated with the exercise of the warrants and options which were repaid in
full in 1996.
In September 1996, the Company loaned a certain officer $75,000 in
connection with the officer's transition from his previous employer to the
Company. This unsecured loan is evidenced by a promissory note bearing interest
at 6.64%, the interest on which is payable beginning in September 1998 and
continuing each year until September 2000. Principal is to be repaid in five
equal annual installments, with accrued interest, commencing in September 2001;
however, pursuant to the officer's employment agreement, the officer may be
required to make earlier payments from certain bonus compensation paid to the
officer under such employment agreement.
In October 1996, the Company loaned a certain officer $10,000. This
unsecured loan is evidenced by a promissory note bearing interest at 6.5%.
Principal and interest are to be repaid in one payment in October 1998.
See Note 6 for disclosure of notes payable to shareholders and related
parties of shareholders.
-20-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases central office switching equipment, office space and
other equipment under noncancelable lease agreements. The leases generally
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased assets. Future minimum operating and capital lease
payments as of December 31, 1996 are as follows: (in thousands)
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASE
--------- --------
<S> <C> <C>
1997...................................................... $ 7,367 $ 5,736
1998...................................................... 5,379 4,800
1999...................................................... 4,310 2,347
2000...................................................... 2,233 738
2001...................................................... 449 227
Thereafter................................................ 0 68
------- -------
$19,738 13,916
=======
Less amount representing taxes............................ (44)
-------
Net minimum lease payments................................ 13,872
Less amount representing interest......................... (2,604)
-------
Present value of net minimum lease payments............... 11,268
Less current portion...................................... (3,819)
-------
Obligation under capital lease, net of current portion.... $ 7,449
=======
</TABLE>
Rental expense under operating leases amounted to approximately $7,414,000,
$7,869,000 and $8,275,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Future minimum payments for facilities rent are reduced by
scheduled sublease income of $226,848 in 1997. During 1994, 1995 and 1996,
additions to the Company's voice messaging equipment and switching equipment
resulted in an increase to the capital lease obligation of $5,569,231, $984,190
and $84,576, respectively.
SUPPLY AGREEMENTS
The Company obtains long-distance telecommunications services pursuant to
supply agreements with suppliers of long-distance telecommunications
transmission services. Although these contracts generally provide fixed
transmission prices for terms of three to five years, they are subject to
earlier termination in certain events. No assurance can be given that the
Company will be able to obtain long-distance services in the future at favorable
prices or at all, and the unavailability of long-distance service, or a material
increase in the price at which the Company is able to obtain long-distance
service, would have a material adverse effect on the Company's business,
financial condition and results of operations. Certain of these agreements
provide for minimum purchase requirements. The Company is currently a party to
five long-distance telecommunications services contracts that require the
Company to purchase a minimum amount of services each month.
-21-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PURCHASE AGREEMENT
An additional agreement which is with Company E provides for a minimum
purchase agreement of $15 million in equipment over the life of the agreement
which commenced in January 1990 and expired in December 1994. The agreement is
silent as to the penalties if the minimum purchase requirements are not
fulfilled.
RISK OF INFRINGEMENT
The Company is aware of other companies that utilize the term "WorldLink,"
"Premiere" or "AccessOne" in describing their products and services, including
telecommunications products and services. Certain of those companies hold
registered trademarks which incorporate the name "WorldLink," "Premiere." The
Company has received correspondence from a provider of prepaid calling cards
which claims that the Company's use of the term "Premiere WorldLink" infringes
upon its trademark rights. In addition, the Company has received correspondence
from a major bank, which is among the holders of registered trademarks
incorporating the term "WorldLink," inquiring as to the nature of the Company's
use of the term "WorldLink" as a part of its mark "Premiere WorldLink." Based
on, among other things, the types of businesses in which the other companies are
engaged and the low likelihood of confusion, the Company believes these claims
to be without merit. No actions other than the AudioFAX litigation have been
filed with respect to either the patent or trademark claims. See Litigation
below. However, no assurance can be given that actions or claims alleging
trademark, patent, or copyright infringement will not be brought by these or
other parties against the Company with respect to current or future products or
services or that, if such actions are brought, the Company will ultimately
prevail. Any such claiming parties may have significantly greater resources
than the Company to pursue litigation of such claims. Any such claims, whether
with or without merit, could be time-consuming, result in costly litigation,
cause delays in introducing new or improved services, require the Company to
enter into royalty or licensing agreements, or cause the Company to discontinue
use of the challenged trademark, service mark or technology at 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.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with Boland T. Jones, Chairman of the board of directors and
President; D. Gregory Smith, Executive Vice President, Assistant Secretary, and
Director; and Leonard A. DeNittis, Vice President of Engineering and Operations
(the "Executives"). Each Employment Agreement provides for an employment term
expiring December 31, 1999. Under their respective Employment Agreements,
Boland T. Jones and D. Gregory Smith were each paid base salaries of $200,000
for the year ended December 31, 1996 and are each to be paid a base salary of
$210,000 beginning in 1997. Leonard A. DeNittis was paid a base annual salary
of $175,000 and is to be paid a base annual salary of $183,750 beginning in
1997. Patrick G. Jones, who joined the Company in November 1995 as the Senior
Vice President of Finance and Legal and Secretary, has entered into a similar
agreement. Mr. Jones was paid a base salary of $150,000 and is to be paid a
base annual salary of $157,500 beginning in 1997. Gregg S. Freishtat, who
joined the Company as Senior Vice President in September 1996 from TeleT, has
entered into a similar
-22-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
agreement. Mr. Freishtat's base salary is $150,000 through 1997.
Under the Employment Agreements, each of the Executives is eligible to
receive bonus compensation based on the financial performance of the Company.
The amount of bonus compensation is calculated based on operating revenues and
the Company's adjusted net income before interest and taxes as determined in
accordance with the Employment Agreements ("Adjusted EBIT"). Boland T. Jones
and D. Gregory Smith received as a bonus (i) 0.25% of the Company's operating
revenues and (ii) 2.5% of the Company's Adjusted EBIT for the year ended
December 31, 1995 which amounted to a bonus of $126,128 for both Mr. Jones and
Mr. Smith. Beginning in 1996, Boland T. Jones and D. Gregory Smith will receive
as a bonus 1.5% of the Company's Adjusted EBIT. Leonard A. DeNittis received a
bonus of 1.5% of the Company's Adjusted EBIT for the year ended December 31,
1995 which amounted to $42,217, and his bonus beginning in 1996 will be 0.5% of
the Adjusted EBIT. The changes in arrangement for Boland T. Jones, D. Gregory
Smith, Leonard A. DeNittis were affected in amendments to their Employment
Agreements entered into in November 1995. In conjunction with these amendments,
Boland T. Jones, D. Gregory Smith, and Leonard A. DeNittis were granted options
to acquire 1,440,000, 1,400,000 and 720,000 shares of common stock,
respectively, at an exercise price of $1.61 per share, the fair value of the
common stock at the date of grant as determined by an independent appraisal.
Beginning in 1996, Patrick G. Jones was entitled to receive a bonus of 0.45% of
the Company's Adjusted EBIT, and beginning in 1997, Gregg S. Freishtat will be
entitled to receive a bonus of 0.45% of the Company's adjusted EBIT. Bonuses
payable to the Executives will be deferred if the net effect of the payment of
the bonuses to the Executives would cause the Company to recognize a net loss
for the year. The amount of any deferred bonus will be paid in the next
succeeding year in which the payment of the deferred bonus and the bonus for
such year would not cause the Company to recognize a net loss. To date, no bonus
amounts have been deferred. In July 1996, Messrs. Boland Jones, Smith, DeNittis
and Patrick Jones each agreed to waive any rights to bonuses otherwise due under
the Employment Agreements for 1996. In connection with such waiver, Messrs.
Boland Jones, Smith, DeNittis and Patrick Jones were granted options to acquire
an aggregate of 50,000, 50,000, 20,000 and 15,000 shares of common stock,
respectively, at an exercise price of $18.50 per share, which was the fair
market value of the common stock on the date of grant as determined by the board
of directors. The options granted will vest on March 31, 1997.
LITIGATION
On January 21, 1997, Eric Bott, E.B. Elliott and Cost Recovery Systems,
Inc. ("CRS") filed a complaint against the Company, the Company's
wholly owned subsidiary, Premiere Communications, Inc. ("PCI" or "Premiere
Communications") and the Company's president, Boland T. Jones, in the Superior
Court of Fulton County, Georgia. As of December 2, 1997, the Company, PCI and
Mr. Jones have entered into a settlement agreement with Mr. Bott settling and
disposing of Mr. Bott's claims in connection with this litigation. In the
complaint, Mr. Elliot and CRS alleged that: (i) Mr. Elliott or CRS, an affiliate
of Mr. Elliott, is entitled to options to purchase 5,000 or 10,000 shares of
common stock of Premiere at an unspecified exercise price arising out of work
allegedly performed by CRS for the Company; and (ii) CRS is owed an unspecified
amount of commissions from the Company relating to sales of the Company's
telecommunications services by CRS. The remaining plaintiffs also seek
attorneys' fees and unspecified amounts of punitive damages. The Company filed
an answer and counterclaim denying all allegations of the complaint and
asserting various affirmative defenses. The Company believes that the share
numbers and exercise prices have not been adjusted for the 24-to-1 stock split
effected in December 1995. The Company believes it has meritorious defenses to
-23-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
operating results or financial condition.
On June 28, 1996, AudioFAX IP LLC ("AudioFAX") filed a complaint against
the Company and PCI in the United States District Court for the Northern
District of Georgia. In the complaint, AudioFAX alleged that the Company
manufactures, uses, sells and/or distributes certain enhanced facsimile products
which infringe three United States patents and one Canadian patent allegedly
held by AudioFAX. In the third quarter of 1996, the Company took a one-time
charge for the estimated legal fees and other costs that the Company expected to
incur to resolve this matter. On February 11, 1997, the Company entered into a
long-term, nonexclusive license agreement with AudioFAX settling the
litigation. The one-time charge was adequate to cover the actual costs of
litigation, and the cost of the license agreement is not expected to have a
material effect on the Company's earnings. See Note 14 - Subsequent Events.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). On August 23, 1996, CNC
filed a motion to intervene in a separate lawsuit brought by a CNC creditor in
the United States District Court for the Southern District of New York against
certain guarantors of CNC's obligations and to file a third-party action against
numerous entities, including such CNC creditor and PCI for alleged negligent
misrepresentations of fact in connection with an alleged fraudulent scheme
designed to damage CNC. The court has not ruled on CNC's request. Based upon the
bankruptcy examiner's findings 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 recently reached a tentative
agreement of 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. 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
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 with certainty whether the
above-described settlement will be approved by the Bankruptcy Court, nor is the
Company able to predict the outcome of the Al-Khatib lawsuit. 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,
operating results or financial condition. 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, operating results or financial condition.
On September 20, 1996, Peter Lucina ("Lucina") filed a complaint against
the Company, Donald B. Gasgarth ("Gasgarth") and Patrick G. Jones ("Jones") in
the United States District Court for the Eastern District of Illinois. As of
December 3, 1997, the Company, Gasgarth and Jones have entered into a settlement
agreement with Lucina settling and disposing of Lucina's claims in connection
with this litigation.
-24-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES
The difference between the statutory federal income tax rate and the
Company's effective income tax rate applied to income before income taxes and
extraordinary loss was as follows for the years ended December 31, 1994,
1995 and 1996: (in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at federal statutory rate $(5,221) $ 2,100 $ 1,951
State tax provision, net of federal benefit (403) 263 229
Utilization of net operating loss (94) 0 0
Change in valuation allowance 2,119 (1,123) 940
S-corporation earnings not subject to corporate
level taxes 1,961 (1,420) (1,462)
Non-taxable investment income 0 0 (723)
Other 512 (25) 185
Non-deductible expenses 217 220 252
------ ------ ------
Income taxes at the Company's effective rate $ (909) $ 15 $ 1,372
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ (516) $ 208 $ 3,247
State 78 99 598
International 0 25 42
Deferred:
Federal 227 100 (3,303)
State 64 47 (553)
International (762) (464) 1,341
</TABLE>
The Company also has federal investment tax credit carryforwards of
approximately $29,000 expiring in the year 2000. Investment tax credits are
recognized as a reduction of income tax expense in the year the credits are
utilized, in accordance with the flow-through method.
-25-
<PAGE>
PREMIERE TECHNOLOGIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The sources of differences between the financial accounting and tax bases
of assets and liabilities which give rise to the deferred tax assets and
liabilities are as follows at December 31, 1995 and 1996: (in thousands)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax asset:
Net operating loss $ 3,526 $ 6,880
In-process research and development 0 4,218
Unearned revenue 135 174
Intangibles 4,217 3,929
Accounts receivable (319) (368)
Accounts receivable reserve 42 238
Accrued expenses 2,904 3,651
Other assets 2,072 2,466
------- -------
12,577 21,188
Deferred tax liability:
Depreciation and amortization (1,053) (2,097)
Other (669) (822)
------- -------
10,855 18,269
Valuation allowance (7,239) (8,755)
------- -------
Net deferred tax asset $ 3,616 $ 9,514
======= =======
</TABLE>
Many of the Franchisees included herein that were acquired in conjunction
with the pooling-of-interests transactions discussed in Notes 1 and 3 were
either S-corporations or partnerships. Accordingly, in accordance with SFAS No.
109 and APB No. 16, no tax provision relating to these entities has been
included in the accompanying financial statements as these Franchisees would not
have recorded a provision had they been stand-alone entities.
The Company and its subsidiaries file a consolidated income tax return.
The Company has not paid income taxes for any of the years presented in the
accompanying financial statements. At December 31, 1996, the Company had net
operating loss carryforwards of approximately $17,380,004 expiring in 2008
through 2011. The Company also has various state tax net operating loss
carryforwards totaling approximately $500,000. These loss carryforwards will
expire in the years 1997 through 2010. At December 31, 1996, approximately
$6,880,000 of net operating loss carryforwards relate to nonqualified stock
compensation expense for tax purposes in excess of stock compensation for
financial reporting purposes, the benefit of which was credited directly to
additional paid-in capital in accordance with APB No. 25 and SFAS No. 109.
13. RESTRUCTURING AND OTHER SPECIAL CHARGES:
In 1992, the Company, from the acquisition of VoiceCom, entered into a
Stock Purchase Agreement with Telecom *USA and ASYNC Corporation, a
Noncompetition Agreement (Non-Compete Agreement) with Telecom *USA and MCI
Telecommunications Corporation (MCI), and a Telecommunication Services Agreement
(Telco Agreement) with MCI.
As a result of the above transaction, the Telco Agreement was capitalized
on the basis that favorable market pricing had been received from MCI in the
agreement. During 1994, the Company negotiated and received telecommunications
rates which were below the stated rate in this agreement rendering the asset
worthless at that time. A charge of approximatey $3,300,000 has been reflected
in 1994 representing the net asset value of the Telco Agreement at the time of
the write-off.
Additionally, the Company, from the acquisition of VoiceCom, established a
position that MCI was in violation of the Non-Compete Agreement established with
the Company as a part of the above transaction. Based on the above, management
took a charge of approximately $3,400,000 in 1994. This charge represents the
unamortized balance of the Non-Compete Agreement at the time the Company became
aware of the violation.
14. SUBSEQUENT EVENTS
On February 11, 1997, the Company entered into a long-term, non exclusive
license agreement with AudioFAX settling the litigation. The one-time charge
was adequate to cover the actual costs of litigation, and the cost of the
license agreement is not expected to have a material effect on the Company's
earnings. See Note 11 - Commitments and Contingencies.
On June 12, 1997, the Company announced the completion of the acquisitions
of VTE, VTNLP, VTN, and the Franchisees. The Company issued approximately 7.4
million shares of its common stock, paid approximately $16.2 million in cash and
assumed approximately $21.3 million in indebtedness, net of cash acquired.
Most of the transactions were structured as tax-free mergers or share
exchanges and were accounted for under the pooling-of-interests method of
accounting. The Company purchased 15 of the Franchises and the limited partner
interest in VTNLP for an aggregate of $15.5 million in cash and approximately
94,000 shares of its common stock. Accordingly, the purchase method of
accounting will be used for the 15 Franchisees and the limited partner interest
in VTNLP which did not qualify for pooling-of-interests treatment. The excess of
the purchase price over the fair value of the net assets acquired for such
entities will be recorded as an intangible asset as of the acquisition dates.
On June 30, 1997, the Company sold $150 million of 5-3/4% convertible
subordinated notes due 2004 (the "Notes"). On July 30, 1997, the Company sold an
additional $22.5 million of 5-3/4% convertible subordinated notes due 2004 (the
"Option Notes", and together with the Notes, the "Convertible Notes") pursuant
to the exercise of an overallotment option. The total offering price of the
Notes was $150 million, with a discount to the underwriters of the Notes of
3.0%, and the total offering price of the Option Notes was $22.5 million with a
discount to the underwriters of the Option Notes of 3.0%. The Notes and the
Option Notes, unless previously redeemed or repurchased, are convertible at the
option of the holder at any time through the close of business on the final
maturity date into shares of common stock at a conversion price of $33.00 per
share, subject to adjustment in certain events.
During the third quarter of 1997, the Company acquired VoiceCom Holdings,
Inc. ("VoiceCom"). This transaction has been accounted for under the pooling-of-
interest method of accounting. In connection with the acquisition, the Company
issued approximately 446,000 shares of its common stock.
In connection with the Voice-Tel and VoiceCom Acquisitions, the Company
recorded restructuring and other special charges of $73.6 million. Transaction
costs are comprised of professional fees and other costs directly associated
with the Voice-Tel and VoiceCom Acquisitions. Such costs were expensed as
required by the pooling-of-interests method of accounting. Charges for
severance, asset impairments and other exit costs result from management's plan
to restructure the operations of the Voice-Tel and VoiceCom Acquisitions under a
consolidated business group model and discontinue franchise operations. This
initiative involves substantial reduction in the administrative workforce,
abandoning duplicate facilities and assets and other costs necessary to
discontinue redundant business activities performed in each of the former
franchise businesses. Expenditures of $18,807,000 have been incurred through
September 30, 1997. Such expenditures consisted of $2,457,000 of severance and
related costs associated with the termination of employees, $15,533,000 of
transaction and other exit costs and $817,000 of asset impairment costs.
On November 5, 1997, the Company filed a registration statement with the
Commission covering 2,933,835 shares of the Company's common stock held by the
former owners of the Voice-Tel Entities acquired by Premiere during the second
quarter of 1997. The registration statement also covers up to 440,075 additional
shares which the underwriters have the option to purchase from the Company to
cover over-allotments, if any. The price at which the shares will be offered to
the public will be determined at the time of the offering. The Company will not
receive any of the proceeds from the shares sold by the selling shareholders.
The net proceeds from the sale of shares by the Company pursuant to the
underwriters' over-allotment option, if any, will be used for general corporate
purposes, including capital expenditures and working capital. A registration
statement relating to these securities has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This report shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any state in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
On November 13, 1997, the Company entered into a definitive merger agreement
to acquire Xpedite Systems, Inc. ("Xpedite") in a stock-for-stock merger to be
accounted for as a pooling-of-interests. Consummation of the merger would be
conditioned on, among other things, approval of the shareholders of both Xpedite
and the Company, and compliance with the applicable anti-trust notification
requirements.
-26-
<PAGE>
Exhibit 99.8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
consolidated financial statements and the related notes thereto included
elsewhere herein. Effective December 31, 1994, the Company changed its fiscal
year-end from March 31 to December 31. The Company's financial statements for
the year ended December 31, 1994 include 12 months of operations.
OVERVIEW
The Company is a network-based computer telephony company specializing in
the integration of information and telecommunications services. The Company
delivers its services through its advanced computer telephony platform and a
geographically broad-based private frame relay digital messaging network that
integrates digital switching technology with enhanced personal communications
features such as E-mail, fax mail, conference calling and call forwarding. The
Company's platform is modular and scalable, with an open-systems design and an
advanced electronic billing and information system ("EBIS"), which allows the
Company to quickly customize its services to meet the needs of its subscribers
and business partners and to easily expand system capacity.
Premiere's revenues consist of (i) subscriber services from information,
telecommunications and voice messaging services; (ii) license fees from use of
its computer telephony platform by customers of companies that have licensing
relationships with Premiere; and, to a lesser extent, (iii) other revenues,
primarily long-distance charges from hospitality services. Subscriber services
revenues from information and telecommunications services, including Premiere
WorldLink, AFCOM and co-branded services, are based primarily on a per minute
charge. Subscriber services revenues from voice messaging services include
service initiation fees, monthly voice mailbox fees and usage fees. License fees
are contracted on a long-term basis and are generally based on a per minute
charge and, in certain circumstances, a per usage charge. Other revenue charges
are based on long-distance rates established by the Company, depending upon the
originating location of the call, and other various methods.
Cost of services consists primarily of transmission costs. Licensees
generally arrange for, and directly bear the cost of, transmission.
Consequently, while the per minute fees for licensee platform usage are lower
than those for the subscriber services, the gross margin from license
arrangements is considerably higher than for subscriber services.
Selling, general and administrative expenses include direct and indirect
commissions, the cost of print advertisements, salaries and benefits, travel and
entertainment expenses, bad debt expense, rent and facility expense, accounting
and audit fees, legal fees, property taxes and other administrative expenses.
Depreciation and amortization include depreciation of computer and network
operations equipment and amortization of intangible assets. The Company
provides for depreciation using the straight-line method of depreciation over
the estimated useful lives of the assets, which range from five to ten years,
with the exception of leasehold improvements which are depreciated on a
straight-line basis over the shorter of the term of the lease or the estimated
useful life of the assets. Amortization of intangible assets includes deferred
software development costs and the WorldCom strategic alliance contract
intangible, which are amortized over 5 and 25 years, respectively.
Premiere electronically bills most subscriber services revenue from
information and telecommunications services directly to the subscriber's credit
card or bank account using the EBIS. The Company bills subscribers at least
monthly and in certain instances more frequently if a particular subscriber
exceeds pre set spending limits. Because substantially all of the Company's
information and telecommunication services are billed electronically through the
EBIS, the Company believes it has shortened the collection
-1-
<PAGE>
cycle compared to a traditional 30-day non electronic billing arrangement.
License fees are generally billed and invoiced on a 30-day basis. Voice
messaging services revenue and license fees are billed and invoiced on a 30-day
basis.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates. The Company periodically
reviews the values assigned to long-lived assets, such as property and equipment
and software costs, to determine whether any impairments are other than
temporary. Management believes that the long-lived assets in the accompanying
balance sheets are appropriately valued.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship of certain statements of operations items to total revenues.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
REVENUES................................. 100.0% 100.0% 100.0%
COST OF SERVICES......................... 28.5 29.7 28.2
----- ----- -----
GROSS MARGIN............................. 71.5 70.3 71.8
----- ----- -----
OPERATING EXPENSES:
Selling, general and administrative.. 69.0 56.7 55.0
Depreciation and amortization........ 8.1 7.1 7.2
Charge for purchasing research
and development................... 0.0 0.0 5.6
Restructuring and other special
changes........................... 5.6 0.0 0.0
Accrued litigation and settlement
costs............................. 0.0 1.7 0.6
----- ----- -----
Total operating expenses.......... 82.7 65.5 68.4
----- ----- -----
OPERATING INCOME (LOSS).................. (11.2) 4.8 3.4
----- ----- -----
OTHER INCOME (EXPENSE):
Interest income...................... 0.2 0.3 1.4
Interest expense..................... (3.9) (3.3) (2.3)
Other, net........................... 0.2 1.0 (0.1)
----- ----- -----
Total other income (expense)...... (3.5) (2.0) (1.0)
----- ----- -----
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS............... (14.7) 2.8 2.4
PROVISION FOR (BENEFIT FROM)
INCOME TAXES............................... (0.8) 0.0 0.7
----- ----- -----
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS......................... (13.9) 2.8 1.7
EXTRAORDINARY (GAIN) LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX EFFECT OF $37,880...................... (0.8) 0.0 0.0
----- ----- -----
NET INCOME (LOSS)........................... (13.1)% 2.8% 1.7%
===== ===== =====
</TABLE>
-2-
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total revenues increased 33.9% from $147.5 million in the year ended
December 31, 1995 to $197.5 million in the year ended December 31, 1996.
The increase in revenues is due primarily to increased demand for mobile
communication services, voice messaging services and additional licensee
relationships.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy under Chapter 11 of the
Bankruptcy Code. CNC accounted for 19.6% and 1.9% of the Company's licensing
revenues and total revenues, respectively, during the year ended December 31,
1996. CNC owed the Company approximately $627,000 as of December 31, 1996.
However, CNC's transmission provider, WorldCom Network Services, Inc. d/b/a/
WilTel ("WilTel"), is also obligated to pay this amount to the Company. The
Company believes that through a combination of new licensing agreements, the
strategic alliance agreement with WorldCom and increased revenues from existing
licensees, the Company has replaced all of the anticipated CNC revenue.
COST OF SERVICES
Cost of services increased from $43.9 million in the year ended December
31, 1995 to $55.6 million in the year ended December 31, 1996 and decreased as a
percentage of revenues from 29.7% in the year ended December 31, 1995 to 28.2%
for the same period of 1996. The decrease in the percentage of revenue is
primarily due to an increase in higher margin license and certain subscriber
service products revenue as a percentage of total revenue in 1996 as compared
with 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $83.7 million
in the year ended December 31, 1995 to $108.5 million in the year ended December
31, 1996 and decreased as a percentage of revenues from 56.7% to 55.0%. The
increase in selling, general and administrative expenses was due primarily to
greater expenditures on print advertising and other selling and marketing costs
related to the increase in subscribers and revenues, including commissions.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased from $10.5 million in the
year ended December 31, 1995 to $14.2 million in the year ended December 31,
1996. This increase
-3-
<PAGE>
was due primarily to increased capital expenditures and the amortization of the
strategic alliance contrct intangible.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
This charge represents the estimated value of in-process
research and development projects acquired in the acquisition of TeleT. See Note
3 of Notes to Consolidated Financial Statements.
ACCRUED LITIGATION AND SETTLEMENT COSTS
Accrued settlement costs in 1996 represent estimated legal fees and other
costs associated with a patent infringement suit filed by AudioFAX against the
Company. On February 11, 1997, the Company entered into a long-term nonexclusive
license agreement with AudioFAX settling the litigation. The charge was adequate
to cover the actual costs of litigation and the cost of the license agreement is
not expected to have a material effect on the Company's earnings. See Note 11 of
Notes to Consolidated Financial Statements.
INCOME TAXES
In the years ended December 31, 1996 and 1995 the Company's effective
income tax rate was less than the statutory rate due to certain non-taxable
investment income and income of Voice-Tel Entities which had elected to be
treated as S-Corporations under U.S. tax law prior to their acquisition by the
Company.
NET INCOME (LOSS)
As a result of the foregoing, the Company recognized net income of $4.2
million in the year ended December 31, 1995 and $3.5 million in the year ended
December 31, 1996. Excluding the charges for in-process research and development
and accrued litigation costs and the related tax effect, net income would have
increased 93.0% from $5.7 million in the year ended December 31, 1995 to $11.0
million in the year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Total revenues increased from $119.1 million in the year ended December 31,
1994 to $147.5 million in the year ended December 31, 1995. This increase in
revenues is due primarily to increased demand for mobile communication services,
voice messaging services and additional licensee relationships.
COST OF SERVICES
Cost of services increased from $33.9 million in the year ended
December 31, 1994 to $43.9 million in the year ended December 31, 1995 and
increased as a percentage of revenues from 28.5% in the year ended December 31,
1994 to 29.7% for the same period of 1995. The increase in the percentage of
revenue is primarily due to an increase in revenues from certain lower margin
mobile communications services products as a percent of total revenues.
-4-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $82.2 million
in the year ended December 31, 1994 to $83.7 million in the year ended December
31, 1995 and decreased as a percentage of revenues from 69.0% to 56.7%. The
increase in selling, general and administrative expenses was due primarily to
greater expenditures on print advertising and other selling and marketing costs
related to the increase in subscribers and revenues.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased from $9.6 million in
the year ended December 31, 1994 to $10.5 million in the year ended December 31,
1995. This increase was due primarily to increased capital expenditures.
RESTRUCTURING AND OTHER SPECIAL CHARGES
Restructuring and other special charges in 1994 reflect the write-off by
the Company's VoiceCom subsidiary of certain intangible assets. Acquired by
VoiceCom in connection with a purchase business combination in 1992. These
assets were determined to be impaired by VoiceCom's management on the basis that
the carrying value of these assets could not be realized.
INCOME TAXES
In the year ended December 31, 1995 and 1994, the Company's effective
income tax rate was less than the statutory rate due to the income of the Voice-
Tel Entities which had elected to be treated as S-Corporations under U.S. tax
law prior to their acquisition by the Company.
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
As a result of the foregoing the Company recognized a net loss before
extraordinary gain of $16.5 million in the year ended December 31, 1994 and net
income of $4.2 million in the year ended December 31, 1995. Excluding the charge
for restructuring and other special charges and accrued settlement costs and
related tax effects, net income would have increased from a net loss of $12.5
million in the year ended December 31, 1994 to net income of $5.7 million in the
year ended December 31, 1995.
EXTRAORDINARY GAIN
An extraordinary gain of approximately $945,000, net of applicable income
taxes, was recognized in connection with a refinancing by the Company's VoiceCom
subsidiary. Voicecom replaced a term note with a revolving credit facility and
other subordinated debt instruments. The extraordinary gain resulted from early
extinguishment of Voicecom's term note.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $7.1 million in the
year ended December 31, 1994, $13.6 million in the year ended December 31, 1995
and $36.9 million in the year ended December 31, 1996. The increase in cash
provided by operating activities in each of these years reflects the
acceleration of growth in the Company's subscriber and revenue base and improved
operating cash flow margins created by such growth.
The Company's investing activities used cash of $18.2 million for the year
ended December 31, 1994, $13.2 million for the year ended December 31, 1995 and
$96.1 million for the year ended December 31, 1996. The Company's investing
activities for the year ended December 31, 1994 consisted primarily of purchases
of investments for $4.9 million financed by the Company's sale of Series 1994
Preferred Stock (which was converted into Series A Preferred Stock in December
1995), and purchases of property and equipment of $13.3 million funded primarily
through the issuance of debt. Cash used in investing activities for the year
ended December 31, 1995 consisted primarily of purchases of property and
equipment of $12.2 million funded primarily through the issuance of debt. The
Company's investing activities for the year ended December 31, 1996 consisted
primarily of purchases of investments in the amount of $67.2 million.
Additionally, the Company purchased property and equipment of $21.9 million. The
Company also used cash to partially fund certain acquisitions and strategic
alliances during the year ended December 31, 1996. Net proceeds from the
Company's initial public offering in 1996 of $74.6 million were used in
part to fund investing activities in 1996. See Notes 2 and 3 of Notes to
Consolidated Financial Statements.
The Company's financing activities provided cash of $9.9 million in the
year ended December 31, 1994, $3.5 million for the year ended December 31, 1995
and $66.9 million for the year ended December 31, 1996. Cash provided by
financing activities for the year ended December 31, 1994 reflects proceeds from
issuance of debt to finance purchases of property and equipment and from
proceeds from issuance of preferred stock. Cash provided by financing
activities for the year ended December 31, 1995 reflects proceeds from the
issuance of debt to finance purchases of property and equipment. The Company
received net proceeds of $74.6 million from its initial public offering in March
1996. These sources of cash were partially offset in 1996 by the repayment of
notes payable outstanding at December 31, 1995 as well as payment of dividends
on Preferred Stock. See Notes 2, 4 and 6 of Notes to Consolidated Financial
Statements.
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At December 31, 1996, the Company had working capital of $45.0 million. At
December 31, 1995, the Company had a working capital deficit of $16.1 million.
The Company has financed its cash requirements through a combination of equity
and debt financing and through cash flows from operating activities. In May
1992, the Company borrowed $1.0 million (the "First Sirrom Note") from Sirrom
Capital Corporation ("Sirrom"), an independent lender unaffiliated with the
Company, which was used to fund the Company's operations and for capital
expenditures. In December 1993, the Company borrowed an additional $1.0 million
from Sirrom (the "Second Sirrom Note") (the First Sirrom Note and Second Sirrom
Note are referred to as the "Notes"). In connection with entering into the
Notes, the Company granted Sirrom warrants to purchase an aggregate of 568,392
shares of common stock at $0.042 per share, the terms of which do not require
the cancellation or exercise of the warrants upon repayment of the Notes. The
Company used $2.0 million of the net proceeds of its initial public offering to
retire the Notes in March 1996. In January 1994, the Company issued 8%
cumulative Series A Preferred Stock to NationsBanc Capital Corporation
("NationsBanc"), from which it realized net proceeds of $3.9 million. In
connection with the issuance of the Company's Series A Preferred Stock, all of
the Company's outstanding 1993 Preferred Stock and Debentures were converted
into common stock. A portion of the net proceeds of the Second Sirrom Note and
the issuance of the Series A Preferred Stock was used to fund operations. The
Company invested the remainder of the proceeds of the Second Sirrom Note and the
Series A Preferred Stock, amounting to $3.5 million, in short-term interest-
bearing securities. On January 19, 1996, the Company exercised its right to
redeem the Series A Preferred Stock from NationsBanc. On February 1, 1996,
NationsBanc elected to convert all of the Series A Preferred Stock into common
stock. Thus, effective February 1, 1996, all outstanding shares of Series A
Preferred Stock were converted into 3,095,592 shares of common stock. In
connection with the conversion, the Company paid NationsBanc $677,000 in accrued
but unpaid dividends and interest on the Series A Preferred Stock during the
year ended December 31, 1996. In connection with the Company's initial public
offering, the Company issued 4,570,000 shares of its $0.01 par value common
stock in March 1996. The Company received net proceeds of $74.6 million after
the underwriting discount and expenses of the offering.
The Company's principal commitments consist of various notes due to
shareholders and banks. These notes are primarily used to fund investments in
switching and voice messaging equipment needed to accomodate the increase in
calling card and voice messaging subscribers and licensees. The Company believes
that cash on hand, cash from operations and other working capital will be
sufficient to fund the Company's capital requirements. The Company may,
depending upon conditions in the capital markets and other factors, consider
other capital transactions to increase the Company's financial flexibility.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting ("SFAS") No. 128 ("SFAS 128"), Earnings Per
Share, which is effective for fiscal years ending after December 15, 1997. See
Note 2 of Notes to Consolidated Financial Statements.
In addition, during 1997 the FASB has issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Company does not believe that these
statements will significantly change its financial statement disclosures.
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FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
shareholders. Statements made in this discussion and the Company's Annual
Report, other than those concerning historical information, should be considered
forward-looking and subject to various risks and uncertainties. Such forward-
looking statements are made based on management's belief as well as assumptions
made by, and information currently available to, management pursuant to "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results may differ materially from the results anticipated in
these forward-looking statements due to, among other things, the factors
discussed in the Company's current reports on Form 8-K filed during 1997 with
the Securities and Exchange Commission.
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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.
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 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 legacy 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) a recently acquired private frame relay digital messaging network.
The Company's modular and scalable intelligent network incorporates an open-
system design, which allows the Company to easily expand capacity and provide
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
points of presence ("POPs"), reaches approximately 90% of the United States
population and approximately 100% of the Canadian, Australian and New Zealand
populations via local access. Premiere anticipates reaching a significant
portion of the United Kingdom population via local access 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 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 the Company believes will make its
enhanced personal communications 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>
<CAPTION>
FEATURE DESCRIPTION
<S> <C>
- ---------------------------------------------------------------------------------------------
Calling Card Long Distance Subscribers can place worldwide long distance calls at
attractive rates.
- ---------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------
Conference Calling Subscribers can initiate conference calls by commands
delivered through a telephone key pad.
- ---------------------------------------------------------------------------------------------
Information Services Subscribers can access news, weather, sports and financial
and other information updates provided by CNN or the Chicago
Tribune.
- ---------------------------------------------------------------------------------------------
Speed Dial Subscribers can create their own personal speed dial
directory which they can access each time they use the
platform.
- ---------------------------------------------------------------------------------------------
Electronic Bill Payment In connection with a relationship with CheckFree
Corporation, subscribers can pay bills electronically
through the platform.
- ---------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
<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.
- ------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------
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, which is currently in limited release. 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.
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 VoiceCom Holdings,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.
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 scalable design of the platform and related
software allows expansion of network capacity without requiring replacement of
existing hardware or software or interrupting service. Premiere's open systems
design approach enables Premiere to utilize readily available third party
hardware and software in constructing its platform and facilitates the
integration of services and information provided by third parties into the
system. 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 scalable. 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.
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.
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, AFCOM and VoiceCom 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.
When fully implemented, the Company's Orchestrate product line 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. 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. 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.
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 the 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 buy and resell unbundled
network services, which could also be used as a platform to provide total access
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 adopted 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.
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 provisions provide only limited
protection of the Company's proprietary rights and technology. 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, 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 of 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 nonexclusive 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 October 28, 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 Premiere, PCI and the Company's president,
Boland T. Jones, in the Superior Court of Fulton County, Georgia. As of December
2, 1997, the Company, PCI and Mr. Jones have entered into a settlement agreement
with Mr. Bott settling and disposing of Mr. Bott's claims in connection with
this litigation. In the complaint, Mr. Elliott and CRS alleged that:
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(i) Mr. Elliott or CRS, an affiliate of Mr. Elliott, is
entitled to options to purchase 5,000 or 10,000 shares of common stock of
Premiere at an unspecified exercise price arising out of work allegedly
performed by CRS for the Company; and (ii) CRS is owed an unspecified amount of
commissions from the Company relating to sales of the Company's
telecommunications services by CRS. The remaining plaintiffs also seek
attorneys' fees and unspecified amounts of punitive damages. The Company filed
an answer and counterclaim denying all allegations of the complaint and
asserting various affirmative defenses. The Company believes that the share
numbers and exercise prices have not been adjusted for the 24-to-1 stock split
effected in December 1995. The Company believes it has meritorious defenses to
the 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.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). On August 23, 1996, CNC
filed a motion to intervene in a separate lawsuit brought by a CNC creditor in
the United States District Court for the Southern District of New York against
certain guarantors of CNC's obligations and to file a third-party action against
numerous entities, including such CNC creditor and PCI for alleged negligent
misrepresentations of fact in connection with an alleged fraudulent scheme
designed to damage CNC. The court has not ruled on CNC's request. Based upon the
bankruptcy examiner's findings 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 recently reached a tentative
agreement of 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. 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 with
certainty whether the above-described settlement will be approved by the
Bankruptcy Court, nor is the Company able to predict the outcome of the Al-
Khatib lawsuit. 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, operating results or financial
condition. 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, operating
results or financial condition.
On September 20, 1996, Peter Lucina ("Lucina") filed a complaint against the
Company, Donald B. Gasgarth ("Gasgarth") and Patrick G. Jones ("Jones") in the
United States District Court for the Eastern District of Illinois. As of
December 3, 1997, the Company Gasgarth and Jones have entered into a settlement
agreement with Lucina settling and disposing of Lucina's claims in connection
with this litigation.
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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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