PREMIERE TECHNOLOGIES INC, 10-Q, 1999-08-16

PREMIERE TECHNOLOGIES INC
10-Q, 1999-08-16
COMMUNICATIONS SERVICES, NEC

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________________ to ____________________

COMMISSION FILE NUMBER: 0-27778
PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

GEORGIA
(State or other jurisdiction of incorporation or organization)

59-3074176
(I.R.S. Employer Identification No.)

3399 PEACHTREE ROAD NE
THE LENOX BUILDING, SUITE 600 ATLANTA, GEORGIA 30326
(Address of principal executive offices, including zip code)

(404) 262-8400
(Registrant's telephone number including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

(1) Yes [X] No [_] (2) Yes [X] No [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at August 13, 1999
----- ------------------------------
Common Stock, $0.01 par value 46,761,468 shares
<PAGE>

PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1 Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998................................................................. 3

Condensed Consolidated Statements of Operations
for the Three and Six Month Periods ended June 30, 1999 and 1998...................... 4

Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1999 and 1998....................................... 5

Notes to Condensed Consolidated Financial Statements.................................. 6

Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 14

Item 3 Quantitative and Qualitative Disclosures About Market Risk............................ 22

PART II OTHER INFORMATION

Item 1 Legal Proceedings..................................................................... 23

Item 2 Changes in Securities................................................................. 25

Item 3 Defaults Upon Senior Securities....................................................... 25

Item 4 Submission of Matters to a Vote of Security Holders................................... 25

Item 5 Other Information..................................................................... 26

Item 6 Exhibits and Reports on Form 8-K...................................................... 26

SIGNATURES...................................................................................... 27
</TABLE>

EXHIBIT INDEX

2
<PAGE>

ITEM 3. FINANCIAL STATEMENTS

PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents................................... $ 14,141 $ 19,226
Marketable securities.................................. 162 20,769
Accounts receivable, net............................... 62,307 55,660
Prepaid expenses and other............................. 13,015 7,940
Deferred income taxes, net............................. 20,977 20,977
--------- ----------
Total current assets............................... 110,602 124,572

PROPERTY AND EQUIPMENT, NET............................. 127,125 137,311

OTHER ASSETS
Strategic alliances and investments, net.............. 31,720 28,510
Intangibles, net...................................... 476,387 492,185
Deferred income taxes, net............................ 7,994 -
Other assets.......................................... 12,478 20,173
--------- ----------
$ 766,306 $ 802,751
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable...................................... $ 27,359 $ 24,270
Accrued liabilities................................... 53,073 48,817
Accrued taxes......................................... 22,906 16,279
Revolving loan........................................ 126,064 118,082
Current maturities of long-term debt and
capital lease obligations......................... 1,418 3,370
Accrued restructuring, merger costs
and other special charges......................... 6,099 7,545
--------- ----------
Total current liabilities......................... 236,919 218,363
--------- ----------

LONG-TERM LIABILITIES
Convertible subordinated notes........................ 172,500 172,500
Long-term debt and capital lease obligations.......... 5,521 5,721
Other accrued liabilities............................. 877 1,111
Deferred income taxes, net ........................... - 4,162
--------- ----------
Total long-term liabilities....................... 178,898 183,494
--------- ----------

COMMITMENTS AND CONTINGENCIES (Note 10) - -

SHAREHOLDERS' EQUITY
Common stock, $0.01 par value; 150,000,000 shares
authorized, 47,351,337 and 46,894,148 shares
issued in 1999 and 1998, respectively, and
46,254,337 and 45,797,148 shares
outstanding in 1999 and 1998, respectively........ 474 469
Additional paid-in capital............................ 562,653 562,106
Treasury stock, at cost .............................. (9,133) (9,133)
Note receivable, shareholder ......................... (973) (973)
Cumulative translation adjustment..................... 1,221 1,269
Accumulated deficit................................... (203,753) (152,844)
--------- ----------
Total shareholders' equity........................ 350,489 400,894
--------- ----------
$ 766,306 $ 802,751
========= ==========
</TABLE>

Accompanying notes are integral to these condensed consolidated
financial statements.

3
<PAGE>

PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- -------- -------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE.................................................. $114,444 $121,435 $227,253 $206,336
TELECOMMUNICATIONS COSTS ................................ 32,204 35,778 64,660 62,148
--------- -------- -------- --------
GROSS PROFIT............................................. 82,240 85,657 162,593 144,188
DIRECT OPERATING COSTS................................... 17,472 15,062 33,214 21,049
--------- -------- -------- --------
CONTRIBUTION MARGIN...................................... 64,768 70,595 129,379 123,139
--------- -------- -------- --------
OTHER OPERATING EXPENSES
Selling and Marketing.................................. 30,882 27,585 55,006 48,663
General and administrative............................. 31,762 35,535 53,747 43,698
Depreciation and amortization.......................... 42,130 28,705 82,431 41,244
Restructuring, merger costs and other special charges.. - - - 7,545
Acquired research and development...................... - - - 15,500
Accrued settlement cost................................ - - - 1,500
--------- -------- -------- --------
Total other operating expenses...................... 104,774 91,825 191,184 158,150
--------- -------- -------- --------
OPERATING LOSS........................................... (40,006) (21,230) (61,805) (35,011)
--------- -------- -------- --------
OTHER INCOME (EXPENSE)...................................
Interest, net.......................................... (6,420) (3,942) (12,016) (5,422)
Other, net............................................. 13,664 (71) 13,219 (183)
--------- -------- -------- --------
Total other income (expense)........................ 7,244 (4,013) 1,203 (5,605)
--------- -------- -------- --------
LOSS BEFORE INCOME TAXES................................. (32,762) (25,243) (60,602) (40,616)
INCOME TAX BENEFIT....................................... (6,881) (4,291) (9,693) (6,904)
--------- -------- -------- --------
NET LOSS................................................. $(25,881) $(20,952) $(50,909) $(33,712)
========= ======== ======== ========

BASIC NET LOSS PER SHARE................................. $ (0.56) $ (0.45) $ (1.10) $ (0.79)
========= ======== ======== ========
DILUTED NET LOSS PER SHARE............................... $ (0.56) $ (0.45) $ (1.10) $ (0.79)
========= ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC.................................................. 46,168 46,074 46,083 42,784
========= ======== ======== ========
DILUTED................................................ 46,168 46,074 46,083 42,784
========= ======== ======== ========
</TABLE>

Accompanying notes are integral to these condensed consolidated
financial statements.

4
<PAGE>

PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $(50,909) $(33,712)
Adjustments to reconcile net loss to cash flows
from operating activities:
Depreciation and amortization........................... 82,431 41,244
Deferred income taxes................................... (10,776) (16,498)
Restructuring, merger costs and other special
charges................................................ 7,545
Accrued settlement cost ................................ - 1,500
Acquired research and development....................... - 15,500
Payments for restructuring, merger costs and
other special charges.................................. (1,747) (13,657)
Changes in assets and liabilities:
Accounts receivable, net................................ (2,269) 899
Prepaid expenses and other.............................. (8,479) 2,536
Accounts payable and accrued expenses................... 4,299 8,910
-------- --------
Total adjustments.................................. 63,459 47,979
-------- --------
Net cash provided by operating activities.......... 12,550 14,267
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment......................... (20,791) (31,688)
Proceeds from disposal of property and equipment .......... - 107
Redemption of marketable securities, net................... 20,613 102,581
Cash paid for acquired companies, net of cash
acquired.................................................. (24,047) (39,900)
Strategic investments...................................... (8,089) (8,019)
Other...................................................... 7,407 105
-------- --------
Net cash (used in) provided by investing
activities....................................... (24,907) 23,186
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments under) borrowing
arrangements, net......................................... 6,307 (6,741)
Purchase of common stock for treasury...................... - (2,619)
Net funds from exercise of stock options................... 970 (2,150)
Other...................................................... - (354)
-------- --------
Net cash provided by (used in) financing activities. 7,277 (11,864)
-------- --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH...................... (5) (350)
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS.............. (5,085) 25,239
CASH AND EQUIVALENTS, beginning of period.................... 19,226 21,770
-------- --------
CASH AND EQUIVALENTS, end of period.......................... $ 14,141 $ 47,009
======== ========
</TABLE>

Accompanying notes are integral to these condensed consolidated
financial statements.

5
<PAGE>

PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements
have been prepared by management of Premiere Technologies, Inc. (the "Company"
or "Premiere") in accordance with rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, certain information and footnote
disclosures usually found in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In the
opinion of management of the Company, all adjustments (consisting only of normal
recurring adjustments, except as disclosed herein) considered necessary for a
fair presentation of the condensed consolidated financial statements have been
included. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Examples include provisions for bad debts, carrying
values and useful lives assigned to goodwill and other long-lived assets and
accruals for restructuring costs and employee benefits. Actual results could
differ from those estimates. These interim condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K/A, for the year ended December 31, 1998, as amended.

2. ACCOUNTING CHANGES

Restatement

In February 1999, Premiere announced that as a result of discussions with the
Office of the Chief Accountant of the Securities and Exchange Commission,
Premiere was required to discontinue accounting for its acquisition of Xpedite
Systems, Inc. ("Xpedite") as a pooling-of-interests and to account for such
acquisition under the purchase method of accounting. Accordingly, Premiere has
restated its unaudited interim financial statements for 1998. The Office of the
Chief Accountant determined that Premiere's post-merger share repurchase
program, completed in September 1998, was not implemented in accordance with
pooling requirements. No questions were raised regarding the propriety of the
original accounting for the merger with Xpedite.

Acceleration of Depreciation and Amortization

In the fourth quarter of 1998, the Company accelerated depreciation of certain
assets by shortening their estimated useful lives. These assets consist of
computers and telecommunications equipment associated with certain legacy
technology systems which management intends to remove from service in the
foreseeable future. Effective in the fourth quarter of 1998, these assets are
being amortized over periods ranging from nine months to one year, the
anticipated remaining service period. Prior to the change, such assets were
being amortized over estimated lives ranging from two to five years.

In addition, the Company accelerated the amortization of all remaining goodwill
and other acquired intangible assets effective in the fourth quarter of 1998.
This action resulted from management's determination that the period over which
it anticipates deriving future cash flows from such assets warrants a shorter
estimated useful life for amortization purposes. Goodwill is now being amortized
over seven years as compared with 10 to 40 years prior to the change. Remaining
acquired intangible assets are being amortized over lives ranging from three to
five years as compared with five to eight years prior to the change.

The Company has also shortened the amortization period associated with a
strategic alliance contract intangible asset from 25 years to three years
effective in the fourth quarter of 1998. See "Note 8-Strategic Alliances and
Investments" for further discussion surrounding events causing this change.

6
<PAGE>

3. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivatives and
hedging. It requires that all derivatives be recognized as either assets or
liabilities at fair value and establishes specific criteria for the use of hedge
accounting. The Company's required adoption date is January 1, 2001. SFAS No.
133 is not to be applied retroactively to financial statements of prior periods.
The Company expects no material impact to its results of operations or financial
position upon adoption of SFAS No. 133.

4. NET INCOME (LOSS) PER SHARE

Net loss per share is computed in accordance with SFAS No. 128, "Earnings per
Share." Basic and diluted net loss per share are the same in the three and six
month periods ended June 30, 1999 and 1998 because both of the Company's
potentially dilutive securities, convertible subordinated notes and stock
options, are antidilutive in such periods.

5. COMPREHENSIVE INCOME

In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income (loss) represents the change in equity of a business during
a period, except for investments by owners and distributions to owners. Foreign
currency translation adjustments represent the Company's only component of other
comprehensive income (loss) in the six month periods ended June 30, 1999 and
1998. For the three month periods ended June 30, 1999 and 1998, total
comprehensive loss was approximately $(24.1) million and $(20.3) million,
respectively. For the six month periods ended June 30, 1999 and 1998, total
comprehensive loss was $(51.0) million and $(33.6) million, respectively.

6. ACQUISITIONS

AMERICAN TELECONFERENCING SERVICES, LTD. ACQUISITION

In April 1998, the Company purchased all of the issued and outstanding common
stock of American Teleconferencing Services ("ATS"), a provider of full service
conference calling and group communication services. The shareholders of ATS
received an aggregate of approximately 712,000 shares of Premiere common stock
and cash consideration of approximately $22.1 million. Excess purchase price
over fair value of net assets acquired of approximately $47 million has been
recorded as goodwill and is being amortized on a straight-line basis over seven
years. This transaction has been accounted for as a purchase.

XPEDITE SYSTEMS, INC. ACQUISITION

On February 27, 1998, Premiere acquired Xpedite Systems, Inc. ("Xpedite"), a
worldwide leader in the electronic document distribution business including,
fax, e-mail, telex and mailgram services. Premiere issued approximately 11.0
million shares of its common stock in connection with this acquisition. This
transaction has been accounted for as a purchase. The purchase price of Xpedite
has been allocated as follows:

<TABLE>
<S> <C>
Operating and other tangible assets.. $ 90,035
Customer lists....................... 35,700
Developed technology................. 34,300
Acquired research and development.... 15,500
Assembled workforce.................. 7,500
Goodwill............................. 384,701
--------
Assets acquired...................... 567,736
Less liabilities assumed............. 203,487
--------
$364,249
========
</TABLE>

7
<PAGE>

The valuation of intangible assets and acquired research and development were
based upon an independent appraisal. Acquired research and development
represents the value assigned to research and development projects in the
development stage which had not reached technological feasibility at the date of
acquisition or had no alternative future use. These costs were expensed at the
date of the acquisition.

The acquired research and development related to a project to develop a new job
monitor. This project was 50% complete as of the acquisition date and had not
yet completed a successful beta test. The primary high risk at valuation date
involved identifying and correcting the design flaws that would typically arise
during beta testing. Fair value was determined using an income approach.
Revenues from this new job monitor are anticipated beginning in 1999 and a
discount rate of 25% was used for valuation purposes.

INTERNATIONAL ACQUISITIONS

During the second quarter of 1999, Premiere purchased all remaining ownership
interests it did not already own in an affiliated electronic document
distribution company located in France for approximately $19 million in cash and
liabilities assumed. Premiere held an approximate 18% ownership interest in the
affiliate prior to this transaction which has been accounted for as a purchase.
Excess purchase price over fair value of net assets acquired of approximately
$18 million has been recorded as goodwill and is being amortized on a straight-
line basis over seven years.

During the second quarter of 1998, the Company acquired two electronic document
distribution companies located in Germany and Singapore. The aggregate purchase
price of these acquisitions approximates $18 million in cash and liabilities
assumed. Both of the acquisitions were accounted for as purchases. Excess
purchase price over fair value of net assets acquired of approximately $13
million has been recorded as goodwill and is being amortized on a straight-line
basis over seven years.

The following unaudited pro forma consolidated results of operations assumes the
acquisitions made by the Company in 1998 and 1999 which were accounted for as
purchases occurred on January 1, 1998. Pro forma adjustments consist of
amortization of intangible assets acquired and interest reflecting cash paid in
the acquisitions (amounts in thousands):

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $118,643 $129,471 $238,401 $266,110
Net income (loss) (26,205) (21,359) (51,133) (49,555)
Basic net income (loss) per share (0.57) (0.46) (1.11) (1.08)
Diluted net income (loss) per share (0.57) (0.46) (1.11) (1.08)
</TABLE>

7. RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES

In the first quarter of 1998, Premiere recorded a charge of approximately $7.5
million to restructure the operations of Premiere and Xpedite subsequent to
their merger. Such costs consist of severance associated with workforce
reduction, lease termination costs, costs to terminate certain contractual
obligations and asset impairments. Severance benefits have been provided for
termination of 122 employees. These actions resulted from management's plan to
reduce sales, operations and administrative headcount by exiting duplicative and
underperforming operations. Premiere has also provided for lease termination
and clean-up costs associated with these facilities and operations. In addition,
the Company provided for costs associated with commitments under certain
advertising contracts from which the Company was generating no incremental
revenue and for costs to terminate certain unfavorable reseller agreements.
Although certain restructuring actions were being contemplated at the
acquisition date, definitive plans for such actions were not formalized until
after such date. Accordingly, there were no exit costs included in the purchase
price allocation of Xpedite.

8
<PAGE>

Activity in accrued costs for restructuring, merger costs and other special
charges during the six month period ended June 30, 1999 is as follows (amounts
in thousands):

<TABLE>
<CAPTION>
Accrued Accrued
Costs Costs
December 31, Costs June 30,
1998 Incurred 1999
---- -------- ----
<S> <C> <C> <C>
Severance......................................................... $ 4,837 $ 912 $ 3,925
Asset impairments................................................. 4,722 300 4,422
Restructure or terminate contractual obligations.................. 417 94 323
Other costs, primarily to exit facilities and certain activities.. 2,291 440 1,851
------- ------ -------
$12,267 $1,746 $10,521
======= ====== =======
</TABLE>

8. STRATEGIC ALLIANCES AND INVESTMENTS

Assets recorded as strategic alliances and investments at June 30, 1999 and
December 31, 1998 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
MCI WorldCom strategic alliance...................... $16,072 $16,072
Less accumulated amortization........................ 5,740 3,445
------- -------
10,332 12,627
Equity investments................................... 21,388 15,883
------- -------
$31,720 $28,510
======= =======
</TABLE>

Management periodically reviews assets for impairment and in 1998 determined
that a write-down in the carrying value of the MCI WorldCom strategic alliance
was required based upon management's assessment of revenue levels expected to be
derived from this alliance and uncertainties surrounding the merger of WorldCom
and MCI in 1998. Accordingly, Premiere recorded a write-down in the carrying
value of this investment of approximately $13.9 million in 1998. In addition,
the Company accelerated amortization of this asset effective in the fourth
quarter of 1998 by shortening its amortization period to three years as compared
with 25 years prior to the change. In June 1999, Premiere filed a complaint
against MCI WorldCom alleging breach of the Strategic Alliance Agreement. See
"Note 10 - Commitments and Contingencies." If Premiere is unsuccessful in
attaining revenue levels from this alliance sufficient to recover the carrying
value of this asset, future write-downs of this asset will be required. In
addition, Premiere recorded a write-down of approximately $3.9 million in the
fourth quarter of 1998 in its investment in certain equity securities of DigiTEC
2000. This charge was necessary to reduce the carrying value of this investment
to its fair market value based upon management's assessment that the decline in
value of these securities below their carrying value was not temporary.
Management continually reviews these and other assets for impairment. In the
event management determines an asset impairment has occurred, write-downs in the
carrying value of such assets may be required.

Equity investments classified as strategic alliances and investments consist of
initiatives funded by the Company to further its strategic plan. These
investments and alliances involve emerging technologies, such as the Internet,
as well as marketing alliances and outsourcing programs designed to reduce costs
and develop new markets and distribution channels for the Company's products.
Premiere's investments include minority equity interests in WebMD, a provider of
Internet-based services to the healthcare industry; USA.NET, a provider of
outsourced e-mail services; VerticalOne, a network-based services provider that
increases frequency, duration, and quality of its customers' visits to Websites;
Webforia, a provider of Web services, tools and communities that assist
individuals in presenting high quality information from the Internet; and
Derivion, a provider of electronic bill presentment and payment solutions.
Premiere's investments also include a minority equity interest in Intellivoice,
an entity engaged in developing Internet-enabled communications products. See
"Note 13-Subsequent Event." Management intends to make such investments in the
future in complementary businesses and other initiatives that further its
strategic business plan. All equity investments held by the Company in other
organizations represent a less than 20 percent ownership interest and are being
accounted for under the cost method.

9
<PAGE>

9. STOCK-BASED COMPENSATION PLANS

The Company has three stock based compensation plans, the 1994 Stock Option
Plan, the 1995 Stock Plan and the 1998 Stock Plan, which provide for the
issuance of restricted stock, stock options, warrants or stock appreciation
rights to employees, directors, non-employee consultants and advisors of the
Company. In addition, the Company has implemented an Associate Stock Purchase
Plan, which allows employees to purchase common stock through payroll
deductions. These plans are administered by committees consisting of members of
the Board of Directors of the Company.

Options for all 960,000 shares of common stock available under the 1994 Stock
Option Plan have been granted. Generally, all such options are non-qualified,
provide for an exercise price equal to fair market value at date of grant, vest
ratably over three years and expire eight years from date of grant.

The 1995 Stock Plan provides for the issuance of stock options, stock
appreciation rights and restricted stock to employees. A total of 8,000,000
shares of common stock have been reserved in connection with this plan. Options
issued under this plan may be either incentive stock options, which permit
income tax deferral upon exercise of options, or non-qualified options not
entitled to such deferral.

On July 22, 1998, the Board of Directors approved the 1998 Stock Plan (the "1998
Plan") that essentially mirrors the terms of the Company's existing 1995 Stock
Plan, except that it is not intended to be used for executive officers or
directors. In addition, the 1998 Plan, because it was not approved by the
shareholders, does not provide for the grant of incentive stock options. Under
the 1998 Plan, 6,000,000 shares of common stock are reserved for the grant of
non-qualified stock options and other incentive awards to employees and
consultants of the Company.

Sharp declines in the market price of the Company's common stock during 1998
resulted in many outstanding employee stock options being exercisable at prices
that exceeded the current market price of the Company's common stock, thereby
substantially impairing the effectiveness of such options as performance
incentives. Consistent with the Company's philosophy of using equity incentives
to motivate and retain management and employees, the Board of Directors
determined it to be in the best interests of the Company and its shareholders to
restore the performance incentives intended to be provided by employee stock
options by repricing such options. Consequently, on July 22, 1998 the Board of
Directors of the Company determined to reprice or regrant all employee stock
options which had exercise prices in excess of the closing price on such date
(other than those of Chief Executive Officer Boland T. Jones) to $10.25, which
was the closing price of Premiere's common stock on such date.

On December 14, 1998, the Board of Directors determined to reprice or regrant at
an exercise price of $5.50, all employee stock options which had an exercise
price in excess of $5.50, which was above the closing price of Premiere's common
stock on such date. The vesting schedules remained the same and the repriced or
regranted options are generally subject to a twelve-month black-out period
during which the option may not be exercised. If the optionee's employment is
terminated during the black-out period, generally he or she will forfeit any
repriced or regranted options that first vested during the twelve-month period
preceding his or her termination of employment. By imposing the black-out and
forfeiture provisions on the repriced and regranted options, the Board of
Directors intends to provide added incentive for the optionees to continue
service with the Company.

Effective June 1, 1999, the Company adopted an Associate Stock Purchase Plan to
provide all employees who regularly work at least 20 hours each week and at
least five months each calendar year and who have two months of consecutive
service an opportunity to purchase shares of its common stock through payroll
deductions. The purchase price of the stock is equal to 85% of the fair market

10
<PAGE>

value of the common stock on either the first or last day of each six month
subscription period, whichever is lower. Purchases under the plan are limited to
20% of an associate's base salary and a maximum of a calendar year aggregate
fair market value of $25,000. In connection with this Plan, 1,000,000 shares of
common stock are reserved for future issuance.

During the second quarter of 1999, the Company made restricted stock grants to
certain executives of a limited number of Company-owned shares held in certain
strategic equity investments. These Company-owned shares included 168,000 shares
of WebMD Series E Common Stock and 6,461 shares of WebMD Series F Preferred
Stock, and 70,692 shares of USA.NET Series C Preferred Stock. The vesting
periods for these shares ranged from immediately upon grant to three years,
contingent on the executive being employed by the Company. Excluding the shares
subject to these restricted stock grants, the Company owns an aggregate of
1,932,000 shares of WebMD Series E Common Stock and 74,305 shares of WebMD
Series F Preferred Stock, and 812,960 shares of USA.NET Series C Preferred
Stock. In connection with this action, the Company recorded a $13.9 million non-
cash gain resulting from the write-up to fair market value of these investments
and a $8.9 million non-cash expense related to the partial vesting of these
grants. The gain reflects the difference between the Company's cost basis and
fair market value at date of grant of these investments as determined by an
independent appraisal. The Company will be required to record additional non-
cash charges of $2.7 million and $1.5 million in the third and fourth quarters
of 1999, respectively, and $1.6 million thereafter reflecting the remaining
vesting period associated with the grant.

10. COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company has several litigation matters pending, as described below, which it
is defending vigorously. Due to the inherent uncertainties of the litigation
process and the judicial system, the Company is unable to predict the outcome of
such litigation matters. If the outcome of one or more of such matters is
adverse to the Company, it could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10, 1998.
Class members allegedly include those who purchased the Company's common stock
as well as those who acquired stock through the Company's acquisitions of Voice-
Tel Enterprises, Inc. ("Voice-Tel"), Voice-Tel's franchisees and Xpedite.
Plaintiffs allege the defendants made positive public statements concerning the
Company's growth and acquisitions. In particular, plaintiffs allege the
defendants spoke positively about the Company's acquisitions of Voice-Tel,
Xpedite, American Teleconferencing Services, TeleT Telecommunications, LLC
("TeleT") and VoiceCom Holdings, Inc. ("VoiceCom"), as well as its venture with
UniDial Communications, its investment in USA.NET and the commercial release of
Orchestrate(R). Plaintiffs allege these public statements were fraudulent
because the defendants knowingly failed to disclose that the Company allegedly
was not successfully consolidating and integrating these acquisitions. Alleged
evidence of scienter include sales by certain individual defendants during the
class period and the desire to keep the common stock price high so that future
acquisitions could be made using the Company's common stock. Plaintiffs allege
the truth was purportedly revealed on June 10, 1998, when the Company announced
it would not meet analysts' estimates of second quarter 1998 earnings because,
in part, of the financial difficulties experienced by a customer and by a
strategic partner with respect to the Company's Enhanced Calling Services,
revenue shortfalls from its Voice and Data Messaging services, as well as other
unanticipated costs and charges totaling approximately $17.1 million on a pre-
tax basis. Plaintiffs allege the Company admitted it had experienced difficulty
in achieving its anticipated revenue and earnings from voice messaging services
due to difficulties in consolidating and integrating its sales function.
Plaintiffs allege violation of Sections 10(b), 14(a) and 20(a) of the Securities
Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities Act of 1933.
The Company filed a motion to dismiss this complaint in April 1999, which is
pending.

A lawsuit was filed on November 4, 1998 against the Company, as well as
individual defendants Boland T. Jones, Patrick G. Jones, George W. Baker, Sr.,
Eduard J. Mayer and Raymond H. Pirtle, Jr. in the Southern District of New York.
Plaintiffs were shareholders of Xpedite who acquired common stock of the Company
as a result of the merger between the Company and Xpedite in February 1998.
Plaintiffs' allegations are based on the representations and warranties made by
the Company in the prospectus and the registration statement related to the
merger, the merger agreement and other documents incorporated by reference,
regarding the Company's acquisitions of Voice-Tel and VoiceCom, the Company's
roll-out of Orchestrate(R), the Company's relationship with customers Amway
Corporation and DigiTEC, 2000, Inc., and the Company's 800-based calling card
service. Based on these factual allegations, plaintiffs allege causes of action
against the Company for breach of contract, against all defendants for negligent
misrepresentation, violations of Sections 11 and 12(a)(2) of the Securities Act
of 1933 ("Securities Act"), and against the individual Defendants for violation
of Section 15 of the Securities Act. Plaintiffs seek undisclosed damages
together with pre- and post-judgment interest, recission or recissory damages as
to violation of Section 12(a)(2) of the Securities Act, punitive damages, costs
and attorneys' fees. Defendants' motion to transfer venue to Georgia has been
granted and the defendants' motion to dismiss is pending.

On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of

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<PAGE>

Communications Network Corporation ("CNC"), and his company, Platinum
NetworkCorp. ("Platinum"), filed a complaint against Premiere Communications,
Inc. ("PCI"), WorldCom Network Services, Inc. f/k/a WilTel, Inc, ("WorldCom"),
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 United States District Court for the
Eastern District of New York. Plaintiffs contend that 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 and
made misrepresentations of fact in connection with the scheme. The plaintiffs
are seeking at least $250 million in compensatory damages and $500 million in
punitive damages from PCI and the other defendants. This matter has been
settled, pending payment of $250,000 by Khatib to WorldCom. The settlement does
not require PCI or Premiere to make any payments.

On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in
the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments with
Equitable Life Assurance Society of the United States and/or Equico Securities,
Inc. (collectively "Equitable"). More specifically, the complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving insurance-related products. The
defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. On November
16, 1998 the court entered an order transferring all disputes between plaintiffs
and certain defendants to arbitration and dismissing without prejudice
plaintiff's complaint against those defendants. On or about December 23, 1998,
Xpedite filed a motion to stay the action pending the resolution of the
arbitration or in the alternative to compel plaintiffs to provide discovery. On
January 22, 1999, the court granted Xpedite's motion to stay further proceedings
pending the arbitration. On March 11, 1999, plaintiffs filed a motion for
reconsideration of the court's decision. On April 1, 1999, the court vacated the
January 22, 1999 order and directed that the action be referred to the active
case list. Xpedite filed a motion for leave to amend answer and assert cross-
claims, which is presently pending.

On December 22, 1998 Shelly D. Swift filed a complaint against First USA Bank,
First Credit Card Services USA, and PCI in the United States District Court for
the Northern District of Illinois. Swift alleges that the defendants sent her an
unsolicited "credit card" in violation of the Truth in Lending Act and state
law. Swift seeks an injunction and monetary damages on behalf of a putative
class of persons who received the alleged credit card. On February 19, 1999, the
defendants moved to dismiss the complaint for failure to state a claim upon
which relief can be granted. In May 1999, the court granted the motion to
dismiss as to all claims against PCI and, as a result, PCI is no longer a party
to this lawsuit.

In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported current
owner of certain patents, filed suit against Premiere and PCI alleging that they
had violated certain patent rights owned by Aspect and requesting damages and
injunctive relief. The suit asserts that Premiere is offering certain "calling
card and related enhanced services," "single number service" and "call
connecting services" covered by such rights. Premiere has reviewed the subject
patents and, based on that review, believes that its products and services
currently being marketed do not infringe them. On March 29, 1999, the Company
filed an answer denying the allegations and a counterclaim seeking to invalidate
the patents. This lawsuit is currently in the discovery phase. Additionally, the
Company believes that certain licenses it has from third-party vendors may
insulate the Company from some or all of any damages in the event of an adverse
outcome in this litigation.

On June 11, 1999, Premiere filed a complaint against MCI WorldCom, Inc. ("MCI
WorldCom") in the Superior Court of Fulton County for the State of Georgia.
Premiere subsequently filed an amended complaint on June 18, 1999. The amended
complaint alleges that MCI WorldCom breached the Strategic Alliance Agreement,
dated November 13, 1996 between Premiere and MCI WorldCom by, inter alia,
awarding various contracts to vendors other than Premiere and to which Premiere
was entitled either exclusive or preferential consideration. In addition to
injunctive relief, Premiere seeks damages of not less than $10 million, pre- and
post-judgment interest, costs and expenses of litigation, including attorneys'
fees. On July 1, 1999, the court entered an order staying all proceedings
pending arbitration. In connection with that order, MCI WorldCom agreed that it
would not issue any requests for information, requests for proposals or enter
into any contracts with respect to the proposals challenged by Premiere.
Premiere intends to commence arbitration proceedings against MCI WorldCom in the
near future.

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<PAGE>

The Company is also involved in various other legal proceedings which the
Company does not believe will have a material adverse effect upon the Company's
business, financial condition or results of operations, although no assurance
can be given as to the ultimate outcome of any such proceedings.

11. SEGMENT REPORTING

The Company's reportable segments are strategic business groups that align the
Company in two distinct market segments focused on the customers each serves:
large businesses and small office/home businesses and individuals. Corporate
Enterprise Solutions caters to large businesses, such as Fortune 1000 companies.
Its services include those most complementary with large organizations including
electronic document distribution, corporate messaging services, 800-based and
local access voice messaging, interactive voice response and calling card
programs and full-service conference calling. Emerging Enterprise Solutions
focuses in the small office/home office and individual subscriber segment. Its
services include Orchestrate (R), a suite of internet-based communication
services, local access voice and data messaging and enhanced calling services,
including long distance and enhanced 800-based services. Information concerning
the operations in these reportable segments for the three and six month periods
ended June 30, 1999 and 1998 is as follows (in millions):

<TABLE>
<CAPTION>
Three month period Six month period
ended June 30, ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Corporate Enterprise Solutions... $ 84.1 $ 81.6 $165.8 $115.1
Emerging Enterprise Solutions.... 30.4 39.9 61.7 91.3
Corporate and eliminations....... (.1) (.1) (.2) (.1)
------ ------ ------ ------
Totals........................... $114.4 $121.4 $227.3 $206.3
====== ====== ====== ======

EBITDA:
Corporate Enterprise Solutions... $ 19.7 $ 22.9 $ 40.2 $ 34.5
Emerging Enterprise Solutions.... (2.5) (1.7) 0.3 10.4
Corporate and eliminations....... (15.1) (13.7) (19.9) (14.2)
------ ------ ------ ------
Subtotal 2.1 7.5 20.6 30.7
Restructuring, merger costs and
other special charges........... - - - (7.5)
Acquired research and development - - - (15.5)
Accrued settlement cost.......... - - - (1.5)
------ ------ ------ ------
Totals $ 2.1 $ 7.5 $ 20.6 $ 6.2
====== ====== ====== ======
</TABLE>

12. AMENDMENT OF REVOLVING LOAN AGREEMENT

Effective June 4, 1999, the Company entered into an amendment to its revolving
loan facility to, among other things, eliminate certain financial covenants,
provide for the pledge of additional collateral (including its WebMD stock) and
establish a loan to value ratio with respect to the stock to be received by the
Company in connection with the merger between WebMD and Heatheon. The Company
was in compliance with all such loan covenants at June 30, 1999. Continued
compliance under these loan covenants will require that Premiere achieve certain
EBITDA ratios, and that the pledge of the additional collateral be completed by
no later than August 27, 1999 (which requires certain third party consents), and
until such pledge is completed the Company may not borrow additional funds in
excess of $4.0 million or a maximum of approximately $137.0 million. At June 30,
1999, the Company had unused borrowing capacity of approximately $23.9 million
under the revolving loan facility.

13. SUBSEQUENT EVENT

In August 1999, Premiere purchased the remaining shares of Intellivoice that it
did not already own for approximately 573,000 shares of Premiere common stock.
Intellivoice is engaged in developing Internet-enabled communications products.
This acquisition will be accounted for as a purchase.

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<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Premiere is a leading provider of enhanced communications services designed to
simplify everyday communications of both businesses and individuals. Premiere
provides its innovative solutions for simplifying communications through two
strategic business groups: Corporate Enterprise Solutions ("CES"), which targets
Fortune 1000 and other large companies; and Emerging Enterprise Solutions
("EES"), which targets smaller fast-track companies and individuals. CES's
services include: Premiere Document Distribution, which provides enhanced
electronic document distribution services; Premiere Corporate Messaging, which
provides local access and 800-based voice messaging services; Premiere WorldLink
Corporate Card, an 800-based enhanced calling card service; Premiere Interactive
Voice Response, which provides various IVR applications; and Premiere
Conferencing, which provides a full range of conferencing services. EES's
services include: Premiere Internet-Based Communications Services, featuring
Orchestrate(R) by Premiere, which integrates the Company's service offerings by
allowing customers to access such services through a computer or telephone;
Premiere Voice and Data Messaging, which provides customers access to one of the
largest "voice intranets" in the world; and Premiere Enhanced Calling Services,
which provides long distance and enhanced 800-based services.

Premiere's revenues are generally based on usage. In addition to usage fees,
local access Voice and Data Messaging services, certain of Premiere's Enhanced
Calling Services and the Orchestrate(R) suite of products contain fixed monthly
fees.

Telecommunications costs consist primarily of the cost of long distance
transmission and other telecommunications related charges incurred in providing
Premiere's services.

Direct operating costs consist primarily of rent and facility expense associated
with operations centers, salaries and wages of operations, engineering and
support personnel and other operating costs incurred in service delivery
activities.

Selling and marketing costs consist primarily of advertising and promotion
costs, employee and non-employee commissions and salary and wages and other
operating expenses associated with selling and marketing activities.

General and administrative expenses include salaries and wages associated with
customer service, research and development and administrative functions, bad
debt expense, professional and consulting fees, property taxes and other
operating expenses incurred in customer service, research and development and
administrative activities.

Depreciation and amortization includes depreciation of computer and
telecommunications equipment, office equipment and leasehold improvements 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, 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. Intangible assets being amortized include capitalized
software development costs, goodwill, customer lists, assembled work force, and
the MCI WorldCom strategic alliance.

"EBITDA" as used below, is defined as the sum of net income or loss and, to the
extent deducted in determining net income or loss for such period, net interest
expense, income taxes, depreciation and amortization.

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 estimates. The following discussion and
analysis provides information which management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in conjunction with the
consolidated condensed financial statements and notes thereto.

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<PAGE>

In February 1999, Premiere announced that as a result of discussions with the
Office of the Chief Accountant of the Securities and Exchange Commission,
Premiere was required to discontinue accounting for its acquisition of Xpedite
Systems, Inc. ("Xpedite") as a pooling-of-interests and to account for such
acquisition under the purchase method of accounting. Accordingly, Premiere has
restated its unaudited interim financial statements for 1998. The Office of the
Chief Accountant determined that Premiere's post merger share repurchase
program, completed in September 1998, was not implemented in accordance with
pooling requirements. No questions were raised regarding the propriety of the
original accounting for the merger with Xpedite.

ANALYSIS OF OPERATING RESULTS

Overview

The following table presents certain financial information about the Company's
strategic business groups for the three and six month periods ended June 30
(amounts in millions):

EBITDA:
Corporate Enterprise Solutions... $ 19.7 $ 22.9 $ 40.2 $ 34.5
Emerging Enterprise Solutions.... (2.5) (1.7) 0.3 10.4
Corporate and eliminations....... (15.1) (13.7) (19.9) (14.2)
------ ------ ------ ------
Subtotal 2.1 7.5 20.6 30.7
Restructuring, merger costs and
other special charges........... - - - (7.5)
Acquired research and development - - - (15.5)
Accrued settlement costs......... - - - (1.5)
------ ------ ------ ------
Totals $ 2.1 $ 7.5 $ 20.6 $ 6.2
====== ====== ====== ======
</TABLE>

Analysis

Premiere's financial statements reflect the results of operations of Xpedite,
acquired in February 1998, and ATS, acquired in April 1998, from the date of
their respective acquisitions. These acquisitions have been accounted for under
the purchase method of accounting. The following discussion and analysis is
prepared on that basis.

Consolidated revenues declined 5.8% to $114.4 million in the three months ended
June 30, 1999 as compared with the same period in 1998 and increased 10.1%
comparing the six month periods ended June 30, 1999 and 1998. CES revenues
increased 3.1% in the second quarter of 1999 as compared with the same period in
1998. Conference calling, Bank of America IVR program and increased
international document distribution volumes drove revenue growth in this group.
Additionally, the acquisition of the remaining ownership interests in an
affiliated document distribution company located in France contributed
incremental revenue in the second quarter of 1999. Revenue growth of 44.0% in
the first half of 1999 in the CES group as compared with the same 1998 period,
is due mainly to the acquisition of Xpedite in February 1998 and ATS in April
1998. EES Group revenues declined in the three and six month periods ended June
30, 1999 as compared with the same periods in 1998 due to revenue losses in 1998
from two EES Group customers which declared bankruptcy in the second quarter of
1998, management's decision to discontinue certain unprofitable prepaid calling
card programs and expiration of minimum revenue commitments provided under the
Company's strategic alliance agreement with MCI Worldcom.

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<PAGE>

Consolidated gross profit margins were 71.9% and 70.5% for the three months
ended June 30, 1999 and 1998, respectively, and 71.5% and 69.9% for the six
month periods ended June 30, 1999 and 1998, respectively. Consolidated gross
profit margins benefited in 1999 from the discontinuance of unprofitable prepaid
calling card programs in the first half of 1998. In general, Premiere has
experienced favorable trends in per unit telecommunications costs in each of its
strategic business groups by aggressively leveraging increasing minute volumes
to negotiate quantity discounts with telecommunications carriers. Such costs
have also been favorably affected by general industry trends in which long
distance transport and the cost of local access services have decreased as a
result of increased capacity and competition among long distance and local
exchange carriers.

Direct costs of operations increased to 15.3% of revenues in the three months
ended June 30, 1999 as compared with 12.4% for the same period of 1998 and
increased to 14.6% of revenues in the six months ended June 30, 1999 as compared
with 10.2% for the same period of 1998. The increase in these costs as a percent
of revenues results mainly from the acquisition of ATS (Premiere Conferencing)
in April 1998. The service delivery processes of Premiere Conferencing include a
relatively higher labor cost than Premiere's other services. Another factor
contributing to the increase in these costs as a percent of revenues in 1999, is
revenue losses in the EES group. Such losses hampered coverage of certain
relatively fixed operations, engineering and support costs.

Selling and marketing costs increased to $30.9 million or 27.0% of revenues in
the three months ended June 30, 1999 as compared with $27.6 million or 22.7% of
revenues in the same period of 1998 and increased to $55.0 million or 24.2% of
revenues in the six months ended June 30, 1999 as compared with $48.7 million or
23.6% of revenues in the same period of 1998. Increased selling and marketing
costs in the second quarter of 1999 as compared with the same period in 1998
result largely from Orchestrate branding initiatives in which Premiere
introduced its suite of Unified Messaging services in selected markets.
Management anticipates continuing to invest in selling and marketing costs at or
above these levels throughout 1999 as the Company continues Orchestrate brand
awareness campaigns in selected new markets. Increases in selling and marketing
costs for the six months ended June 30, 1999 as compared with the year ago
period were driven primarily by the inclusion of Xpedite and ATS in the
Company's consolidated financial statements subsequent to their acquisition in
1998 and the Orchestrate branding initiatives.

General and administrative costs were 27.8% of revenues for the three months
ended June 30, 1999 compared with 29.3% of revenues for the same period in 1998
and 23.7% of revenues for the six months ended June 30, 1999 compared with 21.2%
of revenues for the same period in 1998. During the second quarter of 1999, the
Company made restricted stock grants to certain executives of a limited number
of Company-owned shares held in certain strategic equity investments. In
connection with these grants, the Company recorded a $8.9 million non-cash
expense related to the partial vesting of these grants. The Company
will be required to record additional non-cash charges of $2.7 million and $1.5
million in the third and fourth quarters of 1999 and $1.6 million thereafter
reflecting the vesting period associated with the grant. In the second quarter
of 1998, the Company recorded $16.1 million of non-recurring costs reflecting
approximately $8.4 million of charges associated with uncollectible accounts
receivable related primarily to two financially distressed customers, $2.3
million of start-up costs, primarily executive compensation, incurred in the
start-up of its Orchestrate.com subsidiary and $1.8 million of asset impairment
and other costs. Excluding the costs set forth above, general and administrative
costs increased to $22.9 million or 20.0% of revenues in the second quarter of
1999 as compared with $19.4 million or 16.0% of revenues in the 1998 period.
Contributing to the increase in these costs as a percent of revenues, was the
Company's aggressive expansion of its management infrastructure in 1998 to more
effectively support anticipated growth in its business. These actions included
hiring additional senior level managers and expanding its corporate headquarters
facilities throughout 1998. On a year-to-date basis, the acquisition of Xpedite
in February 1998 and ATS in April 1998 added incremental general and
administrative costs in comparing 1999 with 1998.

Depreciation and amortization was $42.1 million for three month period ended
June 30, 1999 as compared with $28.7 million for the same period in 1998.
Depreciation and amortization increased in 1999 mainly due to changes in
depreciable lives for certain assets and goodwill. Amortization and
depreciation of certain operating and intangible assets were accelerated,
effective in the fourth quarter of 1998, following a reduction in the estimated
useful lives of such assets. This action was based on a reassessment of the
utility of such assets by Premiere's management. The affected assets consist of
goodwill and other intangible assets and computer and telecommunications
equipment associated with certain legacy technology systems, the use of which is
expected to be discontinued in the foreseeable future. Such assets are being
amortized over lives ranging from one to seven

16
<PAGE>

years, effective in the fourth quarter of 1998, as compared with lives ranging
from five to 40 years prior to the change.

Net interest expense increased to $6.4 million for the three months ended June
30, 1999 as compared with $3.9 million for the same period in 1998 and $12.0
million for the six months ended June 30, 1999 as compared with $5.4 million for
the same period in 1998. Net interest expense increased in 1999 primarily as a
result of reduced interest income caused by lower cash and short-term investment
balances in 1999. Such investments were used to fund 1998 and 1999 capital
expenditures, strategic investments and operating activities.

In the first quarter of 1998, Premiere recorded a charge of approximately $7.5
million to restructure the operations of Premiere and Xpedite subsequent to
their merger. Such costs consist of severance associated with workforce
reduction, lease termination costs, costs to terminate certain contractual
obligations and asset impairments. Severance benefits have been provided for
termination of 122 employees. These actions resulted from management's plans to
reduce sales, operations and administrative headcount by exiting duplicative and
underperforming operations. Premiere has also provided for lease termination
and clean-up costs associated with these facilities and operations. In addition,
the Company provided for costs associated with commitments under certain
advertising contracts from which the Company was generating no incremental
revenue and for costs to terminate certain unfavorable reseller agreements.
Although certain restructuring actions were being contemplated at the
acquisition date, definitive plans for such actions were not formalized until
after such date. Accordingly, there were no exit costs included in the purchase
price allocation of Xpedite.

Premiere expensed approximately $15.5 million in the first quarter of 1998
reflecting costs associated with a research and development project acquired in
the Xpedite acquisition. These costs were valued based upon an independent
appraisal. The acquired research and development related to a project to develop
a new job monitor. This project was 50% complete as of the acquisition date and
had not yet completed a successful beta test. The primary high risk at valuation
date involved identifying and correcting the design flaws that would typically
arise during beta testing. Fair value was determined using an income approach.
Revenues from this new job monitor are anticipated beginning in 1999 and a
discount rate of 25% was used for valuation purposes.

The Company recorded a $13.9 million nonrecurring gain as other income in the
second quarter of 1999 resulting from the write-up to fair market value of a
limited number of shares owned by the Company in certain strategic investments
which were granted into an executive incentive pool. The gain reflects the
difference between the Company's cost basis and fair market value at date of
grant of these investments as determined by an independent appraisal.

In 1999 and 1998, the Company's effective income tax rate varied from the
statutory rate primarily as a result of non-deductible goodwill amortization
associated with Premiere's acquisitions which have been accounted for under the
purchase method of accounting. Additionally, in 1999 non-deductible executive
compensation contributed to this variance.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations was $12.6 million for the six month period ended
June 30, 1999 as compared with $14.3 million in 1998. Operating cash flow
declined in 1999 primarily as a result of revenue losses in Premiere's EES
group, advertising and promotion costs associated with Orchestrate branding
initiatives and continued investment by the Company to expand its management
infrastructure.

Investing activities used cash of approximately $24.9 million in the six months
ended June 30, 1999 and provided $23.2 million in the same period in 1998. In
1999, the Company's investing activities included two individually insignificant
international acquisitions, capital expenditures of $20.8 million primarily
associated with expanding the Company's service delivery platforms, and
strategic equity investments of $8.1 million, including $5.0 million in
Derivion, $2.1 million in VerticalOne and $1.0 million in WebForia. The
principal source of cash from investing activities in 1998 was the liquidation
of approximately $102.6 million of short-term investments in marketable
securities. Significant uses of cash for investing activities in 1998 included
the acquisition of ATS and two document distribution companies located in
Germany and Singapore, capital expenditures of $31.7 million and strategic
equity

17
<PAGE>

investments of $8.0 million. Management anticipates that capital expenditure
levels will increase in the second half of 1999 compared to the levels
experienced in the first half of 1999, as the Company continues development of
its Web-based communications services and upgrades and expands operational
infrastructure of both its existing computer telephony network and the networks
of its acquired companies.

Financing activities provided net cash of $7.3 million in 1999 mainly from
borrowings under the Company's revolving loan facility. Effective December 16,
1998, Premiere amended and restated the revolving loan facility it assumed in
connection with the Xpedite acquisition for a period of one year. This
arrangement provides for borrowings of up to $150 million and contains certain
covenants which require the Company to maintain minimum earnings and interest
coverage ratios, in addition to other covenants. Effective June 4, 1999, the
Company entered into an amendment to its revolving loan facility to, among other
things, eliminate certain financial covenants, provide for the pledge of
additional collateral (including its WebMD stock) and establish a loan to value
ratio with respect to the stock to be received by the Company in connection with
the merger between WebMD and Heatheon. The Company was in compliance with all
such loan covenants at June 30, 1999. Continued compliance under these loan
covenants will require that Premiere achieve certain EBITDA ratios, and that the
pledge of the additional collateral be completed by no later than August 27,
1999 (which requires certain third party consents), and until such pledge is
completed the Company may not borrow additional funds in excess of $4.0 million
or a maximum of approximately $137.0 million. At June 30, 1999, the Company had
unused borrowing capacity of approximately $23.9 million under the revolving
loan facility.

At June 30, 1999, the Company's principal commitments involve indebtedness under
its revolving loan facility which matures December 16, 1999, convertible
subordinated notes which mature in June 2004, lease obligations and minimum
purchase requirements under supply agreements with telecommunications providers.
The Company is in compliance under all such agreements at this date.

Management believes that cash and marketable securities on-hand of approximately
$14.3 million, cash generated by operating activities, borrowing capacity under
the Company's revolving loan facility and the monitization of certain strategic
investments during the second half of 1999 will be adequate to fund growth in
the Company's existing businesses in 1999. Premiere's revolving loan arrangement
matures on December 16, 1999 and the Company will be required to repay or
refinance this indebtedness at that time. Management regularly reviews the
Company's capital structure and evaluates potential alternatives in light of
current conditions in the capital markets. Depending upon conditions in these
markets and other factors, the Company, may from time to time, engage in capital
transactions, including debt or equity issuances or sell a portion or all of its
strategic equity investments in order to increase the Company's financial
flexibility and meet other capital needs.

RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES

In the first quarter of 1998, Premiere recorded a charge of approximately $7.5
million to restructure the operations of Premiere and Xpedite subsequent to
their merger. Such costs consist of severance associated with workforce
reduction, lease termination costs, costs to terminate certain contractual
obligations and asset impairments. Severance benefits have been provided for
termination of 122 employees. These actions resulted from management's plans to
reduce sales, operations and administrative headcount by exiting duplicative and
underperforming operations. Premiere has also provided for lease termination
and clean-up costs associated with these facilities and operations. In addition,
the Company provided for costs associated with commitments under certain
advertising contracts from which the Company was generating no incremental
revenue and for costs to terminate certain unfavorable reseller agreements.
Although certain restructuring actions were being contemplated at the
acquisition date, definitive plans for such actions were not formalized until
after such date. Accordingly, there were no exit costs included in the purchase
price allocation of Xpedite.

THE YEAR 2000 ISSUE

The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that much
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000s" from dates in the "1900s." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.

The Company's State Of Readiness. The Company has formed a Year 2000 Executive
Committee comprised of members of senior management and a Year 2000 Task Force
comprised of project leaders for each of the

18
<PAGE>

Company's operating subsidiaries and key corporate functional areas. The Year
2000 Executive Committee and the Task Force are charged with evaluating the
Company's Year 2000 issue and taking appropriate actions so that the Company
will incur minimal disruption from the Year 2000 issue ("Year 2000 ready"). The
Year 2000 Task Force is nearing completion of its comprehensive initiative (the
"Initiative") to make the Company's necessary software applications and/or
systems ("Software Applications") and hardware platforms ("Hardware Platforms")
Year 2000 ready. The Initiative covers the following seven phases: (i) inventory
of all appropriate Software Applications and Hardware Platforms, (ii) assessment
of appropriate repair requirements, (iii) repair or replacement of Software
Applications and Hardware Platforms, where appropriate, (iv) researching and/or
testing of appropriate individual Software Applications and Hardware Platforms
to determine correct manipulation of dates and date-related data regarding the
Year 2000 issue, (v) certification by users or testers within the Company that
such Software Applications and Hardware Platforms appropriately handle dates and
date-related data regarding the Year 2000 issue, (vi) appropriate system
integration testing of multiple Software Applications and Hardware Platforms to
determine correct manipulation of dates and date-related data regarding the Year
2000 issue, and (vii) creation of commercially reasonable contingency plans in
the event certain Year 2000 readiness efforts fail. The Company is aware that
some of its Hardware Platforms contain embedded microprocessors and it has
included the repair or replacement of such embedded microprocessors as part of
the Initiative.

The Company retained a nationally recognized independent consultant
("Consultant") to assist in assessing and recommending revisions to the
Initiative, and such recommendations have been taken into consideration
throughout the initiative. Internal reviews ("audits") have been conducted in
each Business Unit and at Corporate Headquarters to evaluate progress toward
being Year 2000 ready and the quality and completeness of the test results. An
external Consultant assisted with many of these audits. The Company will
continue to review its progress with respect to the Initiative as the Year 2000
is approached and reached. This periodic review by the Company will include
additional adjustments to the Initiative, as required.

The Company has materially completed the first six phases of the Initiative for
its Software Applications and Hardware Platforms. In one operating subsidiary,
an operational challenge not related to Year 2000 delayed the completion of
software deployment in one subsystem into the third quarter of 1999. In another
subsidiary, the implementation of a new, enhanced customer care system has been
rescheduled until after the completion of the summer peak usage season. As a
contingency plan, the existing system will also be adapted for Year 2000. The
system integration testing of Software Applications and Hardware Platforms
required by phase (vi) of the Initiative has been completed with respect to most
of the Company's business activities.

In the process of assessing the Year 2000 readiness of Software Applications and
Hardware Platforms as required by phase (ii) of the Initiative, the Company has
communicated with its suppliers to determine (1) whether the Software
Applications and Hardware Platforms provided to the Company will correctly
manipulate dates and date-related data as the Year 2000 is approached and
reached, and (2) whether the suppliers will solve their Year 2000 problems in
order to continue providing the Company products and services as the Year 2000
is approached and reached. The Company has received verification that the
majority of suppliers' Software Applications and Hardware Platforms, with
appropriate "version modification," will correctly manipulate dates and date-
related data as the Year 2000 is approached and reached. If a supplier informs
the Company that it will not appropriately rectify its Year 2000 issues, then
the Company will use that information to develop appropriate contingency plans
as required by phase (vii) of the Initiative. As a general matter, the Company
may be vulnerable to a supplier's inability to remedy its own Year 2000 issues.
Other than the Company's own remediation and integration testing efforts, there
can be no assurance that the Software Applications and Hardware Platforms
supplied by third parties on which the Company's business relies will correctly
manipulate dates and date-related data as the Year 2000 is approached and
reached. Such failures could have a material adverse effect on the Company's
financial condition and results of operations.

To operate its business, the Company relies upon providers of telecommunication
services, government agencies, utility companies, and other third party service
providers ("External Providers"), over which it can assert little control. If
the inability of any of these entities to correct their Year 2000 issues results
in a failure to provide the Company services, the Company's operations may be
materially adversely impacted and may result in a material adverse effect on the
Company's business, financial condition and results of operations. The Company
relies upon telecommunications carriers to conduct its business and is heavily
dependent upon the ability of these entities to

19
<PAGE>

correctly fix their Year 2000 issues. If telecommunications carriers and other
External Providers do not appropriately rectify their Year 2000 issues, the
Company's ability to conduct its business may be materially impacted, which
could result in a material adverse effect on the Company's business, financial
condition and results of operations.

A significant portion of the Company's business is conducted outside of the
United States. External Providers located outside of the United States may face
significantly more severe Year 2000 issues than similar entities located in the
United States. If such External Providers located outside the United States are
unable to rectify their Year 2000 issues, the Company may be unable to
effectively conduct a portion of its international business, which could result
in a material adverse effect on the Company's business, financial condition and
results of operations.

Costs to Address the Company's Year 2000 Issues. The majority of the work on
the Initiative has been performed by the Company's employees and subcontractors,
which has limited its cost. The Company estimates that the total historical and
future costs of implementing the Initiative will be approximately $7 million,
the majority as capital expenditures. The Company will fund the costs of
implementing the Initiative from cash flows. The Company has not deferred any
specific information technology project as a result of the implementation of the
Initiative. The Company does not expect that the opportunity cost of
implementation of the Initiative will have a material effect on the financial
condition of the Company or its results of operations.

Risks Presented by Year 2000 Issues. With system integration testing is
substantially complete, the Company anticipates that it has found effective
solutions to the Year 2000 issue for its appropriate, necessary systems. If,
however, there is an unanticipated disruptions to a major business activity, it
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, as noted above, the Company's
business critical External Providers may not appropriately address their Year
2000 issues, the result of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's Contingency Plans. The Initiative includes the development of
commercially reasonable contingency plans for business activities that are
susceptible to a substantial risk of a disruption resulting from a Year 2000
related event. Successful systems integration testing has substantially reduced
the number of business functions requiring contingency plans. The Company is
developing detailed contingency plans specific to Year 2000 events for any
remaining business activities.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS" No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging. It requires that all derivatives be
recognized as either assets or liabilities at fair value and establishes
specific criteria for the use of hedge accounting. The Company's required
adoption date is January 1, 2001. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods. The Company expects no
material adverse effect to its financial position upon adoption of SFAS No. 133.

FORWARD-LOOKING STATEMENTS

When used in this Form 10-Q and elsewhere by management or Premiere from time to
time, the words "believes," "anticipates," "expects," "will" and similar
expressions are intended to identify forward-looking statements concerning
Premiere's operations, economic performance and financial condition. These
include, but are not limited to, forward-looking statements about Premiere's
business strategy and means to implement the strategy, Premiere's objectives,
the amount of future capital expenditures, the likelihood of Premiere's success
in developing and introducing new products and services and expanding its
business, and the timing of the introduction of new and modified products and
services. For those statements, Premiere claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. 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 Premiere, 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
Premiere's forward-looking

20
<PAGE>

statements, including the following factors:

. factors described from time to time in the Company's press releases,
reports and other filings made with the Securities and Exchange
Commission;

. Premiere's ability to comply with the financial covenants and other
conditions of its revolving credit facility, as amended, and its
ability to repay, refinance or extend the revolving credit facility
in December 1999;

. Premiere's ability to manage its growth and to respond to rapid
technological change and risk of obsolescence of its products,
services and technology;

. market acceptance of new products and services, including
Orchestrate(R);

. development of effective marketing, pricing and distribution;

. strategies for new products and services, including Orchestrate(R);

. competitive pressures among communications services providers may
increase significantly;

. costs or difficulties related to the integration of businesses, if
any, acquired or that may be acquired by Premiere may be greater
than expected;

. expected cost savings from past or future mergers and acquisitions
may not be fully realized or realized within the expected time
frame;

. revenues following past or future mergers and acquisitions may be
lower than expected;

. operating costs or customer loss and business disruption following
past or future mergers and acquisitions may be greater than
expected;

. the success of Premiere's strategic relationships, including the
amount of business generated and the viability of the strategic
partners, may not meet expectations;

. possible adverse results of pending or future litigation;

. risks associated with interruption in Premiere's services due to the
failure of the platforms and network infrastructure utilized in
providing its services;

. risks associated with the Year 2000 issue, including Year 2000
problems that may arise on the part of third parties which may
effect Premiere's operations;

. risks associated with expansion of Premiere's international
operations;

. general economic or business conditions, internationally, nationally
or in the local jurisdiction in which Premiere is doing business,
may be less favorable than expected;

. legislative or regulatory changes may adversely affect the business
in which Premiere is engaged; and

. changes in the securities markets may negatively impact Premiere.

<PAGE>

Premiere cautions that these factors are not exclusive. Consequently, all of the
forward-looking statements made in this Form 10-Q and in documents incorporated
in this Form 10-Q are qualified by these cautionary statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Form 10-Q. Premiere takes on no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date of
this Form 10-Q, or the date of the statement, if a different date.

All statements made herein regarding the Company's state of readiness with
respect to the Year 2000 issue constitute "Year 2000 readiness disclosures" made
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
No. 105-271.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates. The Company manages its exposure to these market risks
through its regular operating and financing activities. Derivative instruments
are not currently used and, if utilized, are employed as risk management tools
and not for trading purposes.

At June 30, 1999, no derivative financial instruments were outstanding to hedge
interest rate risk. The interest rates on the Company's borrowings under its
credit facility are based on either the lender's Prime Rate or LIBOR. Any
changes in these rates would affect the rate at which the Company could borrow
funds under its bank credit facility. A hypothetical immediate 10% increase in
interest rates would decrease the fair value of the Company's fixed rate
convertible subordinated notes outstanding at June 30, 1999, by $6.7 million. A
hypothetical 10% increase in interest rates on the Company's variable rate bank
credit facility debt for a duration of one year would increase interest expense
by $1.0 million.

Approximately 27.8% of the Company's sales and 18.2% of its operating costs and
expenses for the six month period ended June 30, 1999 were transacted in foreign
currencies in 1999. As a result, fluctuations in exchange rates impact the
amount of the Company's reported sales and operating income. Historically, the
Company's principal exposure has been related to local currency operating costs
and expenses in the United Kingdom and the Asia Pacific region and local
currency sales in Europe and the Asia Pacific region. The Company has not used
derivatives to manage foreign currency exchange risk and no foreign currency
exchange derivatives were outstanding at June 30, 1999. To minimize the impact
of changes in exchange rates, the Company borrows from time to time in British
Pounds and Euros under its credit facility.

22
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10, 1998.
Class members allegedly include those who purchased the Company's common stock
as well as those who acquired stock through the Company's acquisitions of
VoiceTel Enterprises, Inc. ("Voice-Tel"), Voice-Tel's franchisees and Xpedite.
Plaintiffs allege the defendants made positive public statements concerning the
Company's growth and acquisitions. In particular, plaintiffs allege the
defendants spoke positively about the Company's acquisitions of Voice-Tel,
Xpedite, American Teleconferencing Services, TeleT Telecommunications, LLC
("TeleT") and VoiceCom Holdings, Inc. ("VoiceCom"), as well as its venture with
UniDial Communications, its investment in USA.NET and the commercial release of
Orchestrate(R). Plaintiffs allege these public statements were fraudulent
because the defendants knowingly failed to disclose that the Company allegedly
was not successfully consolidating and integrating these acquisitions. Alleged
evidence of scienter include sales by certain individual defendants during the
class period and the desire to keep the common stock price high so that future
acquisitions could be made using the Company's common stock. Plaintiffs allege
the truth was purportedly revealed on June 10, 1998, when the Company announced
it would not meet analysts' estimates of second quarter 1998 earnings because,
in part, of the financial difficulties experienced by a licensing customer and
by a strategic partner with respect to the Company's Enhanced Calling Services,
revenue shortfalls from its Voice and Data Messaging services, as well as other
unanticipated costs and one-time charges totaling approximately $17.1 million on
a pre-tax basis. Plaintiffs allege the Company admitted it had experienced
difficulty in achieving its anticipated revenue and earnings from voice
messaging services due to difficulties in consolidating and integrating its
sales function. Plaintiffs allege violation of Sections 10(b), 14(a) and 20(a)
of the Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the
Securities Act of 1933. The Company filed a motion to dismiss this complaint in
April 1999, which is pending.

On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of Communications Network Corporation ("CNC"), and his company,
Platinum NetworkCorp. ("Platinum"), filed a complaint against Premiere
Communications, Inc. ("PCI"), WorldCom Network Services, Inc. f/k/a WilTel, Inc,
("WorldCom"), 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

23
<PAGE>

United States District Court for the Eastern District of New York. Plaintiffs
contend that 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 and made misrepresentations of fact in
connection with the scheme. The plaintiffs are seeking at least $250 million in
compensatory damages and $500 million in punitive damages from PCI and the other
defendants. This matter has been settled, pending payment of $250,000 by Khatib
to WorldCom. The settlement does not require PCI or Premiere to make any
payments.

On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in
the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments with
Equitable Life Assurance Society of the United States and/or Equico Securities,
Inc. (collectively "Equitable"). More specifically, the complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving insurance-related products. The
defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. On November
16, 1998 the court entered an order transferring all disputes between plaintiffs
and certain defendants to arbitration and dismissing without prejudice
plaintiff's complaint against those defendants. On or about December 23, 1998,
Xpedite filed a motion to stay the action pending the resolution of the
arbitration or in the alternative to compel plaintiffs to provide discovery. On
January 22, 1999, the court granted Xpedite's motion to stay further proceedings
pending the arbitration. On March 11, 1999, plaintiffs filed a motion for
reconsideration of the court's decision. On April 1, 1999, the court vacated
the January 22, 1999 Order and directed that the action be referred to the
active case list. Xpedite filed a motion for leave to amend answer and assert
cross-claims, which is presently pending.

In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported current
owner of certain patents, filed suit against Premiere and PCI alleging that they
had violated claims in these patents and requesting damages and injunctive
relief. The suit asserts that Premiere is offering certain "calling card and
related enhanced services," "single number service" and "call connecting
services" covered by four patents owned by Aspect. Premiere has reviewed the
subject patents and, based on that review, believes that its products and
services currently being marketed do not infringe them. On March 29, 1999 the
Company filed an answer denying the allegations and a counterclaim seeking to
invalidate the patents. This lawsuit is currently in the discovery phrase.
Additionally, the Company believes that certain licenses it has from third-party
vendors may insulate the Company from some or all of any damages in the event of
an adverse outcome in this litigation.

24
<PAGE>

other than Premiere and to which Premiere was entitled either exclusive or
preferential consideration. In addition to injunctive relief, Premiere seeks
damages of not less than $10 million, pre- and post-judgment interest, costs and
expenses of litigation, including attorneys' fees. On July 1, 1999 the court
entered an order staying all proceedings pending arbitration. In connection with
that order, MCI WorldCom agreed that it would not issue any requests for
information, requests for proposals or enter into any contracts with respect to
the proposals challenged by Premiere. Premiere intends to file commence
arbitration proceedings against MCI WorldCom in the near future.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of Premiere's shareholders was held on June 22, 1999. At the
annual meeting, the following matters were voted on with the following results.

1. Election of directors. The following directors were elected, for terms
ending at the annual meeting in the year indicated:

<TABLE>
<CAPTION>
Name of Director Term Ending Votes For Votes Withheld Abstentions Non Votes
<S> <C> <C> <C> <C> <C>
Raymond H. Pirtle, Jr. 2002 35,065,380 560,817 0 0
Roy B. Andersen, Jr. 2002 35,062,422 563,775 0 0
Jackie M. Ward 2002 35,103,390 522,807 0 0
Jeffrey T. Arnold 2000 35,100,813 525,384 0 0
</TABLE>

The following person continued as directors following the annual meeting: Boland
T. Jones, George W. Baker, Sr., Jeffrey A. Allred and William P. Payne.

2. Approval of the Associate Stock Purchase Plan. The shareholders approved the
Company's Associate Stock Purchase Plan and the results of the voting were
as follows:

Votes For Votes Against Abstentions Non Votes

34,611,993 913,019 101,185 0

<PAGE>

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number Exhibit Description

10.1 Amended and Restated 1998 Stock Plan.

10.2 Associate Stock Purchase Plan (incorporated by reference to
Appendix A to the Registrant's Definitive Proxy Statement
distributed in connection with the Registrant's June 22,
1999 annual meeting of shareholders, filed May 19, 1999).

10.3 Amendment to Service and Reseller Agreement dated as of May
13, 1999 by and between Amway Corporation and Voice-Tel
Enterprises, Inc. (portions of this Exhibit have been
omitted pursuant to a Confidential Treatment Request).

27.1 Financial Data Schedule for the Three and Six Month Periods
Ended June 30, 1999.

(b) Reports on Form 8-K:

The following reports on Form 8-K were filed during the quarter for which this
report is filed:

<TABLE>
<CAPTION>
Date of Report Items Reported Entities for Which
--------------
(Date Filed) Financial
------------
Statements Filed
----------------
<S> <C> <C>
05/03/99 Items 5 and 7 - Amendment to Current Report on Xpedite Systems, Inc.
Form 8-K, dated February 17, 1999 to file (incorporated by reference)
consolidated financial statements of Xpedite
Systems, Inc. (incorporated by reference) and
certain pro forma financial information. Premiere Technologies, Inc.

05/05/99 Item 7 - Amendment to Current Report on Form 8-K, Premiere Technologies, Inc.
dated February 17, 1999 to refile certain pro
forma financial information.
</TABLE>

26
<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 thereunto duly authorized.

August 13, 1999 PREMIERE TECHNOLOGIES, INC.
Date
/s/ HARVEY A. WAGNER
---------------------
Harvey A. Wagner
Executive Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer and
duly authorized signatory of the Registrant)

<PAGE>

EXHIBIT INDEX

Exhibit Number Exhibit Description

10.1 Amended and Restated 1998 Stock Plan.

27.1 Financial Data Schedule for the Three and Six Month Periods
Ended June 30, 1999.

<PAGE>

PREMIERE TECHNOLOGIES, INC.
AMENDED AND RESTATED 1998 STOCK PLAN
<PAGE>

PREMIERE TECHNOLOGIES, INC.
AMENDED AND RESTATED 1998 STOCK PLAN

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C> <C>

ARTICLE I DEFINITIONS......................... 1

ARTICLE II THE PLAN............................ 4

2.1 Name................................ 4
2.2 Purpose............................. 4
2.3 Effective Date...................... 4

ARTICLE III PARTICIPANTS........................ 5

ARTICLE IV ADMINISTRATION...................... 5

4.1 Duties and Powers of the Committee.. 5
4.2 Interpretation; Rules............... 5
4.3 No Liability........................ 6
4.4 Majority Rule....................... 6
4.5 Company Assistance.................. 6

ARTICLE V SHARES OF STOCK SUBJECT TO PLAN..... 6

5.1 Limitations......................... 6
5.2 Antidilution........................ 7

ARTICLE VI OPTIONS............................. 8

6.1 Types of Options Granted............ 8
6.2 Option Grant and Agreement.......... 8
6.3 Exercise Price...................... 8
6.4 Exercise Period..................... 8
6.5 Option Exercise..................... 8
6.6 Reload Options...................... 10
6.7 Nontransferability.................. 10
6.8 Termination of Employment or Service 10
6.9 Employment Rights................... 11
6.10 Certain Successor Options........... 11
6.11 Effect of Change in Control......... 11
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
ARTICLE VII RESTRICTED STOCK........................ 11

7.1 Awards of Restricted Stock.............. 11
7.2 Nontransferability...................... 12
7.3 Lapse of Restrictions................... 12
7.4 Termination of Employment............... 12
7.5 Treatment of Dividends.................. 12
7.6 Delivery of Shares...................... 12

ARTICLE VIII STOCK APPRECIATION RIGHTS............... 12

8.1 SAR Awards.............................. 12
8.2 Determination of Price.................. 13
8.3 Exercise of an SAR...................... 13
8.4 Payment for an SAR...................... 13
8.5 Status of SAR Shares.................... 13
8.6 Termination of SARs..................... 13
8.7 No Shareholder Rights................... 14

ARTICLE IX STOCK CERTIFICATES...................... 14

ARTICLE X TERMINATION AND AMENDMENT............... 15

10.1 Termination and Amendment............... 15
10.2 Effect on Grantee's Rights.............. 15

ARTICLE XI RELATIONSHIP TO OTHER COMPENSATION PLANS 15

ARTICLE XII MISCELLANEOUS........................... 15

12.1 Performance Goals....................... 15
12.2 Replacement or Amended Grants........... 15
12.3 Forfeiture for Competition.............. 16
12.4 Plan Binding on Successors.............. 16
12.5 Singular, Plural, Gender................ 16
12.6 Headings Not Part of Plan............... 16
12.7 Interpretation.......................... 16
</TABLE>
<PAGE>

PREMIERE TECHNOLOGIES, INC.
AMENDED AND RESTATED 1998 STOCK PLAN

ARTICLE I
DEFINITIONS

As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:

"Award" shall mean a grant of Restricted Stock or an SAR under this Plan.
- -------

"Board" shall mean the Board of Directors of the Company.
- -------

"Cause" shall mean theft or destruction of property of the Company or any
- -------
Subsidiary, disregard of the rules or policies of the Company or any Subsidiary,
or conduct evincing willful or wanton disregard of the interests of the Company
or any Subsidiary. Such determination shall be made by the Committee based on
information presented by the Company and the Employee (if the Employee chooses
to present information), and shall be final and binding on the Company and the
Employee.

"Change in Control" shall mean the occurrence of either of the following events:
- ------------------

(a) A change in the composition of the Board as a result of which fewer
than one-half of the incumbent Directors are Directors who either:

(i) were Directors of the Company twenty-four (24) months prior to
such change, or

(ii) were elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Directors who had been Directors
of the Company twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination; or

(b) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than any person who is a shareholder of the Company on or
before the effective date of this Plan, by the acquisition or aggregation of
securities is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities ordinarily
(and apart from rights accruing under special circumstances) having the right to
vote at elections of directors (the "Base Capital Stock"); except that any
change in the relative beneficial ownership of the Company's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial ownership of any
securities of the Company.
<PAGE>

"Code" shall mean the Internal Revenue Code of 1986, including effective date
- ------
and transition rules (whether or not codified). Any reference herein to a
specific section of the Code shall be deemed to include a reference to any
corresponding provision of future law.

"Committee" shall mean a committee of at least two Directors appointed from time
- -----------
to time by the Board, having the duties and authority set forth herein in
addition to any other authority granted by the Board; provided, however, that
(i) with respect to any Options or Awards granted to an individual who is also a
Section 16 Insider, the Committee shall consist of at least two members of the
Board (who need not be members of the Committee with respect to Options or
Awards granted to any other individuals) who are Non-Employee Directors.
References herein to the "Committee" shall mean such Non-Employee Directors
insofar as any actions or determinations of the Committee shall relate to or
affect Options or Awards made to or held by any Section 16 Insider. At any time
that the Board shall not have appointed a committee as described above, any
reference herein to the Committee shall mean the Board.

"Company" shall mean Premiere Technologies, Inc., a Georgia corporation.
- ---------

"Director" shall mean a member of the Board and any person who is an advisory or
- ----------
honorary director of the Company if such person is considered a director for the
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions and interpretative
or "no-action" positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to time.

"Exchange Act" shall mean the Securities Exchange Act of 1934. Any reference
- --------------
herein to a specific section of the Exchange Act shall be deemed to include a
reference to any corresponding provision of future law.

"Exercise Price" shall mean the price at which an Optionee may purchase a share
- ----------------
of Stock under a Stock Option Agreement.

"Fair Market Value" on any date shall mean (i) the closing sales price of the
- -------------------
Stock, regular way, on such date on the national securities exchange having the
greatest volume of trading in the Stock during the thirty (30) day period
preceding such date or, if such exchange was not open for trading on such date,
the next preceding date on which it was open; (ii) if the Stock is not traded on
any national securities exchange, the average of the closing high bid and low
asked prices of the Stock on the over-the-counter market on the date such value
is to be determined, or in the absence of closing bids on such date, the closing
bids on the next preceding date on which there were bids; or (iii) if the Stock
also is not traded on the over-the-counter market, the fair market value as
determined in good faith by the Committee based on such relevant facts as may be
available, which may include opinions of independent experts, the price at which
recent sales of Stock have

-2-
<PAGE>

been made, the book value of the Stock, and the Company's past, current and
future earnings.

"Grantee" shall mean a person who is an Optionee or a person who has received an
- ---------
Award of Restricted Stock or an SAR.

"Non-Employee Director" shall have the meaning assigned such term in Rule 16b-3
- -----------------------
promulgated under Section 16 of the Exchange Act.

"Officer" shall mean a person who constitutes an officer of the Company for the
- ---------
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions, and interpretative
or "no-action" positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to time.

"Option" shall mean an option to purchase Stock granted pursuant to the
- --------
provisions of Article VI hereof.

"Optionee" shall mean a person to whom an Option has been granted hereunder.
- ----------

"Permanent and Total Disability" shall have the meaning set forth in Code
- --------------------------------
Section 22(e)(3) and the regulations promulgated thereunder.

"Plan" shall mean the Premiere Technologies, Inc. Amended and Restated 1998
- ------
Stock Plan, the terms of which are set forth herein.

"Purchasable" shall refer to Stock that may be purchased by an Optionee under
- -------------
the terms of this Plan on or after a certain date specified in the applicable
Stock Option Agreement.

"Qualified Domestic Relations Order" shall have the meaning set forth in Code
- ------------------------------------
Section 414(p)(1)(A) and the regulations promulgated thereunder.

"Reload Option" shall have the meaning set forth in Section 6.6 hereof.
- ---------------

"Restricted Stock" shall mean Stock issued to a Grantee pursuant to Article VII
- ------------------
hereof.

"Restriction Agreement" shall mean a written agreement setting forth the terms
- -----------------------
of an Award of Restricted Stock, as provided in Section 7.1 hereof.

"SAR" means a stock appreciation right, which is the right to receive an amount
- -----
equal to the appreciation, if any, in the Fair Market Value of a share of Stock
from the date of the grant of the right to the date of its payment, as provided
in Article VIII hereof.

-3-
<PAGE>

"SAR Agreement" shall mean a written agreement setting forth the terms of an
- ---------------
Award of an SAR, as provided in Section 8.1 hereof.

"SAR Price" shall mean the base value established by the Committee for an SAR on
- -----------
the date the SAR is granted and which is used in determining the amount of
benefit, if any, paid to a Grantee.

"Section 16 Insider" shall mean any person who is subject to the provisions of
- --------------------
Section 16 of the Exchange Act, as provided in Rule 16a-2 promulgated pursuant
to the Exchange Act.

"Stock" shall mean the Common Stock, par value $.0l per share, of the Company
- -------
or, in the event that the outstanding shares of Stock are hereafter changed into
or exchanged for shares of a different stock or securities of the Company or
some other entity, such other stock or securities.

"Stock Option Agreement" shall mean a written agreement between the Company and
- ------------------------
an Optionee under which the Optionee may purchase Stock hereunder, as provided
in Article VI hereof.

"Subsidiary" shall mean any corporation, limited liability company, partnership
- ------------
or other entity in which the Company directly or indirectly controls fifty
percent (50%) or more of the total combined voting power of such entity.

ARTICLE II
THE PLAN

2.1 Name. This Plan shall be known as the "Premiere Technologies, Inc.
----
Amended and Restated 1998 Stock Plan."

2.2 Purpose. The purpose of the Plan is to advance the interests of
-------
the Company, its Subsidiaries and its shareholders by affording certain
employees of the Company and its Subsidiaries, as well as key consultants and
advisors to the Company or any Subsidiary, an opportunity to acquire or increase
their proprietary interests in the Company. The objective of the Options and
Awards is to promote the growth and profitability of the Company and its
Subsidiaries by providing the Grantees with an additional incentive to achieve
the Company's objectives through participation in its success and growth and by
encouraging their continued association with or service to the Company and its
Subsidiaries.

2.3 Effective Date. The effective date of this Plan is July 22, 1998,
--------------
as amended and restated effective as of May 18, 1999.

-4-
<PAGE>

ARTICLE III
PARTICIPANTS

The class of persons eligible to participate in this Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company which shall include, but not be limited to,
all employees of the Company or any Subsidiary, as well as directors, key
consultants and advisors to the Company or any Subsidiary.

ARTICLE IV
ADMINISTRATION

4.1 Duties and Powers of the Committee. This Plan shall be
----------------------------------
administered by the Committee. The Committee shall select one of its members as
its Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it may deem necessary.
The Committee shall have the power to act by unanimous written consent in lieu
of a meeting, and to meet telephonically. In administering this Plan, the
Committee's actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options or Awards in
accordance with the provisions of this Plan and may grant Options and Awards
singly, in combination, or in tandem. Subject to the provisions of this Plan,
the Committee shall have the discretion and authority to determine those persons
to whom Options or Awards will be granted and whether such Options will be
accompanied by the right to receive Reload Options, the number of shares of
Stock subject to each Option or Award, such other matters as are specified
herein, and any other terms and conditions of a Stock Option Agreement,
Restriction Agreement and an SAR Agreement. The Committee shall also have the
discretion and authority to delegate to any Officer its powers to grant Options
or Awards under this Plan to any person who is an employee of the Company or any
Subsidiary but not an Officer or Director. To the extent not inconsistent with
the provisions of this Plan, the Committee may give a Grantee an election to
surrender an Option or Award in exchange for the grant of a new Option or Award,
and shall have the authority to amend or modify an outstanding Stock Option
Agreement, Restriction Agreement or SAR Agreement, or to waive any provision
thereof, provided that the Grantee consents to such action.

4.2 Interpretation; Rules. Subject to the express provisions of this
---------------------
Plan, the Committee shall have complete authority to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, Restriction Agreement
and SAR Agreement, and to make all other determinations necessary or advisable
for the administration of this Plan, including, without limitation, the amending
or altering of this Plan and any Options or Awards granted hereunder as may be
required to comply with or to conform to any federal, state or local laws or
regulations.

-5-
<PAGE>

4.3 No Liability. Neither any Director nor any member of the Committee
------------
shall be liable to any person or entity for any act or determination made in
good faith with respect to this Plan or any Option or Award granted hereunder.

4.4 Majority Rule. A majority of the members of the Committee shall
-------------
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.

4.5 Company Assistance. The Company shall supply full and timely
------------------
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.

ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN

5.1 Limitations. Subject to any antidilution adjustment pursuant to
-----------
the provisions of Section 5.2, the maximum number of shares of Stock that may be
issued hereunder shall be 6,000,000. Any or all shares of Stock subject to the
Plan may be issued in any combination of non-Incentive Stock Options, Restricted
Stock and SARs, and the amount of Stock subject to the Plan may be increased
from time to time in accordance with Article X hereof.

Shares subject to an Option or issued as an Award may be either authorized
and unissued shares or shares issued and later acquired by the Company. The
shares covered by any unexercised portion of an Option that has terminated for
any reason (except as set forth in the following paragraph), or any forfeited
portion of an Award, may again be optioned or Awarded under this Plan, and such
shares shall not be considered as having been optioned or issued in computing
the number of shares of Stock remaining available for Options or Awards
hereunder.

If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company or any Subsidiary, to the
extent that such issuance shall not be inconsistent with the terms, limitations
and conditions of Code Section 422 or Rule 16b-3 under the Exchange Act, the
aggregate number of shares of Stock for which Options may be granted hereunder
shall automatically be increased by the number of shares subject to the Options
so issued; provided, however, that the aggregate number of shares of Stock for
which Options may be granted hereunder shall automatically be decreased by the
number of shares covered by any unexercised portion of an Option so issued that
has terminated for any reason, and the shares subject to any such unexercised
portion may not be optioned to any other person.

-6-
<PAGE>

5.2 Antidilution.
------------

(a) If (i) the Outstanding shares of Stock are increased, decreased, or
changed into or exchanged for a different number or kind of shares or other
securities of the Company, by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend (excluding the Stock dividend declared shortly before
the Company's initial public offering of its Stock), (ii) any spin-off, split-
off or other distribution of assets materially affects the price of the
Company's stock, or (iii) there is any assumption and conversion to this Plan by
the Company of an acquired company's outstanding option grants, then:

(A) the aggregate number and kind of shares of Stock for which Options
or Awards may be granted hereunder shall be adjusted appropriately by the
Committee, and

(B) the rights of Optionees (concerning the number of shares subject
to Options and the Exercise Price) under outstanding Options and the rights of
the holders of Awards (concerning the terms and conditions of the lapse of any
then remaining restrictions), shall be adjusted appropriately by the Committee.

(b) If the Company is a party to any reorganization in which it does not
survive, involving merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company, the Committee, in its discretion,
may:

(i) notwithstanding other provisions hereof, declare that all Options
granted under this Plan shall become exercisable immediately notwithstanding the
provisions of the respective Stock Option Agreements regarding exercisability,
that all such Options shall terminate thirty (30) days after the Committee gives
written notice of the immediate right to exercise all such Options and of the
decision to terminate all Options not exercised within such 30-day period, and
that all then-remaining restrictions pertaining to Awards under this Plan shall
immediately lapse; and/or

(ii) notify all Grantees that all Options and Awards granted under
this Plan shall be assumed by the successor corporation or substituted on an
equitable basis with options or restricted stock issued by such successor
corporation.

(c) If the Company is to be liquidated or dissolved in connection with a
reorganization described in Section 5.2(b), the provisions of that Section shall
apply. In all other instances, the adoption of a plan of dissolution or
liquidation of the Company shall, notwithstanding other provisions hereof, cause
all then-remaining restrictions pertaining to Options and Awards under the Plan
to lapse, and shall cause every Option outstanding under the Plan to terminate
to the extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the shareholders; provided that,

-7-
<PAGE>

notwithstanding any other provisions hereof, the Committee may declare all
Options granted under the Plan to be exercisable at any time on or before the
fifth (5th) business day following such adoption, notwithstanding the provisions
of the respective Stock Option Agreements regarding exercisability.

(d) The adjustments described in paragraphs (a) through (c) of this Section
5.2, and the manner of their application, shall be determined solely by the
Committee, and any such adjustment may provide for the elimination of fractional
share interests. The adjustments required under this Article V shall apply to
any successors of the Company and shall be made regardless of the number or type
of successive events requiring such adjustments.

ARTICLE VI
OPTIONS

6.1 Types of Options Granted. The Committee may, under this Plan,
------------------------
grant Options which do not qualify as incentive stock options. Within the
limitations provided in this Plan, the Options may be granted to the same person
at the same time, or at different times, under different terms and conditions,
as long as the terms and conditions of each Option are consistent with the
provisions of this Plan. Without limitation of the foregoing, Options may be
granted subject to conditions based on the satisfaction of performance goals or
any other factor the Committee deems relevant.

6.2 Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise,
exercise price, whether the Option is to be accompanied by the right to receive
a Reload Option, shall be stated in the Stock Option Agreement.

6.3 Exercise Price. The Exercise Price of the Stock subject to each
--------------
Option shall be determined by the Committee.

6.4 Exercise Period. The period for the exercise of each Option
---------------
granted hereunder shall be determined by the Committee.

6.5 Option Exercise.
---------------

(a) Unless otherwise provided in the Stock Option Agreement or Section 6.4
hereof, an Option may be exercised at any time or from time to time during the
term of the Option as to any or all full shares which have become Purchasable
under the provisions of the Option, but not at any time as to less than one
hundred (100) shares unless the remaining shares that have become so Purchasable
are less than one hundred (100) shares. The Committee shall have the authority
to prescribe in any Stock Option Agreement that

-8-
<PAGE>

the Option may be exercised only in accordance with a vesting schedule during
the term of the Option.

(b) An Option shall be exercised by (i) delivery to the Company at its
principal office a written notice of exercise with respect to a specified number
of shares of Stock and (ii) payment to the Company at that office of the full
amount of the Exercise Price for such number of shares in accordance with
Section 6.5(c). If requested by an Optionee, an Option may be exercised with
the involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).

(c) The Exercise Price is to be paid in full in cash upon the exercise of
the Option and the Company shall not be required to deliver certificates for the
shares purchased until such payment has been made; provided, however, the
Committee may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that in lieu of cash, all or any
portion of the Exercise Price may be paid by tendering to the Company shares of
Stock duly endorsed for transfer and owned by the Optionee for at least six (6)
months, to be credited against the Exercise Price at the Fair Market Value of
such shares on the date of exercise (however, no fractional shares may be so
transferred, and the Company shall not be obligated to make any cash payments in
consideration of any excess of the aggregate Fair Market Value of shares
transferred over the aggregate Exercise Price); provided further, the Committee
may provide in a Stock Option Agreement (or may otherwise determine in its sole
discretion at the time of exercise) that, in lieu of cash or shares, all or a
portion of the Exercise Price may be paid by the Optionee's execution of a
recourse note equal to the Exercise Price or relevant portion thereof, subject
to compliance with applicable state and federal laws, rules and regulations. In
addition to the above methods of exercise, to the extent permitted under
Regulation T of the Federal Reserve Board, and subject to applicable securities
laws, an Option may be exercised through a broker in a so-called "cashless
exercise" whereby the broker sells the Option shares and delivers cash sales
proceeds to the Company in payment of the exercise price.

(d) In addition to and at the time of payment of the Exercise Price, the
Company may withhold, or require the Optionee to pay to the Company in cash, the
amount of any federal, state and local income, employment or other withholding
taxes which the Committee determines are required to be withheld under federal,
state or local law in connection with the exercise of an Option; provided,
however, the Committee may provide in a Stock Option Agreement (or may otherwise
determine in its sole discretion at the time of exercise) that the minimum
required withholding amount of such tax obligations may, upon the election of
the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid.

-9-
<PAGE>

(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.

6.6 Reload Options.
--------------

(a) The Committee may specify in a Stock Option Agreement (or may otherwise
determine in its sole discretion) that a Reload Option shall be granted, without
further action of the Committee, (i) to an Optionee who exercises an Option
(including a Reload Option) by surrendering shares of Stock in payment of
amounts specified in Sections 6.5(c) or 6.5(d) hereof, (ii) for the same number
of shares as are surrendered to pay such amounts, (iii) as of the date of such
payment and at an Exercise Price equal to the Fair Market Value of the Stock on
such date, and (iv) otherwise on the same terms and conditions as the Option
whose exercise has occasioned such payment, except as provided below and subject
to such other contingencies, conditions, or other terms as the Committee shall
specify at the time such exercised Option is granted.

(b) Unless provided otherwise in the Stock Option Agreement, a Reload
Option may not be exercised by an Optionee (i) prior to the end of a one (1)
year period from the date that the Reload Option is granted, and (ii) unless the
Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.6(a)(i), for
a period of one (1) year from the date of such exercise.

6.7 Nontransferability. No Option shall be transferable by an Optionee
------------------
other than by will or the laws of descent and distribution or pursuant to a
Qualified Domestic Relations Order; provided, however, that the Committee may
(but need not) permit other transfers where the Committee concludes that such
transferability (i) does not result in accelerated taxation and (ii) is
otherwise appropriate and desirable, taking into account any factors deemed
relevant, including without limitation, state or federal tax or securities laws
applicable to transferable options. During the lifetime of an Optionee, Options
shall be exercisable only by such Optionee (or by such Optionee's guardian or
legal representative, should one be appointed).

6.8 Termination of Employment or Service. The Committee shall have the
------------------------------------
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option upon termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full.
For purposes of this Plan, a leave of absence approved by the Company shall not
be deemed to be termination of employment unless otherwise provided in the
Option Agreement or by the Company on the date of the leave of absence.

-10-
<PAGE>

6.9 Employment Rights. Nothing in this Plan or in any Stock Option
-----------------
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.

6.10 Certain Successor Options. To the extent not inconsistent with the
-------------------------
terms, limitations and conditions of Code Section 422 and any regulations
promulgated thereunder, an Option issued in respect of an option held by an
employee to acquire stock of any entity acquired, by merger or otherwise, by the
Company or any Subsidiary, may contain terms that differ from those stated in
this Article VI, but solely to the extent necessary to preserve for any such
employee the rights and benefits contained in such predecessor option, or to
satisfy the requirements of Code Section 424(a).

6.11 Effect of Change in Control. The Committee may determine, at the
---------------------------
time of granting an Option or thereafter, that such Option shall become
exercisable on an accelerated basis in the event that a Change in Control occurs
with respect to the Company (and the Committee shall have the discretion to
modify the definition of Change in Control in a particular Option Agreement).
If the Committee finds that there is a reasonable possibility that, within the
succeeding six (6) months, a Change in Control will occur with respect to the
Company, then the Committee may determine that all outstanding Options shall be
exercisable on an accelerated basis.

ARTICLE VII
RESTRICTED STOCK

7.1 Awards of Restricted Stock. The Committee may grant Awards of
--------------------------
Restricted Stock, which shall be governed by a Restriction Agreement between the
Company and the Grantee. Each Restriction Agreement shall contain such
restrictions, terms and conditions (including, without limitation, the
satisfaction of stated performance goals) as the Committee may, in its
discretion, determine, and may require that an appropriate legend be placed on
the certificates evidencing the subject Restricted Stock. Shares of Restricted
Stock granted pursuant to an Award hereunder shall be issued in the name of the
Grantee as soon as reasonably practicable after the Award is granted, provided
that the Grantee has executed the Restriction Agreement governing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require as a
condition to the issuance of such Shares. If a Grantee shall fail to execute
the foregoing documents within the time period prescribed by the Committee, if
any, the Award shall be void. At the discretion of the Committee, Shares issued
in connection with an Award shall be deposited together with the stock powers
with an escrow agent designated by the Committee. Unless the Committee
determines otherwise and as set forth in the Restriction Agreement, upon
delivery of the Shares to the escrow agent, the Grantee shall have all of the
rights of a shareholder with respect to such Shares, including the right to vote
the

-11-
<PAGE>

Shares and to receive all dividends or other distributions paid or made with
respect to the Shares.

7.2 Nontransferability. Until any restrictions upon Restricted Stock
------------------
awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3,
such shares of Restricted Stock shall not be transferable other than by will or
the laws of descent and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the Grantee.

7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded
---------------------
hereunder shall lapse at such time or times and on such terms and conditions as
the Committee may, in its discretion, determine at the time the Award is granted
or thereafter.

7.4 Termination of Employment. The Committee shall have the power to
-------------------------
specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date on which any then remaining restrictions shall lapse.

7.5 Treatment of Dividends. At the time an Award of Restricted Stock
----------------------
is made the Committee may, in its discretion, determine that the payment to the
Grantee of any dividends, or a specified portion thereof, declared or paid on
such Restricted Stock shall be (a) deferred until the lapsing of the relevant
restrictions and (b) held by the Company for the account of the Grantee until
such lapsing. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account
outstanding during such year at a rate per annum determined by the Committee.
Payment of deferred dividends, together with interest thereon, shall be made
upon the lapsing of restrictions imposed on such Restricted Stock, and any
dividends deferred (together with any interest thereon) in respect of Restricted
Stock shall be forfeited upon any forfeiture of such Restricted Stock.

7.6 Delivery of Shares. Except as provided otherwise in Article IX
------------------
below, within a reasonable period of time following the lapse of the
restrictions on shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such shares and such
shares shall be free of all restrictions hereunder.

ARTICLE VIII
STOCK APPRECIATION RIGHTS

8.1 SAR Awards. The Committee may grant Awards of SARs, which shall be
----------
governed by an SAR Agreement between the Company and the Grantee. Each SAR
Agreement shall contain such restrictions, terms and conditions (including,
without

-12-
<PAGE>

limitation, the satisfaction of stated performance goals) as the Committee may,
in its discretion, determine.

8.2 Determination of Price. The SAR Price shall be established by the
----------------------
Committee in its sole discretion.

8.3 Exercise of an SAR. Upon exercise of an SAR, the Grantee shall be
------------------
entitled, subject to the terms and conditions of this Plan and the SAR
Agreement, to receive for each share of Stock being exercised under the SAR, the
excess of (a) the Fair Market Value of such share of Stock on the date of
exercise over (b) the SAR Price for such share of Stock.

8.4 Payment for an SAR. At the sole discretion of the Committee, the
------------------
payment of such excess shall be made in (a) cash, (b) shares of Stock, or (c) a
combination of both. Shares of Stock used for this payment shall be valued at
their Fair Market Value on the date of exercise of the applicable SAR.

8.5 Status of SAR Shares. Shares of Stock subject to an Award of an
--------------------
SAR shall be considered shares of Stock which may be issued under this Plan for
purposes of Section 5.1 hereof, unless the SAR Agreement making the Award of the
SAR provides that the exercise of such SAR results in the termination of an
unexercised Option for the same number of shares of Stock.

8.6 Termination of SARs. An SAR may be terminated as follows:
-------------------

(a) During the period of a Grantee's continuous employment with the Company
or a Subsidiary, an SAR will be terminated only if it has been fully exercised
or it has expired by its terms.

(b) Upon termination of a Grantee's employment with the Company or a
Subsidiary, the SAR will terminate upon the earliest of (1) the full exercise of
the SAR, (ii) the expiration of the SAR by its terms, and (iii) not more than
three (3) months following the date of employment termination; provided,
however, should termination of employment (A) result from the death or Permanent
and Total Disability of the Grantee, the period referenced in clause (iii)
hereof shall be one (1) year, or (B) be for Cause, the SAR will terminate on the
date of employment termination. For purposes of this Plan, a leave of absence
approved by the Company shall not be deemed to be termination of employment
unless otherwise provided in the SAR Agreement or by the Company on the date of
the leave of absence.

(c) Subject to the terms of the SAR Agreement with the Grantee, if a
Grantee should die or become Subject to a Permanent and Total Disability prior
to the termination of employment with the Company or any Subsidiary and prior to
the termination of an SAR, such SAR may be exercised to the extent that the
Grantee shall have been entitled to

-13-
<PAGE>

exercise it at the time of death or Permanent and Total Disability, as the case
may be, by the Grantee, the estate of the Grantee or the person or persons to
whom the SAR shall have been transferred by will or by the laws of descent and
distribution.

(d) Except as otherwise expressly provided in the SAR Agreement with the
Grantee, in no event will the continuation of the term of an SAR beyond the date
of termination of employment allow the Employee, or his beneficiaries or heirs,
to accrue additional rights under this Plan, have additional SARs available for
exercise, or receive a higher benefit than the benefit payable as if the SAR had
been exercised on the date of employment termination.

8.7 No Shareholder Rights. The Grantee of an SAR shall have no rights
---------------------
as a shareholder with respect to such SAR. In addition, no adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or rights except as provided in Section 5.2
hereof.

ARTICLE IX
STOCK CERTIFICATES

The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:

(a) the admission of such shares to listing on all stock exchanges on which
the Stock is then listed;

(b) the completion of any registration or other qualification of such
shares which the Committee shall deem necessary or advisable under any federal
or state law or under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body;

(c) the obtaining of any approval or other clearance from any federal or
state governmental agency or body which the Committee shall determine to be
necessary or advisable; and

(d) the lapse of such reasonable period of time following the exercise of
the Option as the Board from time to time may establish for reasons of
administrative convenience.

Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.

-14-
<PAGE>

ARTICLE X
TERMINATION AND AMENDMENT

10.1 Termination and Amendment. The Board at any time may amend or
-------------------------
terminate the Plan without shareholder approval; provided, however, that the
Board may condition any amendment on the approval of shareholders of the Company
if such approval is necessary or advisable with respect to tax, securities or
other applicable laws.

10.2 Effect on Grantee's Rights. No termination, amendment or
--------------------------
modification of this Plan shall adversely affect a Grantee's rights under a
Stock Option Agreement, Restriction Agreement or an SAR Agreement without the
consent of the Grantee or his legal representative.

ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS

The adoption of this Plan shall not affect any other stock option,
incentive or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.

ARTICLE XII
MISCELLANEOUS

12.1. Performance Goals. The Committee may, but need not, determine that
-----------------
any Award granted pursuant to this Plan to a participant shall be determined
solely on the basis of (a) the achievement by the Company or a Subsidiary of a
specified target return on equity or assets, (b) the Company's or Subsidiary's
stock price, (c) the achievement by the Company or a business unit of the
Company or Subsidiary of a specified target net income or earnings per share,
including without limitation earnings before interest, taxes, depreciation
and/or amortization, or (d) any combination of the goals set forth in (a)
through (c) above. Furthermore, in such case, the Committee shall have the
right for any reason to reduce (but not increase) any Award, notwithstanding the
achievement of a specified goal. If an Award is made on such basis, the
Committee shall establish goals prior to the beginning of the period for which
such performance goal relates. Any payment of an Award granted with performance
goals shall be conditioned on the written certification of the Committee in each
case that the performance goals and any other material conditions were
satisfied.

12.2 Replacement or Amended Grants. At the sole discretion of the
-----------------------------
Committee, and subject to the terms of this Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options

-15-
<PAGE>

or Awards in substitution thereof. However, no modification of an Option or
Award shall adversely affect a Grantee's rights under a Stock Option Agreement,
Restriction Agreement or an SAR Agreement without the consent of the Grantee or
his legal representative.

12.3 Forfeiture for Competition. If a Grantee provides services to a
--------------------------
competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent or otherwise, which
services are of a nature that can reasonably be expected to involve the skills
and experience used or developed by the Grantee while an employee, consultant or
advisor of the Company or any Subsidiary, then that Grantee's rights under any
Options outstanding hereunder shall be forfeited and terminated, and any shares
of Restricted Stock held by such Grantee subject to remaining restrictions shall
be forfeited, subject in each case to a determination to the contrary by the
Committee.

12.4 Plan Binding on Successors. This Plan shall be binding upon the
--------------------------
successors and assigns of the Company.

12.5 Singular, Plural, Gender. Whenever used herein, nouns in the
------------------------
singular shall include the plural, and the masculine pronoun shall include the
feminine gender and vice versa.

12.6 Headings Not Part of Plan. Headings of Articles and Sections
-------------------------
hereof are inserted for convenience and reference, and they do not constitute
part of this Plan.

12.7 Interpretation. With respect to Section 16 Insiders, transactions
--------------
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act, and shall be interpreted
consistent therewith.

-16-

<PAGE>

Portions of this exhibit are the subject of a request for confidential
treatment. The copy filed as an exhibit omits the information subject to the
confidentiality request.Such omitted information has been filed separately with
the Commission. Such portions are marked by brackets [***].

AMENDMENT TO SERVICE AND RESELLER AGREEMENT

This Amendment made this 13th day of May, 1999 by and between AMWAY
CORPORATION, a Michigan corporation, ("Amway") and VOICE-TEL ENTERPRISES, INC.,
a Delaware corporation ("Voice-Tel").

Amway and Voice-Tel entered into a Service and Reseller Agreement dated
September 28, 1990, as amended, ("Agreement") regarding voice messaging and
digital network services provided by Voice-Tel to Amway.

The parties desire to amend the Agreement by providing for flat rate
pricing as set forth on the attached Schedule 1.1(b).

NOW THEREFORE, the parties agree as follows:

1. Effective June 1, 1999, the prices for Amway Products and Services
shall be as set forth on the attached Schedule 1.1(b), as amended from
time to time. The Schedule 1.1(b) attached to this Amendment shall
replace the Schedule 1.1(b) attached to the Agreement. The parties
agree that the flat rate pricing set forth on the attached Schedule
1.1(b) shall be applicable to any subsequent agreement between the
parties related to Amway Products and Services.

2. Except as set forth in this Amendment, all of the terms and conditions
of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
first date written above.

AMWAY CORPORATION, VOICE-TEL ENTERPRISES, INC.,
a Michigan corporation a Delaware corporation

By: /s/ Richard W. Fischer By: /s/ Edward W. Braswell
---------------------- ----------------------
Its: Director, Corporate Purchasing Its: Vice President
Voice and Data Messaging

<PAGE>

* Confidential treatment requested for information in brackets.

Schedule 1.1(b) Updated Amvox Product/Pricing Specifics Effective June 1, 1999

United States:

Messaging Services:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Basic Enhanced Premier Premier Plus
- ------------------------------------------------------------------------------------------------------------------------
E-2211 E-1012 E-1013 E-2214
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Specifics:
- ------------------------------------------------------------------------------------------------------------------------
. Price to Amway $[***] $[***] $[***] $[***]
- ------------------------------------------------------------------------------------------------------------------------
. Suggested Retail $[***] $[***] $[***] $[***]
- ------------------------------------------------------------------------------------------------------------------------
. Greeting Length 30 seconds 80 seconds 90 seconds 90 seconds
- ------------------------------------------------------------------------------------------------------------------------
. Message Length 1 minute 2 minutes 3 minutes 3 minutes
- ------------------------------------------------------------------------------------------------------------------------
. Monthly Network Message Limits 100 5,000 7,500 28,000
- ------------------------------------------------------------------------------------------------------------------------
. Message Storage Capacity 10 messages 20 messages 30 messages 80 messages
- ------------------------------------------------------------------------------------------------------------------------
. Message/Receipt Retention 5 days 5 days 7 days 10 days
- ------------------------------------------------------------------------------------------------------------------------
. Cost per express message $[***] per $[***] per $[***] per $[***] per
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
Service Features:
- ------------------------------------------------------------------------------------------------------------------------
. Receive and record both system
and non-system messages X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Play X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Keep X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Answer X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Give X X X
- ------------------------------------------------------------------------------------------------------------------------
. Make X X X
- ------------------------------------------------------------------------------------------------------------------------
. Multiple Make X X
- ------------------------------------------------------------------------------------------------------------------------
. Multiple Give X X
- ------------------------------------------------------------------------------------------------------------------------
. Forward & Backward during Play X X X X
- ------------------------------------------------------------------------------------------------------------------------
. TipToe / Message Review X X X
- ------------------------------------------------------------------------------------------------------------------------
. Pause during Play X X X
- ------------------------------------------------------------------------------------------------------------------------
. Pager Notification X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Toll Saver Feature X X X X
- ------------------------------------------------------------------------------------------------------------------------
. Carbon Copy X X X
- ------------------------------------------------------------------------------------------------------------------------
. Undelete Last Message X X X
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
Message Addressing Options: N/A
- ------------------------------------------------------------------------------------------------------------------------
. Confidential X X X
- ------------------------------------------------------------------------------------------------------------------------
. Request Receipt X X X
- ------------------------------------------------------------------------------------------------------------------------
. Urgent Delivery X X X
- ------------------------------------------------------------------------------------------------------------------------
. Future Delivery X X
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
Distribution Lists: N/A
- ------------------------------------------------------------------------------------------------------------------------
. Number of Lists 29 49 99
- ------------------------------------------------------------------------------------------------------------------------
. Amvox number per list 189 189 189
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

SPECIALTY SERVICES:
<TABLE>
<CAPTION>
SERVICE LEVEL: FEATURES:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
DIRECTEL - E-5591 . GREETING ONLY DIRECTOR SERVICE
- ---------------------------------------------------------------------------------------------------------------------
BROADCAST BOX - E-2215 . REMOTE DISTRIBUTION CENTER
- ---------------------------------------------------------------------------------------------------------------------
PAGER OUTDIAL - E-1129 . ACTIVATES PAGER WHEN REGULAR OR URGENT MESSAGES ARE
RECEIVED
- ---------------------------------------------------------------------------------------------------------------------
EVE . ENABLES AMVOX SUBSCRIBER TO ACCESS EMAIL THROUGH AMVOX
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 0 14,141
<SECURITIES> 0 162
<RECEIVABLES> 0 72,766
<ALLOWANCES> 0 (10,459)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 110,602
<PP&E> 0 268,260
<DEPRECIATION> 0 (141,135)
<TOTAL-ASSETS> 0 766,306
<CURRENT-LIABILITIES> 0 236,919
<BONDS> 0 0
0 0
0 0
<COMMON> 0 474
<OTHER-SE> 0 350,015
<TOTAL-LIABILITY-AND-EQUITY> 0 766,306
<SALES> 114,444 227,253
<TOTAL-REVENUES> 114,444 227,253
<CGS> 32,204 64,660
<TOTAL-COSTS> 32,204 64,660
<OTHER-EXPENSES> 122,246 224,398
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (6,420) (12,016)
<INCOME-PRETAX> 0 0
<INCOME-TAX> (6,881) (9,693)
<INCOME-CONTINUING> (25,881) (50,909)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (25,881) (50,909)
<EPS-BASIC> (0.56) (1.10)
<EPS-DILUTED> (0.56) (1.10)

</TABLE>