-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L1i+qIsyu6F4pLFBOwQY54GdBiXbqpkRnTJbNU7Z37b7z/eUlMZ43TvPoZjgNNgP SBH4YD0WZHBXthJ8afGgEA== 0001047469-99-012979.txt : 19990402 0001047469-99-012979.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012979 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRITE VOICE SYSTEMS INC CENTRAL INDEX KEY: 0000852637 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 480986248 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-17920 FILM NUMBER: 99582980 BUSINESS ADDRESS: STREET 1: 250 INTERNATIONAL PKWY STREET 2: SUITE 300 CITY: HEATHROW STATE: FL ZIP: 32746 BUSINESS PHONE: 4073571000 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR / / 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 0-17920 ------------------------ BRITE VOICE SYSTEMS, INC. (Exact name of registrant as specified in its charter) KANSAS 48-0986248 (State of Incorporation) (I.R.S. Employer Identification No.) 250 INTERNATIONAL PARKWAY, STE. 300 LAKE MARY, FL 32746 (Address of principal executive offices) Registrant's telephone number, including area code: (407) 357-1000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of class) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: /X/ The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of March 1, 1999 was $88,043,274, based upon the last reported sales price on such date. For purposes of this disclosure, shares of common stock beneficially owned by executive officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily conclusive. On March 1, 1999, there were 12,271,053 shares of the Registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 11, 1999 are incorporated by reference into Part III of this report. The Proxy Statement is expected to be filed with the Commission not later than April 9, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BRITE VOICE SYSTEMS, INC. 1998 FORM 10-K TABLE OF CONTENTS Item 1. Business...................................................................... 1 Item 2. Properties.................................................................... 11 Item 3. Legal Proceedings............................................................. 11 Item 4. Submission of Matters to a Vote of Security Holders........................... 11 Item 5. Market for the Company's Common Equity and Related Stockholder Matters........ 12 Item 6. Selected Financial Data....................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 14 Item 7a. Quantitative and Qualitative Disclosures about Market Risk.................... 20 Item 8. Financial Statements and Supplementary Data................................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................... 45 Item 10. Directors and Executive Officers of the Registrant............................ 45 Item 11. Executive Compensation........................................................ 45 Item 12. Security Ownership of Certain Beneficial Owners and Management................ 45 Item 13. Certain Relationships and Related Transactions................................ 45 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 46
PART I ITEM 1. BUSINESS GENERAL Brite Voice Systems, Inc. (the "Company" or "Brite") designs, integrates, assembles, markets and supports voice processing and call processing systems and services which incorporate prepaid/postpaid applications, voice response, voice recognition, voice/facsimile messaging, audiotex and interactive computer applications into both standard products and customized market solutions. Voice processing systems allow callers to use a telephone to leave or retrieve messages, obtain information stored in a computer database, or input and retrieve information from a host computer. A caller who accesses a voice processing system is typically greeted by a message identifying the owner or principal sponsor of the system, and is then requested to select options from a menu of choices. Most callers using touch-tone telephones input responses by pushing the keys on their telephone keypad. Many of the Company's systems use voice recognition to allow input of information using spoken commands. Call processing systems allow a service provider to process and complete subscribers' calls utilizing special features such as prepaid or calling card billing, voice dialing, voice messaging, pager capabilities and short message services. A call processing system may include certain voice processing features. The Company's products can be divided into two categories: those that increase its customers' revenues through increased subscription or user fees, and those that reduce customers' costs or improve the efficiency of services provided to end-user customers. Examples of revenue enhancing products are systems developed for wireless and wireline network operators who provide voice activated dialing and prepaid calling services to their subscriber base, thereby increasing network usage and revenues. Typical applications that reduce customers' costs or improve efficiency allow callers to access personalized account balances for bank, credit card or mutual fund accounts, order products or product literature for delivery by mail or by facsimile, pay bills, enroll for college courses, apply for credit cards and receive stock quotes or other personalized information. The use of the Company's systems to respond to routine requests for information reduces customers' direct labor costs, and allows live agents to handle more complex questions and problems, thereby improving customer service. Incorporated in Kansas in 1984, the Company initially concentrated its efforts on the provision of audiotex systems, primarily to newspaper publishers, which used the systems to establish themselves as leading information providers in their respective markets. In May 1991, the Company acquired substantially all of the assets of the Voice Systems Group of Ferranti Business Communications, Ltd. Through its subsidiaries, Brite Voice Systems Group, Limited, Brite Voice Systems Group GmbH, Brite Voice Systems AG and Brite Voice Systems S.p.A. (collectively "EMEA" or "Europe, the Middle East and Africa"), EMEA manufactures and markets substantially all of the Company's products throughout these regions. EMEA maintains design and production facilities in Manchester, England and sales and support offices in Cambridge, England; France; Germany; Italy; the Netherlands; South Africa; Switzerland and United Arab Emirates. In July 1993, the Company acquired one of its leading competitors, Perception Technology Corporation ("Perception"). Perception's experience as a provider of interactive voice response systems significantly broadened the Company's participation in the voice processing industry. In March 1995, the Company acquired Touch-Talk, Incorporated ("Touch-Talk"), based in Dallas, Texas. Prior to the merger, Touch-Talk had been the largest provider of customized application software solutions used by the Company in providing interactive voice response applications. The acquisition of Touch-Talk broadened the Company's capabilities in providing turnkey voice processing applications to customers seeking a single vendor for all of their voice processing requirements. 1 In August 1995, the Company acquired Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West), Inc., TSL Software Services, Inc., and TSL Management Group, Inc., (collectively the "TSL Companies" or "TSL"), which were affiliated by common ownership. The Company's TSL division offered a broad array of services and products which assist clients in managing various aspects of their telecommunications functions, including controlling and reducing expenses, developing management reports and applications, selecting service and equipment vendors, designing and implementing telecommunications systems and managing day-to-day operations. On October 30, 1997, the Company consummated the sale of certain assets used in its electronic publishing business to IT Network, Inc. for $35 million in cash. The business sold consisted primarily of the Company's information services business, the sale of audiotex advertising sponsorships to yellow pages advertisers, and the management of such advertisers on behalf of yellow pages publishers. Effective December 1, 1998, the Company consummated the sale of the assets of its TSL division to ProfitSource Corporation (subsequently named EPS Solutions Corporation). The Company received $20 million in cash, and a subordinated promissory note of EPS Solutions Corporation with a face value of $5 million. The Company also received a warrant to purchase 5,000 shares of TSL Services, Inc., which in certain circumstances may be converted to shares of EPS Solutions Corporation. The Company elected to sell these businesses because it believed that, while profitable, the growth prospects of each business were limited. Further, the Company was seeking to focus on fewer but larger market opportunities in the voice processing industry. The Company was able to use the proceeds from each of these transactions to retire all of its short-term debt and significantly increase working capital and stockholders' equity. The Company believes that the transactions described above have positioned the Company as a leading supplier of enhanced telecommunications products and interactive information systems. The Company expects to continue to evaluate prospects for future acquisitions or other corporate development activities to supplement its internal technology and product development. In addition, the Company regularly evaluates all of its product and services offerings for profitability and growth potential, and will continue to redesign, redirect or eliminate those products or services which fail to demonstrate profitability or significant growth potential. THE COMPANY'S PRODUCTS PLATFORMS Brite believes that the wide variety of new applications and services being sought by the telecommunications industry will cause a fundamental change in the product architecture used to provide these services. This industry now generally uses a topology consisting of a network with a series of attached products, provided by different vendors, to provide the needed range of applications. The Company believes that significant demand exists for a uniform architecture consisting of a series of common components utilized for multiple applications. This change will allow client companies to quickly offer new applications and features on a common hardware architecture that can be expanded to add new features and growth in capacity. In 1997, Brite focused on developing this common architecture, known as BriteESP-TM-, and making its entire range of applications available using "building block" components and a common high-level applications language. A majority of the BriteESP development efforts were completed in 1998. Upon completion, each product will have: - A common set of front-end telecommunication network interfaces providing switching and signaling for a variety of networks, such as SS7, ISDN and in-band signaling. - A common media-processing unit providing voice recording, playback and recognition services to all applications. 2 - A common applications processing unit running a variety of call processing and applications software. - An operations, administration, maintenance and provisioning environment utilizing the Simple Network Management Protocol ("SNMP") standard, allowing a single manager to manage the entire suite of Brite products, and any other products that are SNMP compliant. - An application creation environment using Write-1-Registered Trademark-, Brite's fourth-generation language which allows easy, graphics-driven application development. - Integrated system administration, using state-of-the-art graphical user interface operator terminals. - A common relational database management environment. APPLICATION CREATION ENVIRONMENT Write-1 is a language developed by Brite for writing voice processing and call processing applications, and performing host connectivity, that runs under a range of UNIX operating systems. It also contains a library of interfaces to third party development tools such as databases, host connections and Dialogic's CT Connect product. The Company has an application software development environment with a graphical user interface running under Windows NT. This package is designed to meet a wide variety of programming needs, from creating simple menu-based call flows to developing complex network-based applications. It also isolates the programmer from the operating system and hardware platform, thus making applications more portable and expandable. Write-1 contains a range of features that enable customers to produce state of the art applications. Examples of customer-developed applications include consumer banking and financial transactions, and a large call center help desk which includes automated display of pertinent caller information on the computer screen of a customer service representative. APPLICATIONS Applications currently in use by many of the Company's customers are as follows: VOICE ACTIVATED DIALING. This application allows wireless carriers to provide a cellular telephone user access to telephone numbers using spoken commands rather than the keys on the cellular telephone. The use of voice activated dialing permits drivers to keep their hands on the wheel and eyes on the road, promoting safety and convenience of use. VoiceSelect-Registered Trademark- and BriteTalk-TM-are marketed to cellular providers around the world. DEBIT/PREPAID CALLING. BriteDebit-Registered Trademark- applications deliver the ability for telecommunications companies to provide services to subscribers extending beyond traditional monthly billed service. This capability allows wireless and wireline companies to provide service through the use of credit cards, debit cards or prepaid services requiring no card. Unlike traditional telephone company services where service usage measurements are collected and bills are generated offline at the end of the billing cycle, prepaid or debit services require that this billing function occur as part of the call processing system and in "real time" to allow the user to always have access to a current balance record. Further, the system must have the ability to "tell" the user the balance in the account. This ability to perform not only voice processing and call processing, but also call costing and customer account adjustment, is a technical task similar to the functionality provided by telecommunications switches and billing systems operating simultaneously and in real-time. BriteStar-TM-, developed during 1998, is a unique handset-based prepaid solution, specifically for wireless providers. BriteStar uses powerful encryption technology to store the user's credit within the handset itself, and allows the handset to securely monitor the value of all calls made, so that the user credit level is never exceeded. It allows network operators to launch a prepaid service with a very short time to 3 market, simple network integration, highly efficient use of network resources, and high resistance to fraud. BriteStar also offers key subscriber benefits, such as credit display on the handset, and is the first prepaid solution capable of full international roaming. BriteStar was developed jointly with Telemac Corporation and Philips Consumer Communications, combining Brite's expertise in system delivery and network integration with Telemac's leadership in switch independent handset-based prepaid wireless technology and Philips' expertise in handset production. VOICE MESSAGING. Voice messaging (or voice mail) allows users to store, send and receive information over the telephone or Internet. In addition to voice mail, the systems provide call answering, call routing, paging, short message delivery, dictation and automated attendant features. The Company's range of voice messaging services can be combined to offer a wide range of value-added services for public telephone network operators. ENHANCED CALLING CARD. BriteCall-TM-, developed in 1998, offers postpaid and enhanced calling card capabilities, including voice activated dialing and speed dialing. BriteCall is a robust, distributed and network grade product integrating multiple services on the same platform. INTERACTIVE VOICE RESPONSE ("IVR") APPLICATIONS. Designed for use with the Company's IVR platforms, these applications are often customized, and can be written by the Company, by the customer, or written in cooperation with a series of independent software vendors ("ISVs"). ISVs typically have specialized skills, which allow the Company to economically obtain specialized, industry-specific programming. Many application software packages can be used to create products targeted for specific vertical markets. Examples include higher education, where the Company's systems enable university and college students to register for courses 24 hours a day via touch-tone phones; the financial services market, where the Company's systems allow callers to perform a wide range of banking transactions by phone 24 hours a day; and utility companies, where the Company's systems provide automated customer service functions such as power outage reporting, billing inquiries and meter reading. SERVICES The Company offers a wide range of services in conjunction with its voice processing and call processing systems. These services are typically available on either an annual or quarterly basis and generally complement or support the Company's products. The Company also provides a variety of telecommunications management services. MANAGED SERVICES As a complement to its system sales, the Company provides certain voice and call processing services on a managed services basis. In a typical managed service relationship, the Company provides all necessary equipment and operational personnel, allowing the customer to avoid both the front-end cost of purchasing equipment, and the continuing cost of adding personnel to staff a function that is outside its expertise. Charges for these services may be based on fixed rates per month, per call or per minute, or may consist of a share of the revenue or profits generated by the service. The Company's TeleRent-Registered Trademark- service provides readers of apartment rental guides access to information concerning rental properties in the local area. Callers to the system may receive more detailed information about an apartment or complex than can be conveyed in a printed ad. Callers can direct connect to the leasing agent, leave messages, or receive a fax of a floor plan or contract. The Company receives a monthly fee for each listing sold in the rental guide. The Company provides its prepaid calling application (BriteDebit and BriteStar) to network operators on a managed service basis in addition to offering a system purchase option. Under these arrangements, the Company provides the hardware platform which carries traffic on the prepaid network, rates calls and keeps track of individual subscriber balances, processes account replenishment and provides customer 4 support representatives to assist subscribers with problems. The Company's platform can be easily expanded to meet increased demand and combines many features in a manner that the Company believes are unmatched in the industry. The advantage to the network provider is a completely bundled service, which requires no front-end purchase of equipment, a fixed cost to provide the service, and the avoidance of continuing costs of operational personnel on staff. SERVICE CONTRACT AND REPAIR The Company's systems are generally sold with limited warranties, which usually range from 90 days to one year. All systems contain built-in modems, allowing Company personnel to perform diagnostic procedures and many software upgrades and enhancements remotely. Customers may contract for extended warranty coverage under any of several plans. The Company maintains a customer service department consisting of a help desk function, a field service organization and a training department. The help desk function is staffed by professionals with specialized skills in hardware diagnostics, software support and applications programming, who respond to customer questions regarding software warranty claims and assist customers in developing and debugging application programs. A geographically dispersed field service staff is responsible for system installation and on-site hardware maintenance, including warranty claims. To date, warranty claims have not been significant. The training department provides beginning and advanced training sessions for both customers and employees on topics such as product orientation, system operation and programming and advanced software and technical development. During 1998, the Company introduced a new program called "BriteCare-TM-", which consists of a range of additional services. This program includes both basic maintenance/warranty services and advanced professional services that can assist the customer in business planning, source marketing, service planning and deployment. The Company believes that BriteCare is an important differentiating factor in reducing customers' risks and costs, or increasing their revenues. SALES AND MARKETING MARKETS SERVED The Company's hardware systems are sold to two principal markets: the business systems or commercial market and the network operator market. The business systems market is broadly defined to include organizations that service large volumes of telephone callers on a regular basis. These organizations are generally seeking to streamline operations, improve efficiency and reduce costs. The Company markets systems that fall into one of three categories: audiotex, IVR, or computer telephony integration ("CTI"). Audiotex systems typically broadcast the same information to each caller, while IVR systems allow callers to access or change account-specific information. CTI systems generally apply computer intelligence to telecommunications devices to improve the efficiency of customer service representatives by providing telephone access and control of computer functions, and computer access and control of telephone functions. The Company markets its products primarily to specific industries with needs that can be easily satisfied with highly automated solutions. The Company has principally served the call center, education, financial services, government, health care, publishing, telecommunications and utility markets. Network operators purchase and install the Company's systems in or near their central switching offices and use the Company's systems to offer what are known as "enhanced network" or "enhanced telecommunications services" to their subscriber base. Subscribers have access to voice messaging, voice activated dialing, prepaid calling and other services that produce additional revenue to the operator. 5 DOMESTIC SALES Revenues within North America amounted to $75,673,000, $58,643,000 and $55,077,000 in 1998, 1997 and 1996, respectively. The Company sells its systems and services domestically primarily through a direct sales force, with individual personnel being responsible for either a specific industry, territory or product line. Direct sales personnel are located throughout the United States, including the Company's offices in Canton, Massachusetts; Lake Mary, Florida; and Wichita, Kansas. During 1998, 16% of consolidated revenues was derived from AT&T Corp. for delivery of an enhanced telecommunications services application. The Company also markets its systems through companies offering integrated systems or services for sale to end users using the Company's hardware platforms. These companies include Amarex Technology, Digital Data Voice, Intecom, Quotient Systems, Southwestern Bell Telecom and U.S. West Communications Services. INTERNATIONAL SALES International revenues were $60,042,000, $44,730,000 and $39,089,000 in 1998, 1997 and 1996, respectively, and amounted to 44%, 43% and 42% of revenues for such periods. Sales outside the United States are made through a number of sources. Sales into Europe are made by the Company's EMEA sales force. Sales into Canada and South America are made by the Company's U.S.-based sales force, and sales into other areas of the world are made through a combination of the Company's U.S.-based sales force, distributors and local agents. The Company has employees based in Dubai, United Arab Emirates; Almelo, Netherlands; Paris, France; Buenos Aires, Argentina and Singapore. The Company's European subsidiaries market systems to the same sectors of the voice processing market as addressed in the United States. A dedicated sales staff targets corporate users for the sale of audiotex and interactive voice response systems. The Company concentrates its efforts on five different vertical markets: telecommunications, home shopping, travel and transport, finance and utilities. The Company also relies on indirect distribution of its systems through prominent call center switch manufacturers such as Bosch, BSW, Ericsson and Siemens. The Company also maintains a dedicated sales staff for the sale of systems to network operators throughout Europe, the Middle East and Africa. The principal products sold to these markets are voice messaging, voice activated dialing and prepaid calling. Historically, the revenues from EMEA were dependent upon a small number of customers. The Company has concentrated on expanding its customer base to lessen its dependence on relatively few customers. Nevertheless, during 1998, 69% of the sales by the Company's European subsidiaries were concentrated in ten customers. In addition, one customer, Cellnet, represented 11% of consolidated revenues in 1998, and 12% of consolidated revenues for each of 1997 and 1996. The loss of any of these customers could have a material impact on the Company's international revenues and results of operations. The Company sells its audiotex, IVR and network products throughout the rest of the world through its direct sales force, independent sales agents and value-added resellers ("VARs"). Where possible, the Company uses the services of agents and VARs in foreign markets because of their familiarity with local markets and their knowledge of, and abilities to work within, local governmental regulations. VARs typically purchase the Company's hardware and license the operating software. In some instances, VARs provide additional software programming or information packages to complete the systems. Agents used by the Company typically receive a commission on sales made into their territories. The Company faces a number of risks in conducting its international business that do not affect its domestic business, including greater concentration of business with fewer customers, longer payment cycles, greater difficulty in accounts receivable collection and difficulty in staffing and managing foreign 6 subsidiary operations. Installation of the Company's products outside the United States requires that the Company conform to local telephone and electrical regulations. The Company has traditionally relied on its suppliers to obtain the necessary registration in order for the Company to install products within an individual country. There can be no assurance that these factors will not have an adverse impact on the Company's future international sales or operating results. See Note 15 to the Consolidated Financial Statements contained herein for additional information with respect to foreign and domestic sales and assets. SEGMENT INFORMATION AND FOREIGN AND DOMESTIC OPERATIONS The information set forth in Notes 14 and 15 to the accompanying consolidated financial statements is incorporated herein by reference. RESEARCH AND ENGINEERING The voice and call processing industries are subject to rapid technological change, including continuing improvements in hardware and software performance. In order to maintain its competitive position, the Company must continually release new products and develop enhancements and new features for its existing products on a timely basis. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, product modifications or enhancements, or new products that respond to technological advances by others, or that such new or enhanced products or features will adequately and competitively address the needs of the marketplace. Because of the increasing complexity of the Company's products, these efforts can be expected to continue to increase in technical difficulty. Moreover, the Company must manage product transitions successfully, since announcements or introductions, or the perception that such events are likely to occur by either the Company or its competitors, could adversely affect sales of existing Company products. Research and product engineering activities are conducted in Canton, Massachusetts; Manchester, England; Lake Mary, Florida; and Wichita, Kansas. During 1998, principal activities were the development of the common architecture known as BriteESP; including the completion of BriteTalk, the Company's new voice activated dialing product; BriteConnect, the Company's new IVR product; and BriteStar, the Company's handset-based prepaid system, each of which uses the BriteESP architecture. The Company completed the development of BriteCall, a new enhanced credit card product. The Company also completed additional enhancements to its voice messaging and prepaid calling applications. During 1998, 1997 and 1996, the Company spent approximately $15,795,000, $13,036,000 and $9,810,000, respectively, on research and engineering. As a percentage of revenues, these amounts represent 11.6%, 12.6% and 10.4%, respectively. The Company expects that to be successful, it will be required to continue to increase its level of research and engineering expenditures in absolute terms, and that such increases may also increase as a percentage of sales. MANUFACTURING The Company's manufacturing operations consist primarily of assembly of board-level and subsystem-level components, burn-in, testing and quality assurance functions, which are performed at both its Canton, Massachusetts and Manchester, England facilities. Manufacturing is performed on only one shift, and the Company devotes less than 25% in each of its Canton and Manchester facilities to manufacturing; therefore, the Company believes its production facilities are adequate for the foreseeable future. 7 For product standardization, quality control and volume purchasing efficiencies, the Company has elected to purchase certain components from sole suppliers. Although the Company historically has been able to obtain supplies of these components in a timely manner, the interruption in supply of any of these components could have an adverse impact on the Company's revenues and operating results. While the Company believes that other suppliers could provide required components in the event of an interruption in supply, a change in suppliers could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results. BACKLOG The Company maintains an inventory of component parts which generally enables it to assemble, test and ship most systems within two weeks of receipt of an order. The short lead time prior to shipment of systems generally results in a minimal backlog of systems orders. As of December 31, 1998, the Company had a systems backlog of $36,200,000 compared to $39,900,000 as of December 31, 1997, and $17,900,000 as of December 31, 1996. All of the backlog at December 31, 1998 is scheduled to be shipped in 1999. There can be no assurance that any such orders will not be canceled or rescheduled. Because of the possibility of customer changes in delivery schedules or cancellation of orders, the Company's backlog as of any particular date may not be indicative of actual revenues for any future period. Because of the short length of its contracts for many of its services, the Company has not historically valued its backlog of service revenues. COMPETITION The markets for telecommunication enhanced services and business enterprise systems are highly competitive and include numerous suppliers of hardware and software of varying specifications. The Company's competition includes a number of companies for whom voice and call processing systems are their primary business, including Boston Communications Group, Comverse Technology, Edify, InterVoice, Periphonics and Syntellect, and other manufacturers. The Company also competes with larger companies, such as Compaq, IBM and Lucent Technologies, for whom voice and call processing is a small portion of their overall business. In addition, as the Company's markets continue to grow, increasing numbers of applications will be introduced by existing and new competition. The Company believes that the principal factors affecting competition in these markets are ease of use flexibility, reliability, applications integration, overall technical performance, price, customer service and the availability of professional services that can help customers reduce cost and time-to-market and increase revenues. The Company believes that it competes favorably as to these factors. The Company expects that additional competition will develop, and such competition may include large companies with substantially greater financial, marketing and technical resources than those available to the Company. Such competition could adversely affect the revenues and operating results of the Company. SOFTWARE PROTECTION, SERVICE MARKS AND PATENTS The Company regards its software as proprietary and has implemented measures of both a legal and practical nature to ensure that the software retains that status. The Company derives considerable practical protection for its software by licensing only the object code to customers and keeping the source code confidential. In addition, by licensing the software rather than transferring title, the Company in most cases has been able to incorporate restrictions in licensing agreements which impose limitations on disclosure and transferability of the software. No determination has yet been made, however, as to the legal or practical enforceability of these restrictions or the extent of customer liability for violations. 8 Like many other companies in the industry, the Company does not have patent protection for its software. However, protection against unauthorized copying of the source and object code portions of the software is sought through reliance upon copyright laws. Despite these protections, competitors may be able to copy aspects of the Company's products or to obtain information which the Company regards as trade secret. The Company has periodically received, and may receive in the future, communications from third parties asserting patent rights or copyrights on certain of the Company's products and product features. In certain instances, the Company's customers have also received similar communications. The Company believes that its products and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future, or that any such claims will not require the Company to enter into license arrangements or result in protracted and costly litigation, regardless of the merits of such claims. In addition, it is possible that one or more of the Company's customers may encourage the Company to obtain licenses or indemnify them against loss should a liability arise from the utilization of a Company product which is determined to have infringed. There also can be no assurance that the Company will be able to obtain licenses to disputed third party technology or that such licenses, if available, would be available on commercially reasonable terms. The Company has registered with the United States Patent and Trademark Office trademarks on Brite & Design, VoiceSelect, TeleRent, TeleSchool, BriteMail, Value Added Classifieds, BriteFax, BriteDebit, BriteConnect, BriteStar, BriteTalk, BriteCare, BriteESP, M-Cubed, Perception, Write-1 and Bringing People and Information Together. EXECUTIVE OFFICERS The executive officers of the Company, their ages and the period during which each has served in his present office are as follows: Stanley G. Brannan (49), the Company's founder, served as President, Chief Executive Officer and Chairman of the Board from the Company's inception until resigning as President and Chief Executive Officer in December 1996. Mr. Brannan subsequently resigned as Chairman of the Board in January 1998. In November 1998, Mr. Brannan resumed his role as Chairman, President and Chief Executive Officer on an interim basis. Prior to founding the Company, Mr. Brannan founded Mycro-Tek, Inc., a company specializing in the manufacture of microprocessor-based products used in electronic newsroom systems and television character generators. When Mycro-Tek, Inc. was acquired by Allied Corporation in 1980, Mr. Brannan was employed by Allied and eventually became president of the company's Merganthaler USA Division. Gerald V. Butler (58) has served as Senior Vice President of Worldwide Operations since April 1997 and, as Executive Vice President of Engineering and Worldwide Operations from May 1996 to April 1997. Mr. Butler joined the Company in November 1994 as Senior Vice President at the Company's Canton, Massachusetts facility. From 1992 until joining the Company in 1994, Mr. Butler operated Business Basics, a project and data management consulting service. Mr. Butler served as president of the systems integration business unit of Prime/Computervision from 1988 to 1992, as president and chief executive officer of Culler Scientific from 1984 to 1988, and as vice president of computer special systems at Digital Equipment Corp. from 1979 to 1984. Garrett Digman (50) became Vice President of Marketing in October 1997. In November 1998, Mr. Digman was appointed to the additional position of General Manager of the Enterprise Solutions Group. From May 1995 until joining Brite, he served as president of Kinetic Technologies, a telecommunications consulting firm specializing in development of the infrastructure for PCS deployment. From 1992 to 1995, Mr. Digman was general manager of North American operations for GPT Video Systems. 9 Glenn A. Etherington (44) has served as Chief Financial Officer of the Company since August 1988. He was treasurer from August 1988 until August 1993, and has been secretary since August 1993. From April 1984 until joining the Company, he served in various capacities including vice president of finance, controller and treasurer of American City Business Journals, Inc., a publisher of weekly business newspapers. Mr. Etherington is a certified public accountant. Victoria C. Farris (42) has served as Vice President of Finance and Treasurer since September 1995. From 1988 until 1995 she was general manager and vice president-finance of Sun Publications in Overland Park, Kansas, a publisher of community newspapers. From 1985 until 1988, she was controller of American City Business Journals, a publisher of weekly business newspapers. Ms. Farris is a certified public accountant. Brian Klumpp (58) was named Senior Vice President of Human Resources for the Company in March 1997. Prior to joining Brite, Mr. Klumpp served as chief executive officer and chairman of AWPI, a high technology water purifying company from December 1993 to 1997 and chief executive officer and chairman of Pawnee Industries, a diversified manufacturer of plastics from 1988 to 1993. Prior to Pawnee, Mr. Klumpp held a number of executive management positions in the areas of human resources, sales, marketing and public affairs with the Dow Chemical Company. Ray S. Naeini (48) joined the Company in December 1995 as Vice President of Advanced Technologies and has served as Vice President/General Manager of Network Products. In November 1998, Mr. Naeini was appointed Executive Vice President of Global Products. Mr. Naeini has 22 years of experience in the telecommunications, voice processing and the computer industry, most recently with Intellicall from 1991 to December 1995, and has held various senior business executive and chief technology positions with Northern Telecom, Bell Northern Research, Honeywell and Network Assess Corp. Donald R. Walsh (62) joined the Company as Executive Vice President in August 1990 and became Executive Vice President of Business Systems in January 1998. In November 1998, Mr. Walsh was appointed Executive Vice President of Worldwide Sales. From 1987 to August 1990, he served as president of the Information Services subsidiary of Philadelphia Suburban Corporation. Prior to 1987 he was employed by IBM, where he held several management positions, primarily relating to sales and marketing. The Company's executive officers are elected by, and serve at the discretion of, the Board of Directors. EMPLOYEES As of December 31, 1998, the Company and its subsidiaries had 679 employees, of which 652 were full-time employees. Of the full-time employees, 365 were located in the United States, and 287 were located in Europe, the Middle East, Africa, Latin America or Singapore. The Company believes that future growth is dependent in large part on its ability to attract and retain key management, technical and sales personnel. The Company has never had a work stoppage, no employees are represented by a labor organization and the Company considers its employee relations to be good. 10 ITEM 2. PROPERTIES The Company owns its building in Wichita, Kansas, which contains 40,000 square feet and houses its network products research and engineering staff. Other facilities are leased by either the Company or, in foreign countries, certain of its subsidiaries, as follows:
LOCATION SQUARE FEET USE LEASE EXPIRES - --------------------------------------- ----------- --------------------------------------- ------------------ Lake Mary, Florida 31,083 corporate headquarters housing June 2002 administrative, sales and marketing activities Lake Mary, Florida 33,107 engineering and customer support May 2003 activities Canton, Massachusetts 42,600 administrative, research and March 2003 engineering, and manufacturing facilities Manchester, England 27,400 administrative, engineering, December 2002 manufacturing facilities and customer support Manchester, England 21,000 sales, marketing, product development, June 2003 training and human resources Cambridge, England 12,000 administrative offices and call center September 2011 activities Wiesbaden, Germany 5,500 office space for administrative and September 2001 sales staff Rome, Italy 700 office space for administrative and March 2001 sales staff Glattbrugg, Switzerland 2,500 office space for administrative and September 1999 sales staff Singapore 1,350 office space for administrative and May 2001 sales staff
The Company maintains regional sales and support offices in Newington, Connecticut; Framingham, Massachusetts; Allendale, Michigan; Gold River, California; New Brighton, Minnesota; Woodstock, Georgia; and Carrollton, Plano and Denton, Texas. These facilities are generally subject to short-term leases of one year or less. ITEM 3. LEGAL PROCEEDINGS The Company is subject to claims and litigation from time to time arising in the normal operation of its business. Management believes that the ultimate resolution of any pending claim will not result in any material loss to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No information is required in response to this Item, as no matter was submitted to a vote of the registrant's security holders during the fourth quarter of the fiscal year covered by this report. 11 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on The Nasdaq Stock Market-Registered Trademark- under the symbol BVSI. Prices per share reflected in the following table represents the range of high and low sales prices reported by The Nasdaq Stock Market for the quarters indicated.
HIGH LOW --------- --------- 1998 March 31................................................................. $ 11.13 $ 7.63 June 30.................................................................. 14.00 8.81 September 30............................................................. 13.25 7.13 December 31.............................................................. 10.13 7.00 1997 March 31................................................................. $ 18.00 $ 10.50 June 30.................................................................. 10.88 6.75 September 30............................................................. 11.63 7.00 December 31.............................................................. 12.25 8.38
Since becoming a public company in 1989, the Company has not paid cash dividends on its common stock, and does not plan to pay cash dividends to its stockholders in the near future. The Company is not bound by any contractual terms that prohibit or restrict the payment of dividends; however, the Company presently intends to retain its earnings to finance future growth of its business. As of March 1, 1999, the Company had 621 stockholders of record, excluding individual participants in security position listings. 12 ITEM 6. SELECTED FINANCIAL DATA The following table contains certain selected financial data which should be read in conjunction with the Company's financial statements and notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations. The selected financial data have been derived from the financial statements of the Company audited by Arthur Andersen LLP, independent certified public accountants.
YEARS ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues.............................................. $ 135,715 $ 103,373 $ 94,166 $ 81,287 $ 66,304 Operating income (loss)............................... 2,218 (10,737) 7,339 7,170 6,878 Net income (loss) Continuing operations............................... 1,773 10,437 5,837 5,785 5,569 Discontinued operations............................. 11,344 1,245 2,718 (1,835) (1,144) ---------- ---------- --------- --------- --------- Total............................................... $ 13,117 $ 11,682 $ 8,555 $ 3,950 $ 4,425 Diluted earnings (loss) per share From continuing operations.......................... $ 0.15 $ 0.87 $ 0.48 $ 0.48 $ 0.48 Discontinued operations............................. 0.92 0.10 0.23 (0.15) (0.10) ---------- ---------- --------- --------- --------- Total............................................... $ 1.07 $ 0.97 $ 0.71 $ 0.33 $ 0.38 Weighted average shares used in computation........... 12,310 12,068 12,127 11,925 11,526 BALANCE SHEET DATA: Working capital....................................... $ 62,037 $ 52,879 $ 37,671 $ 26,934 $ 23,772 Total assets.......................................... 122,119 104,226 74,493 58,577 51,888 Long term debt........................................ -- -- -- -- -- Stockholders' equity.................................. 84,913 70,114 54,181 40,446 35,547
The 1998 results include an after tax gain of $9,122,000 relating to the sale of the Company's TSL division, which was consummated effective December 1, 1998. The operating results of this division, and the gain, have been reclassified and reported in discontinued operations for each of the years presented above. The 1998 results also include charges of $1,410,000 related to the termination of certain executives. These charges are included in operating income (loss). The 1997 results include a pre-tax gain of $29,091,000 relating to the sale of certain assets of the Company's electronic publishing business, which was consummated on October 30, 1997. The operating results of this division and the gain on the sale are included in net income from continuing operations. The 1997 results also include $10,980,000 in charges related to the restructuring of operations and the relocation of the Company's headquarters to Lake Mary, Florida. These charges are included in operating income (loss). The 1995 results include costs associated with the acquisition of the TSL division of $8,630,000, which are reported in discontinued operations. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission, including this Form 10-K report, may contain certain "forward-looking" information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "expects," "anticipates," "believes" and similar words generally signify a "forward-looking" statement. These forward-looking statements are made pursuant to the safe harbor provisions of the Act. The reader is cautioned that all forward-looking statements are necessarily speculative and that there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. Such risks and uncertainties include those inherent generally in the voice processing and call processing industries, such as product demand, pricing, market acceptance, reliance on significant customers, intellectual property rights, risks in product and technology developments, and other risk factors detailed elsewhere in this report, including the section below entitled "Certain Factors to be Considered". The Company undertakes no obligation to publicly revise any forward-looking statement due to changes in circumstances after the date of this report, or to reflect the occurrence of unanticipated events. BASIS OF PRESENTATION On October 31, 1997, the Company consummated the sale of certain assets used in its electronic publishing business to IT Network, Inc. for $35 million in cash. The business sold consisted primarily of the Company's information services business, the sale of audiotex advertising sponsorships to yellow pages advertisers, and the management of such advertisers on behalf of yellow pages publishers. Effective December 1, 1998, the Company consummated the sale of the assets of its TSL division to ProfitSource Corporation (subsequently named EPS Solutions Corporation). The Company received $20 million in cash and a subordinated promissory note of EPS Solutions Corporation with a face value of $5 million. The Company also received a warrant to purchase 5,000 shares of TSL Services, Inc., which in certain circumstances may be converted to shares of EPS Solutions Corporation. The consolidated statements of income include the results of the electronic publishing division through the date of the sale. The TSL division has been accounted for as a discontinued operation in the accompanying financial statements for each of the three years ended December 31, 1998, 1997 and 1996. RESULTS OF OPERATIONS The Company derives revenue from the sale of voice processing and call processing systems to domestic and international customers and the provision of services related to the operation of these systems. The Company's systems products can be divided into two categories: those that increase its customers' revenues through increased subscription or user fees ("network systems"), and those that reduce customers' costs or improve the efficiency of services provided to end-user customers ("business systems"). Total revenues increased $32,342,000, or 31.3%, for the year ended December 31, 1998 and increased $9,207,000, or 9.8%, in 1997. Revenues of the Company's electronic publishing division were $11,171,000 for the year ended December 31, 1997. The electronic publishing division was sold in October 1997, and no revenues were recorded for this division during 1998. With revenues from this division excluded from 1997 results, total revenues would have increased $43,513,000, or 47.2%, for the year ended December 31, 1998. 14 Systems revenues increased $28,640,000, or 41.3%, for the year ended December 31, 1998 and $5,364,000, or 8.4%, in 1997, as shown in the following table:
SYSTEMS REVENUES % INCREASE YEAR ENDED DECEMBER 31, (DECREASE) ------------------------------- -------------------- 1998 1997 1996 1998 1997 --------- --------- --------- --------- --------- (IN THOUSANDS) Business systems............................................. $ 27,644 $ 22,948 $ 27,480 20.5% (16.5)% Network systems.............................................. 70,340 46,396 36,500 51.6% 27.1% --------- --------- --------- Total........................................................ $ 97,984 $ 69,344 $ 63,980 41.3% 8.4% --------- --------- --------- --------- --------- ---------
Business systems revenues increased $4,696,000, or 20.5%, for the year ended December 31, 1998, primarily due to the sale of several large systems to new and existing customers. Business systems revenues decreased $4,532,000, or 16.5%, for the year ended December 31, 1997, due to delays in purchasing upgrades by existing customers for the Company's IVR equipment, the discontinuation of sales of small voice messaging systems during late 1996, and to a decline in sales of the Company's audiotex systems. Network systems revenues increased $23,944,000, or 51.6%, for the year ended December 31, 1998, and $9,896,000, or 27.1%, for the year ended December 31, 1997. The increase in 1998 was due primarily to the recognition of the major portion of the revenues from a large contract with AT&T (the "AT&T Contract"), as well as several other large shipments to new and existing customers. Services revenues increased $3,702,000, or 10.9%, for the year ended December 31, 1998, and $3,843,000, or 12.7%, for the year ended December 31, 1997. In 1997, services revenues included revenues of the electronic publishing division, which was sold in October 1997. Revenues of this division are included in managed services and information services. With revenues of this division excluded from the 1997 results, services revenues would have increased $14,873,000, or 65.1%. The breakdown of services revenues is shown in the following table:
SERVICES REVENUES % INCREASE YEAR ENDED DECEMBER 31, (DECREASE) ------------------------------- -------------------- 1998 1997 1996 1998 1997 --------- --------- --------- --------- --------- (IN THOUSANDS) Managed services............................................. $ 20,333 $ 13,769 $ 11,058 47.7% 24.5% Service contract and repair.................................. 17,398 15,343 13,407 13.4% 14.4% Information services......................................... -- 4,917 5,721 -- (14.1)% --------- --------- --------- Total........................................................ $ 37,731 $ 34,029 $ 30,186 10.9% 12.7% --------- --------- --------- --------- --------- ---------
Managed services revenues increased $6,564,000, or 47.7%, for the year ended December 31, 1998, and increased $2,711,000, or 24.5%, for the year ended December 31, 1997. The 1997 results included revenues of $6,254,000 that are attributed to the electronic publishing division. Excluding these revenues from 1997, managed services revenues would have increased $12,818,000, or 170.6%, for the year ended December 31, 1998. This increase was primarily due to the commencement of contracts for the Company to provide prepaid calling services to North American and European telecommunications providers. Service contract and repair revenues increased $2,055,000, or 13.4%, for the year ended December 31, 1998 and $1,936,000, or 14.4%, for the year ended December 31, 1997. The increases in revenues are due primarily to an increase in installation revenues for new systems and an increase in the installed base of customers who subscribe to quarterly or annual maintenance contracts. No information services revenue was recorded in 1998 due to the sale of the electronic publishing division in October 1997. The decline in information services revenue between 1996 and 1997 was due primarily to the presence of ten months of activity during 1997 compared to a full year in 1996. 15 Cost of systems sales increased $18,549,000, or 58.0%, for the year ended December 31, 1998, and $4,278,000, or 15.4%, for the year ended December 31, 1997. As a percentage of systems sales, actual costs increased to 51.6% in 1998, compared to 46.2% in 1997, and 43.3% in 1996. Actual costs increased due primarily to an increase in the number of systems shipped by the Company, including costs related to the AT&T Contract during 1998. The increases as a percentage of revenues were due primarily to the lower margin recognized on the AT&T Contract, and an increase in costs associated with the Company's European operations. Systems sales in 1998 included a larger number of customized sales, which have a higher cost of sales and lower margins. Cost of services increased $4,973,000, or 28.3%, for the year ended December 31, 1998, and $836,000, or 5.0%, for the year ended December 31, 1997. As a percentage of services revenues, these costs were 59.8% in 1998, compared to 51.7% in 1997, and 55.5% in 1996. The increases in actual costs and costs as a percentage of revenue were due primarily to the commencement of contracts under which the Company provides prepaid calling services on a managed services basis, which are expected to generate lower gross margins than the Company's other services businesses. Research and engineering expenses increased $2,759,000, or 21.2%, for the year ended December 31, 1998, and $3,226,000, or 32.9%, for the year ended December 31, 1997. The increases in actual expenditures were due to an increase in engineering personnel, including outside consultants, dedicated to designing new products and enhancing existing products, including upgrading existing products for Year 2000 compliance. As a percentage of revenues, these expenses decreased to 11.6% in 1998, compared to 12.6% in 1997, but increased from 10.4% in 1996. The Company typically targets its annual engineering expenditures based upon annual revenue goals. Fluctuations in engineering expenditures as a percentage of sales in a given year are generally due to fluctuations from revenue goals, or variances from budgeted expenditures. The Company believes that it must continue to increase spending on research and engineering activities in absolute terms in order to remain competitive in the voice and call processing market. Such expenses could continue to increase as a percentage of revenues as well. Selling, general and administrative expenses increased $2,676,000, or 6.6%, for the year ended December 31, 1998, and $7,963,000, or 24.5%, for the year ended December 31, 1997. The Company executed a restructuring program in June 1997, which resulted in an approximate 12% decrease in the number of employees performing sales and marketing activities. Since the restructuring, the Company has begun increasing the number of employees in the sales and marketing area with a goal of increasing its costs at a rate slower than anticipated revenue growth. As a percentage of revenues, these expenses decreased to 31.8% in 1998, compared to 39.2% in 1997 and 34.6% in 1996. This decline as a percentage of revenues was due to increased controls over expenditures, and a larger revenue base over which to spread the fixed costs of operations. The effective income tax rate for the year ended December 31, 1998 was 37.7%, compared to 42.4% in 1997, and 27.9% in 1996. The variance from the United States statutory rate for 1998 and 1997 was due primarily to the provision for state income taxes and utilization of certain credit carryforwards. The variance from the expected combined statutory rate in 1996 was primarily due to a reduction of the Company's deferred tax valuation allowance and utilization of certain net operating losses and credit carryforwards. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, the Company had a current ratio of 2.8 to 1 and working capital of $62,037,000, compared to a current ratio of 2.6 to 1 and working capital of $52,879,000 at December 31, 1997. Cash flows from operating activities utilized net cash of $26,157,000 for the year ended December 31, 1998, principally due to increased accounts receivable and inventory. The increase in accounts receivable is due to an increase in sales, and to a number of large contracts with payment terms which extend beyond 16 the dates on which revenue is recognized for financial reporting purposes. Certain of these contracts require payment to begin in early 1999, and the Company believes that accounts receivable will decline both in absolute terms and in the number of days of sales outstanding. Inventory increased $7,890,000 during 1998, due principally to the purchase of parts required to fulfill a large contract to be delivered in stages throughout the first quarter of 1999, and a general increase in inventory carrying requirements due to expected increases in system sales. The Company believes that the increase in inventory is consistent with the increase in cost of sales during the period. The Company's capital expenditures relating to continuing operations during 1998 were $9,466,000. These expenditures were primarily related to the Company's expansion of its base of customers for which it provides managed services. During 1998, the Company introduced BriteStar in the United Kingdom and expanded its BriteDebit installations in the United States. In addition, the Company purchased significant amounts of test and development equipment to expand and enhance its development activities. On October 30, 1997, the Company consummated the sale of certain assets used in its electronic publishing business to IT Network, Inc. for $35 million in cash. Effective December 1, 1998, the Company consummated the sale of the assets of its TSL division to ProfitSource Corporation (subsequently named EPS Solutions Corporation), for which the Company received $20 million in cash and a subordinated note with a face value of $5 million. The Company was able to use the cash proceeds from each of these transactions to retire all of its short-term debt and significantly increase working capital and stockholders' equity. The Company regularly invests excess funds in short-term securities, such as bankers' acceptances, government obligations and variable rate demand notes, having maturities up to one year. Management believes that restricting investments to these types of securities maximizes financial flexibility and minimizes exposure to interest rate and other market risks. The Company utilizes these investments as sources of liquidity, to the extent that cash requirements exceed short-term cash receipts. The Company has maintained a line of credit that is used from time to time to fund short-term cash requirements. In December 1998, this line of credit was increased from $10 million to $25 million. There were no borrowings outstanding under the line as of December 31, 1998. The Company has no additional capital commitments, and believes that funds on hand and the availability of its line of credit will provide sufficient sources of funds to meet all capital requirements for at least the next twelve months. The Company believes that it has adequate borrowing capacity to fund its long-term objectives as well. INFLATION Inflation has not had a material impact on the Company's results of operations. Because of the competitive nature of the computer industry, the costs of parts used in the Company's products have remained relatively stable. However, should inflation rise to higher levels, the Company believes that such inflationary costs would be passed on to customers by both the Company and its competition. CERTAIN FACTORS TO BE CONSIDERED UNCERTAINTY OF REVENUES. The Company has no significant long-term supply agreements with customers and, as a result, revenues in any quarter are dependent upon orders that are received and shipped during the quarter. Further, a large percentage of any quarter's system shipments are recorded in the last month of the quarter. Consequently, quarterly revenues and operating results will depend on the volume and timing of new orders received during a quarter, which are difficult to predict. Failure to receive adequate amounts of new orders could adversely affect revenues and operating results, and such shortfalls may not be known until very late in any quarter. 17 INTERNATIONAL OPERATIONS. The Company faces a number of risks in conducting its international business that do not affect its domestic business, including greater concentration of business with fewer customers, longer payment cycles, greater difficulty in accounts receivable collection and difficulty in staffing and managing foreign subsidiary operations. Installation of the Company's products outside the United States requires that the Company conform to local telephone and electrical regulations. The Company has traditionally relied on its suppliers to obtain the necessary registrations in order for the Company to install products within specific countries. There can be no assurance that these factors will not have an adverse impact on the Company's future international sales or operating results. PRODUCT DEVELOPMENT. The voice processing and call processing industries are subject to rapid technological change, including continuing improvements in hardware and software performance. In order to maintain its competitive position, the Company must continually release new products and develop enhancements and new features for its existing products on a timely basis. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, product modifications or enhancements, or new products that respond to technological advances by others, or that such new or enhanced products or features will adequately and competitively address the needs of the marketplace. Because of the increasing complexity of the Company's products, these efforts can be expected to continue to increase in technical difficulty. Moreover, the Company must manage product transitions successfully, since announcements or introductions, or the perception that such events are likely to occur, by either the Company or its competitors, could adversely affect sales of existing products. DEPENDENCE ON CERTAIN PERSONNEL. The Company's success is largely dependent upon its ability to attract and retain qualified employees, especially technical employees and executives. There exists substantial competition for highly qualified personnel and there can be no assurance that the Company will be successful in hiring and retaining the required personnel. ENHANCED NETWORK SERVICES CONTRACTS. The Company's enhanced network services products are used by its customers to retain existing subscribers, recruit new subscribers and increase the revenue generated by each subscriber. As a result, failure of these customers to provide the services acquired from the Company to its customers on a timely and uninterrupted basis could cause a loss of revenue or erosion of customer base. The Company has entered into contracts in the past, and anticipates entering into contracts in the future, which provide for penalties in the event the Company fails to deliver products in the time frame contracted for, fails to meet service availability requirements, or causes a network outage. The Company has incurred penalties, but has generally been able to negotiate with its customers to obtain reductions or waivers of such penalties. There is no assurance that any of the Company's customers will continue to waive or reduce such penalties, nor is there any assurance that customers will not assert such penalties in the future. Because the Company's customers are generally large telecommunications providers with significant subscriber bases, the Company's failure to perform under its contracts and the assertion of penalties could materially and adversely affect the Company's operating results and financial condition. In December 1997, the Company announced that it had entered into an agreement to provide enhanced telecommunications products to AT&T Corp. ("AT&T"). The initial order under the agreement was for approximately $25 million, representing the largest single contract in the Company's history. The Company has completed the software development, integration and testing phases of the contract; however, the Company was late in delivering the product, and believes it may have been subject to penalties relating to late delivery. In March 1999, in conjunction with an additional order under the agreement, AT&T waived its rights to assert any such penalties. SOLE SOURCE OF SUPPLY. For quality control, ease of development and purchasing efficiencies, the Company has elected to purchase components from one supplier. Although the Company has been able to obtain supplies of these components in a timely manner, the interruption in supply of any of these 18 components could have an adverse impact on the Company's revenues and operating results. While the Company believes that other suppliers could provide required components in the event of an interruption in supply, a change in suppliers could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results. PROPRIETARY RIGHTS. The Company has periodically received, and may receive in the future, communications from third parties asserting patent rights or copyrights on certain of the Company's products and product features. In certain instances, the Company's customers have also received similar communications. The Company believes that its products and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future, or that any such claims will not require the Company to enter into license arrangements or result in protracted and costly litigation, regardless of the merits of such claims. In addition, it is possible that one or more of the Company's customers may encourage the Company to obtain licenses or indemnify them against loss should a liability arise from the utilization of a Company product which is determined to have infringed. There also can be no assurance that the Company will be able to obtain licenses to disputed third party technology or that such licenses, if available, would be available on commercially reasonable terms. VOLATILITY OF COMMON STOCK PRICE. The market for the Company's stock is highly volatile. Any variance in operating results from analysts' expectations or changes in estimated results by industry analysts could have an adverse affect on the trading price of the Company's common stock in a given period. Furthermore, in recent years the market prices of securities of many high technology companies have experienced extreme fluctuations, in many cases for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of the Company's common stock. YEAR 2000 COMPLIANCE. In 1997, the Company began the process of identifying and determining the appropriate resolution to all of the Company's issues relating to the "Millennium Bug". These issues arise because of date sensitive software programs which use two digits to define the applicable year, resulting in interpretation of a date using "00" as the year 1900 rather than 2000. This could result in miscalculations or a major system failure. The Company has concluded that if no action is taken to avoid the consequences, its Year 2000 issues will have a material affect on the Company's results of operations and financial condition. Areas which require remediation are: 1) in-house systems and software programs used to run the business; 2) products sold to the Company's customers; and 3) systems and services provided by vendors. The Company has reviewed its in-house systems for compliance and determined that all systems will be affected. During 1998, the Company converted its accounting, inventory, manufacturing control and human resources systems to a new system in order to provide more efficient management information throughout the Company. The conversion cost approximately $2 million and the new system is warranted by the vendor to be Year 2000 compliant. Testing of this system is currently in process to verify compliance. All remaining in-house computer systems have been classified as mission critical and non-mission critical. The Company has elected to focus on only the mission critical systems, including operating systems and applications software. Studies are currently being conducted to determine which mission critical systems are compliant and which are not. The Company estimates that approximately half of its systems are currently compliant, and believes that any remaining systems that have been identified as mission critical will be compliant by the third quarter of 1999. Non-compliant systems must be replaced or abandoned prior to the beginning of 2000. The Company estimates the cost of bringing the remaining systems into compliance or replacing non-compliant systems to be approximately $1.5 million. Each of the Company's products sold or licensed to customers must be evaluated for Year 2000 compliance. The Company must determine which products will be discontinued, and which products will 19 be made compliant. The Company has completed an inventory of its products in the field, and has established revision levels and dates by which each product will be Year 2000 compliant. Each product must have an agreed upon test plan, engineering plan, and a plan for notifying customers of product revisions and phase-outs. The Company expects that all products to be updated for Year 2000 compliance will be completed before the end of the second quarter of 1999, and the Company intends to charge for integration and installation of compliant systems. The Company is unable to predict the eventual cost of achieving Year 2000 compliance. However, failure to complete plans for each product, or failure to execute such plans, will have a material impact on the Company's sales, as it will be unable to compete with companies which offer Year 2000 compliant products. The Company purchases components and services which must be evaluated for Year 2000 compliance. The Company has divided its vendors into those who supply critical services, manufacturing suppliers and manufacturing contractors. The Company intends to obtain certification from each of its material vendors as to its Year 2000 compliance. The Company believes that the costs to evaluate its key vendors and obtain certification will not be material. The Company has not developed contingency plans related to Year 2000 compliance. The Company believes that the steps being taken are adequate to detect and correct all material Year 2000 issues related to systems sold to customers, and all mission critical internal systems. The Company intends to continue to test for Year 2000 compliance, and will handle exceptions on a case-by-case basis. Despite the Company's intent to complete the modifications necessary to be Year 2000 compliant, there is a risk that the Company will be unable to complete all tasks required in a timely manner, or that certain systems could be overlooked. Should the required modifications not be made, or should they not be completed in a timely manner, this issue could materially and adversely affect the Company's operating results and financial condition. Furthermore, the majority of the effort described above will be performed by the Company's employees. During the period such employees are completing Year 2000 remediation, they will be unavailable to perform their normal tasks. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company transacts business in various foreign currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. The Company generally mitigates this risk by transacting business in the functional currency of each of its subsidiaries, thus creating a natural hedge by paying expenses incurred in the local currency in which revenues will be received. The Company uses derivative financial instruments selectively to offset exposure to market risks arising from changes in foreign exchange rates. Derivative financial instruments currently utilized by the Company include foreign currency forward contracts to hedge receivables denominated in a currency other than the functional currency of the business. As of December 31, 1998, the Company had entered into forward exchange contracts to sell a notional amount of $12,304,000 in Japanese Yen for delivery at various dates during the first six months of 1999. Changes in the market value of these contracts are highly correlated with changes in the market value of the underlying accounts receivable. Accordingly, the Company believes there is no material risk to its financial position or results of operations in the event of a material change in the relative value of the U.S. dollar against foreign currencies. The Company does not use derivative financial instruments for speculative trading purposes, nor does it hedge its balance sheet exposure related to the Company's investments in its foreign subsidiaries. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ----- Report of Independent Certified Public Accountants......................................................... 22 Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... 23 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996..................... 24 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996....... 25 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996....... 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996................. 27 Notes to Consolidated Financial Statements................................................................. 28 Supplemental Schedules: Schedule II--Valuation and Qualifying Accounts............................................................. 44
- ------------------------ NOTE: Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Financial Statements or notes thereto. 21 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Brite Voice Systems, Inc.: We have audited the accompanying consolidated balance sheets of Brite Voice Systems, Inc. (a Kansas corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brite Voice Systems, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. Arthur Andersen LLP Orlando, Florida, February 5, 1999 22 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
1998 1997 ---------- ---------- (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents............................................................... $ 11,208 $ 26,979 Accounts receivable, less allowance for doubtful accounts: 1998--$1,761; 1997--$1,134.......................................................................... 57,559 32,760 Inventories (Note 4).................................................................... 21,676 13,788 Prepaid expenses and other (Note 7)..................................................... 6,967 8,593 Net current assets--discontinued operations (Note 2).................................... -- 3,038 ---------- ---------- Total current assets.................................................................. 97,410 85,158 ---------- ---------- PROPERTY AND EQUIPMENT Land, building and improvements......................................................... 3,074 3,074 Furniture and equipment................................................................. 24,581 15,112 ---------- ---------- 27,655 18,186 Less accumulated depreciation........................................................... (10,480) (6,059) ---------- ---------- 17,175 12,127 ---------- ---------- NET PROPERTY AND EQUIPMENT--DISCONTINUED OPERATIONS (Note 2).............................. -- 1,103 ---------- ---------- OTHER ASSETS (Note 3)..................................................................... 7,534 5,838 ---------- ---------- TOTAL ASSETS.......................................................................... $ 122,119 $ 104,226 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable........................................................................ $ 13,916 $ 10,431 Accrued salaries and wages.............................................................. 2,791 2,414 Other accrued expenses.................................................................. 3,947 3,578 Deferred revenue (Note 2)............................................................... 3,648 3,093 Customer deposits....................................................................... 2,860 11,504 Income taxes payable.................................................................... 8,211 1,259 ---------- ---------- Total current liabilities............................................................. 35,373 32,279 ---------- ---------- LONG-TERM DEFERRED REVENUE (Note 2)....................................................... 1,833 1,833 COMMITMENTS AND CONTINGENCIES (Notes 7 and 12)............................................ STOCKHOLDERS' EQUITY (Note 9) Preferred stock, no par value; authorized 10,000,000 shares; none outstanding........... -- -- Common stock, no par value; authorized 30,000,000 shares; issued and outstanding 1998--12,258,678 shares; 1997--12,032,280 shares...................................... 45,221 43,714 Retained earnings....................................................................... 39,737 26,620 Cumulative foreign currency translation adjustment...................................... (45) (220) ---------- ---------- Total stockholders' equity............................................................ 84,913 70,114 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 122,119 $ 104,226 ---------- ---------- ---------- ----------
See Notes to Financial Statements 23 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
1998 1997 1996 ---------- ---------- --------- REVENUES Systems...................................................................... $ 97,984 $ 69,344 $ 63,980 Services..................................................................... 37,731 34,029 30,186 ---------- ---------- --------- 135,715 103,373 94,166 ---------- ---------- --------- COSTS AND EXPENSES Cost of sales: Systems.................................................................... 50,556 32,007 27,729 Services................................................................... 22,549 17,576 16,740 Research and engineering..................................................... 15,795 13,036 9,810 Selling, general and administrative.......................................... 43,187 40,511 32,548 Restructuring and other nonrecurring charges (Note 11)....................... 1,410 10,980 -- ---------- ---------- --------- 133,497 114,110 86,827 ---------- ---------- --------- OPERATING INCOME (LOSS)........................................................ 2,218 (10,737) 7,339 ---------- ---------- --------- OTHER INCOME (EXPENSE) Gain on sale of assets (Note 2).............................................. -- 29,091 -- Interest income.............................................................. 742 537 432 Interest expense............................................................. (204) (566) (80) Other, net................................................................... 90 (198) (192) ---------- ---------- --------- 628 28,864 160 ---------- ---------- --------- INCOME BEFORE INCOME TAXES..................................................... 2,846 18,127 7,499 INCOME TAX PROVISION (Note 8).................................................. 1,073 7,690 1,662 ---------- ---------- --------- INCOME FROM CONTINUING OPERATIONS.............................................. 1,773 10,437 5,837 ---------- ---------- --------- DISCONTINUED OPERATIONS (Note 2) Income from discontinued operations prior to disposal, net of income taxes... 2,222 1,245 2,718 Gain on disposal of discontinued operations, net of income taxes............. 9,122 -- -- ---------- ---------- --------- 11,344 1,245 2,718 ---------- ---------- --------- NET INCOME..................................................................... $ 13,117 $ 11,682 $ 8,555 ---------- ---------- --------- ---------- ---------- --------- BASIC EARNINGS PER SHARE Income from continuing operations............................................ $ 0.15 $ 0.88 $ 0.50 Discontinued operations...................................................... 0.93 0.10 0.23 ---------- ---------- --------- Net income................................................................... $ 1.08 $ 0.98 $ 0.73 ---------- ---------- --------- ---------- ---------- --------- DILUTED EARNINGS PER SHARE Income from continuing operations............................................ $ 0.15 $ 0.87 $ 0.48 Discontinued operations...................................................... 0.92 0.10 0.23 ---------- ---------- --------- Net income................................................................... $ 1.07 $ 0.97 $ 0.71 ---------- ---------- --------- ---------- ---------- ---------
See Notes to Financial Statements 24 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 --------- --------- --------- NET INCOME........................................................................ $ 13,117 $ 11,682 $ 8,555 OTHER COMPREHENSIVE INCOME (EXPENSE) Foreign currency translation.................................................... 175 (1,046) 1,140 --------- --------- --------- COMPREHENSIVE INCOME.............................................................. $ 13,292 $ 10,636 $ 9,695 --------- --------- --------- --------- --------- ---------
See Notes to Financial Statements 25 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
CUMULATIVE FOREIGN CURRENCY COMMON RETAINED TRANSLATION STOCK EARNINGS ADJUSTMENT TOTAL --------- --------- ----------- --------- Balance, December 31, 1995.......................................... $ 34,377 $ 6,383 $ (314) $ 40,446 Net income........................................................ -- 8,555 -- 8,555 Issuance of common stock.......................................... 3,970 -- -- 3,970 Tax benefit of stock option transactions.......................... 70 -- -- 70 Foreign currency translation adjustment........................... -- -- 1,140 1,140 --------- --------- ----------- --------- Balance, December 31, 1996.......................................... 38,417 14,938 826 54,181 Net income........................................................ -- 11,682 -- 11,682 Issuance of common stock.......................................... 1,197 -- -- 1,197 Stock warrant..................................................... 4,042 -- -- 4,042 Tax benefit of stock option transactions.......................... 58 -- -- 58 Foreign currency translation adjustment........................... -- -- (1,046) (1,046) --------- --------- ----------- --------- Balance, December 31, 1997.......................................... 43,714 26,620 (220) 70,114 Net income........................................................ -- 13,117 -- 13,117 Issuance of common stock.......................................... 1,472 -- -- 1,472 Tax benefit of stock option transactions.......................... 35 -- -- 35 Foreign currency translation adjustment........................... -- -- 175 175 --------- --------- ----------- --------- Balance, December 31, 1998.......................................... $ 45,221 $ 39,737 $ (45) $ 84,913 --------- --------- ----------- --------- --------- --------- ----------- ---------
See Notes to Financial Statements 26 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ---------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................................... $ 13,117 $ 11,682 $ 8,555 Items not requiring (providing) cash: Depreciation and amortization............................................... 4,459 3,525 3,640 Income from discontinued operations......................................... (2,222) (1,245) (2,718) Gain on disposition of discontinued operations.............................. (9,122) -- -- (Gain) loss on disposition of assets........................................ -- (29,568) 162 Discount recorded for warrant............................................... 1,870 -- -- Deferred taxes.............................................................. (1,131) (1,690) (738) Changes in: Accounts receivable......................................................... (24,768) (2,521) (4,789) Inventories................................................................. (7,890) (2,341) (1,364) Accounts payable and accrued expenses....................................... 4,523 5,775 1,001 Other current assets and liabilities........................................ (1,572) 3,678 1,955 ---------- ---------- --------- Net cash provided by (used in) continuing activities...................... (22,736) (12,705) 5,704 Net cash provided by (used in) discontinued operations.................... (3,421) 2,144 2,201 ---------- ---------- --------- Net cash provided by (used in) operating activities....................... (26,157) (10,561) 7,905 ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment, net....................................... (9,466) (4,429) (5,358) Capital expenditures of discontinued operations............................... (216) (285) (1,063) Proceeds from sale of property................................................ -- 35,016 411 Proceeds from disposal of discontinued operations............................. 18,428 -- -- Increase (decrease) in other assets........................................... 66 (1,208) (500) ---------- ---------- --------- Net cash provided by (used in) investing activities....................... 8,812 29,094 (6,510) ---------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock...................................................... 1,472 827 3,970 Principal payments on debt.................................................... -- -- (551) ---------- ---------- --------- Net cash provided by financing activities................................. 1,472 827 3,419 ---------- ---------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................... 102 (465) (135) ---------- ---------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (15,771) 18,895 4,679 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................... 26,979 8,084 3,405 ---------- ---------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR.......................................... $ 11,208 $ 26,979 $ 8,084 ---------- ---------- --------- ---------- ---------- ---------
See Notes to Financial Statements 27 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION Brite Voice Systems, Inc. (the "Company" or "Brite") designs, integrates, assembles, markets and supports voice processing and call processing systems and services which incorporate prepaid/postpaid applications, voice response, voice recognition, voice/facsimile messaging, audiotex and interactive computer applications into both standard products and customized market solutions. The consolidated financial statements include the accounts of Brite Voice Systems, Inc., Brite Voice Systems Group, Ltd. and other immaterial wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included in these financial statements include allowances for uncollectible accounts and obsolete inventory, and warranty and other accrued liabilities. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash investments with an original maturity of three months or less. DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS The Company uses derivative financial instruments selectively to offset exposure to market risks arising from changes in foreign exchange rates. Derivative financial instruments currently utilized by the Company include foreign currency forward contracts to hedge receivables denominated in a currency other than the functional currency of the business. Gains and losses on hedges of existing assets are included in the carrying amounts of those assets and are ultimately recognized in income as part of those carrying amounts. Effective for fiscal year 2000, the Company will be required to adopt Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities, and it requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Management does not anticipate that the adoption of this statement will have a material affect on its operations or financial position. 28 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method and includes the cost of materials, direct labor and manufacturing overhead. Provision is made for obsolete or slow moving items where appropriate. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to 10 years for furniture and equipment and 35 years for buildings and improvements. DEFERRED REVENUE Deferred revenue includes noncompete and other agreements entered into as a result of dispositions. The amounts are being amortized over the lives of the agreements. (See Note 2.) RESEARCH AND ENGINEERING Costs associated with internal development of new products or enhancements of existing products are expensed as incurred because the marketability of such products is not determinable until substantially all the costs are incurred. REVENUE RECOGNITION During fiscal 1998, the Company adopted Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," with respect to software revenue recognition. The adoption of this SOP did not have a material impact on the Company's revenue recognition policies. Revenue is recognized when a contract has been executed, the product has been shipped, all significant contractual obligations have been satisfied, uncertainty surrounding customer acceptance becomes insignificant and collection of the related receivable is probable. When a contract requires significant production, modification or custom software development revenue is recognized using the percentage-of-completion method of contract accounting. This method recognizes income as work on a contract progresses. Recognition of revenues and profits generally is based on output measures. Revenues from maintenance contracts for installed systems are recognized ratably over the service period. Revenues from service bureau operations are recognized when the services are provided. The Company will be required to adopt SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" in future years. The Company does not anticipate that the adoption of this statement will have a material affect on the Company's financial position or results of operations. 29 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CREDIT RISK The Company extends unsecured credit to customers throughout the United States and in certain foreign countries. INCOME TAXES The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company considers all expected future events other than enactments of changes in the tax law or rates. Changes in tax laws or rates will be recognized in the years in which they occur. (See Note 8.) FOREIGN CURRENCY TRANSLATION ADJUSTMENT Financial statements of the Company's foreign subsidiaries have been translated into U.S. dollars at current and average exchange rates. Resulting translation adjustments are recorded as a separate component of stockholders' equity. Any transaction gains or losses are included in the accompanying consolidated statements of income and consolidated statements of comprehensive income. OTHER NONRECURRING CHARGES The Company accounts for costs incurred on business process reengineering and information technology transformation in accordance with Emerging Issues Task Force ("EITF") Issue No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project that Combines Business Process Reengineering and Information Technology Transformation." EITF Issue No. 97-13 requires that the costs of business process reengineering activities be expensed as incurred. The Company accounts for costs incurred for involuntary termination benefits of employees in accordance with EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." EARNINGS PER SHARE The Company has adopted SFAS No. 128, "Earnings Per Share". Basic earnings per share was calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share was calculated by dividing net income available to common stockholders after assumed conversion of dilutive securities by the sum of the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if potentially dilutive common shares had been issued. 30 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Following is a reconciliation of the weighted average shares used to compute basic and diluted earnings per share (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Basic weighted average shares outstanding........................ 12,162 11,865 11,717 Options.......................................................... 148 203 410 --------- --------- --------- Diluted weighted average shares outstanding...................... 12,310 12,068 12,127 --------- --------- --------- --------- --------- ---------
Options to purchase approximately 939,000 shares and warrants to purchase 1,400,000 shares were outstanding as of December 31, 1998, but were not included in the computation of diluted EPS because they are not dilutive. ACCOUNTING FOR STOCK OPTIONS The Company records compensation expense for stock options issued to employees in accordance with APB No. 25. The Company has adopted the proforma disclosure requirement provisions of SFAS No. 123. (See Note 9). RECLASSIFICATIONS Certain amounts in the 1997 and 1996 consolidated financial statements have been reclassified to conform with the current year presentation. NOTE 2: DISPOSITIONS AND DISCONTINUED OPERATIONS Effective December 1, 1998, the Company consummated the sale of its TSL division for $20,000,000 in cash and a subordinated note with a face value of $5,000,000. This note has a three year maturity. The Company also received a warrant to purchase 5,000 shares of the buyer. The Company has recorded the note and warrant at their estimated fair value of $2,500,000 due to the business risk associated with these instruments. The business sold included billing verification, professional services and software services. The Company recorded a gain on the sale of $9,122,000, net of taxes of $5,548,000. A noncompete agreement was included in the sale in the amount of $1,500,000, and was recorded as deferred revenue. This amount is being amortized over three years and reflected in other income. The TSL division is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. The components of 31 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 2: DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED) the net current assets of discontinued operations included in the consolidated balance sheet as of December 31, 1997, are as follows (in thousands):
AMOUNT --------- Current assets: Accounts receivable................................................................ $ 3,697 Prepaid expenses................................................................... 145 Less current liabilities: Accounts payable................................................................... (121) Accrued salaries and wages......................................................... (561) Deferred revenue................................................................... (96) Customer deposits.................................................................. (26) --------- Net current assets--discontinued operations.......................................... $ 3,038 --------- ---------
Income from discontinued operations prior to disposal includes the following (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Revenues..................................................... $ 17,727 $ 16,476 $ 16,243 Costs and expenses........................................... 14,020 14,323 11,883 --------- --------- --------- Income before taxes.......................................... 3,707 2,153 4,360 Income tax provision......................................... 1,485 908 1,642 --------- --------- --------- Net income................................................... $ 2,222 $ 1,245 $ 2,718 --------- --------- --------- --------- --------- ---------
On October 30, 1997, the Company consummated the sale of certain assets used in its electronic publishing business to IT Network, Inc. for $35,000,000 in cash. The business sold consisted primarily of the Company's information services business, the sale of audiotex advertising sponsorships to yellow pages advertisers, and the management of such advertisers on behalf of yellow pages publishers. The Company recorded a gain on the sale of $29,091,000. An agreement to provide certain services and not to compete was included in the sale. Deferred revenue in the amount of $3,000,000, was recorded related to this agreement. This deferred revenue is being amortized over the three-year term of the agreement and reflected as service revenue. Amortization was $1,000,000 and $167,000 in 1998 and 1997, respectively. 32 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 3: OTHER ASSETS Other assets consist of the following (in thousands):
1998 1997 --------- --------- Deferred tax asset (Note 8)................................................ $ 2,206 $ 961 Stock warrant (Note 9)..................................................... 2,204 4,042 Subordinated note and warrant (Note 2)..................................... 2,500 -- Deposits and other......................................................... 490 819 Goodwill................................................................... 343 322 --------- --------- 7,743 6,144 Accumulated amortization................................................... (209) (306) --------- --------- $ 7,534 $ 5,838 --------- --------- --------- ---------
Goodwill and other intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets or the specific contract term, which range from three to 10 years. Amortization expense was $40,000, $149,000 and $248,000 in 1998, 1997 and 1996, respectively. NOTE 4: INVENTORIES Inventories consist of the following (in thousands):
1998 1997 --------- --------- Purchased parts......................................................... $ 9,079 $ 5,417 Work in progress........................................................ 10,414 5,401 Finished goods.......................................................... 2,183 2,970 --------- --------- $ 21,676 $ 13,788 --------- --------- --------- ---------
NOTE 5: LINE OF CREDIT The Company maintains a $25,000,000 unsecured line of credit that is used from time to time to fund short-term cash requirements. The promissory note becomes due on November 30, 2001. Borrowings bear interest at 30 days LIBOR plus 75 basis points, with an unused commitment fee in the amount of one-tenth percent of the difference between the maximum principal amount and the average principal amount outstanding under the loan for the preceding calendar quarter. There were no borrowings outstanding under the line as of December 31, 1998. NOTE 6: FINANCIAL INSTRUMENTS As of December 31, 1998, the Company had entered into forward exchange contracts to sell a notional amount of $12,304,000 in Japanese Yen for delivery at various dates during the first six months of 1999. Changes in the market value of these contracts are highly correlated with changes in the market value of the underlying accounts receivable. Therefore, the estimated fair value of the foreign exchange contracts is approximately offset by the change in the fair value of the underlying accounts receivable. 33 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED BALANCE SHEETS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 NOTE 7: LEASES The Company leases office space under noncancelable agreements expiring at various times through 2006. Future minimum rental payments under these operating leases are as follows (in thousands): 1999............................................................... $ 4,581 2000............................................................... 4,321 2001............................................................... 3,165 2002............................................................... 2,218 2003............................................................... 438 Thereafter......................................................... 46 --------- $ 14,769 --------- ---------
Rent expense recorded was approximately $4,311,000, $2,295,000 and $1,544,000 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 8: INCOME TAXES The income tax provision includes the following (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Taxes currently payable: Federal............................................................................ $ 1,649 $ 7,711 $ 1,472 State.............................................................................. 360 1,706 448 Foreign............................................................................ 195 (37) 791 Deferred taxes....................................................................... (1,131) (1,690) (1,049) --------- --------- --------- $ 1,073 $ 7,690 $ 1,662 --------- --------- --------- --------- --------- ---------
United States income taxes have not been provided on the cumulative undistributed earnings of the Company's foreign subsidiaries of $4,088,000 at December 31, 1998. It is intended that these earnings will be permanently invested in operations outside the United States. 34 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED BALANCE SHEETS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 NOTE 8: INCOME TAXES (CONTINUED) A reconciliation of income tax expense at the statutory rate to income tax expense at the Company's effective rate, is as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Tax expense at the statutory rate................................ $ 968 $ 6,344 $ 2,550 Effect of foreign tax rates...................................... 103 (84) 50 Increase (decrease) in taxes resulting from: State income taxes, net of federal benefit..................... 110 1,297 273 Foreign sales corporation benefit.............................. (145) (25) (34) Utilization of credit carryforwards............................ (30) 67 (48) Reduction of valuation allowance............................... -- -- (1,049) Other permanent differences.................................... 67 91 (80) --------- --------- --------- $ 1,073 $ 7,690 $ 1,662 --------- --------- --------- --------- --------- ---------
Deferred taxes are determined based on the estimated future tax effect of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Current deferred taxes are included in prepaid expenses and other. Noncurrent deferred taxes are included in other assets. Deferred taxes consist of the following (in thousands):
1998 1997 --------- --------- Current deferred taxes Gross assets............................................................. $ 2,239 $ 2,353 Gross liabilities........................................................ -- -- --------- --------- $ 2,239 $ 2,353 --------- --------- --------- --------- Noncurrent deferred taxes Gross assets............................................................. $ 2,206 $ 1,374 Gross liabilities........................................................ -- (413) --------- --------- $ 2,206 $ 961 --------- --------- --------- ---------
35 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED BALANCE SHEETS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 NOTE 8: INCOME TAXES (CONTINUED) The tax effect of significant temporary differences representing deferred tax assets and liabilities is as follows (in thousands):
1998 1997 --------- --------- Depreciation............................................................... $ 94 $ (413) Inventory obsolescence reserve............................................. 681 484 Allowance for doubtful accounts............................................ 446 415 Accrued vacation pay....................................................... 245 231 Restructuring and nonrecurring charge reserve.............................. 396 989 Covenants not to compete................................................... 1,263 1,121 TSL sale................................................................... 947 -- Other, net................................................................. 373 487 --------- --------- Net deferred taxes......................................................... $ 4,445 $ 3,314 --------- --------- --------- ---------
NOTE 9: STOCKHOLDERS' EQUITY The Company has four stock option plans: the 1984 Incentive Stock Option Plan (the "1984 Option Plan"), the 1994 Stock Option Plan (the "1994 Option Plan"), the 1990 Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), and the 1994 Employee Stock Purchase Plan (the "Stock Purchase Plan"). STOCK PURCHASE PLAN In 1994, the Board of Directors and stockholders approved the Stock Purchase Plan. Under the Stock Purchase Plan, as amended, up to 500,000 shares of common stock may be sold to employees. Eligible employees may authorize payroll deductions of up to 10 percent of their compensation to purchase shares at the lower of 85 percent of the fair market value of the common stock as of the date of grant (first day of an offering period) or the last day of the six-month offering period. The semi-annual offerings commenced on July 1, 1994. No employee may purchase shares under the Stock Purchase Plan, in any one year, having a fair market value on the offering date of more than $25,000, nor may an employee purchase more than 500 shares in any offering period. During 1998, 58,588 shares were purchased at the weighted average price of $7.33. On December 31, 1998, there were 277,899 shares reserved for issuance under the Stock Purchase Plan. STOCK OPTIONS In 1994, the Board of Directors and stockholders approved the 1994 Option Plan. A maximum of 2,000,000 shares of common stock may be issued under the Plan, as amended. Options are granted by the Board of Directors at prices not less than fair market value as of the date of grant, generally vest ratably over a four-year period and expire 10 years after the date of grant. At December 31, 1998, a total of 855,338 shares were available for future grants under the 1994 Option Plan. In addition, options covering 500,000 shares were granted to an executive of the Company during 1996, of which 100,000 shares vested 36 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED BALANCE SHEETS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED) immediately, an additional 100,000 shares vested during 1997 and 300,000 shares were cancelled during 1998. At December 31, 1998, options covering 200,000 shares were exercisable. The 1984 Option Plan terminated on December 31, 1994, except as to unexercised options remaining outstanding. The Director Stock Option Plan provides for the grant of options to purchase up to 150,000 shares of common stock. Options under this plan are to be granted at prices not less than fair market value as of the date of the grant, and vest ratably over a three-year period. At December 31, 1998, there were options granted to purchase 75,750 shares of common stock at prices ranging from $1.25 to $18.50 per share. At December 31, 1998, options covering 47,250 shares were exercisable. Information regarding all outstanding stock options is as follows:
1998 1997 1996 ------------------------ ------------------------ ------------------------ WTD AVG WTD AVG WTD AVG SHARES EX SHARES EX SHARES EX (000S) PRICE (000S) PRICE (000S) PRICE ----------- ----------- ----------- ----------- ----------- ----------- Outstanding, beginning of year............. 2,200 $ 12 2,162 $ 13 1,249 $ 12 Granted.................................... 472 10 595 9 1,018 14 Exercised.................................. (195) 7 (91) 5 (67) 7 Cancelled.................................. (810) 12 (466) 14 (38) 13 ----- ----- ----- Outstanding, end of year................... 1,667 12 2,200 12 2,162 13 ----- ----- ----- ----- ----- ----- Exercisable, end of year................... 811 13 965 12 913 10 ----- ----- ----- ----- ----- -----
The Company accounts for the stock options under APB No. 25, under which no compensation expense has been recognized. Had compensation expense for these plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1998 1997 1996 ------------- ------------ ------------ Net income........................................ $ 12,809,000 $ 9,837,000 $ 6,853,000 Basic earnings per share.......................... $ 1.05 $ 0.83 $ 0.58 Diluted earnings per share........................ $ 1.05 $ 0.83 $ 0.57
The resulting pro forma compensation expense for 1998, 1997 and 1996 may not be representative of that to be expected in future years. 37 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED BALANCE SHEETS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1998 1997 1996 --------- --------- --------- Risk-free interest rate............................................................... 5.38% 6.39% 5.92% Expected years until exercise......................................................... 6.27 5.30 7.90 Expected stock volatility............................................................. 66% 65% 65%
The following table summarizes information about fixed stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------- ---------------------------- NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE AS OF REMAINING EXERCISE AS OF EXERCISE RANGE OF EXERCISE PRICES 12/31/98 CONTRACTUAL LIFE PRICE 12/31/98 PRICE - --------------------------------------- ------------- ----------------------- ------------- ------------- ------------- $1.250- $9.000........................ 423,210 7.83 $ 7.76 137,528 $ 6.54 $9.625-$10.656........................ 499,030 7.40 $ 10.03 178,538 $ 9.63 $11.000-$14.875........................ 461,625 7.23 $ 13.21 276,084 $ 14.09 $15.750-$20.000........................ 282,905 6.49 $ 17.23 219,255 $ 16.81 ------------- ------------- $1.250-$20.000........................ 1,666,770 7.31 $ 11.55 811,405 $ 12.56 ------------- ------------- ------------- -------------
STOCK WARRANT On December 12, 1997, the Company and AT&T Corp. ("AT&T") entered into a Purchase Agreement pursuant to which AT&T will purchase from the Company certain telecommunications products, software and services over a period of up to four years. As partial consideration for the Agreement, AT&T acquired a warrant to purchase up to 1,400,000 shares of the Company's common stock. One-third of the warrant was immediately exercisable, an additional one-third became exercisable on December 12, 1998 and the balance will become exercisable on December 12, 1999. Each tranche has a term of three years from the date it becomes exercisable and has a strike price of $11.00 per share. The warrant was valued at $4,042,000 using the Black-Scholes option pricing model. A corresponding contra amount was recorded in other assets, and is being written off in the form of a purchase discount as systems and equipment are delivered to AT&T. During 1998, $1,870,000 was amortized as a discount. NOTE 10: EMPLOYEE BENEFIT PLANS The Company sponsors defined contribution retirement plans which cover substantially all of its employees in the United States and the United Kingdom. Company contributions to the United Kingdom plan are based on the employee's age, while contributions to the United States plan are a percentage of employee contributions at rates determined by the Board of Directors of the Company. Company contributions to these plans were $1,088,000, $1,105,000 and $835,000 for the years ended December 31, 1998, 1997 and 1996, respectively. 38 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 11: RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company recorded charges of $1,410,000 for the year ended December 31, 1998, related to the termination of certain executives. Of this amount, $364,000 had been paid by December 31, 1998. The Company recorded charges of $10,980,000 for the year ended December 31, 1997, related to the restructuring of the Company's operations and the relocation of its headquarters to Lake Mary, Florida. Included in the charge was approximately $3,327,000 in asset impairments as a result of the Company's decision to discontinue certain product lines and abandon certain assets, and the reevaluation of the net realizable value of certain intangible assets. The Company also recorded severance costs of approximately $1,614,000 relating to the elimination of certain product lines, the closing of its Dallas, Texas facility and the transfer of certain functions from its facilities in Wichita, Kansas and Canton, Massachusetts to its new headquarters in Lake Mary. Concurrent with the restructuring, the Company initiated a process reengineering effort which led to the selection and commencement of implementation of certain new management information systems for which the Company has recorded charges of approximately $2,718,000. Additionally, costs consisting principally of moving expenses, temporary labor and travel amounted to approximately $3,321,000 during the year ended December 31, 1997. NOTE 12: CONTINGENCIES The Company is subject to claims and litigation from time to time arising in the normal operation of its business. Management believes that the ultimate resolution of any pending claim will not be material to the results of operations or the financial position of the Company. From time to time, the Company enters into contracts which provide for liquidated damages. The failure of the Company to fulfill these contracts could result in payments to customers or reductions of revenue, and such payments could be material. Management believes that the ultimate resolution of potential penalties in existing contracts as of December 31, 1998, will not be material to the results of operations or the financial position of the Company. NOTE 13: ADDITIONAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Interest paid................................................... $ 204 $ 564 $ 80 Income taxes paid, net.......................................... 815 12,508 4,759
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Subordinated note and warrant received in connection with the TSL sale (Note 2)............................................. $ 2,500 $ -- $ -- Tax benefit of stock option transactions........................ 35 58 70 Issuance of common stock........................................ -- 371 --
39 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 14: SEGMENT REPORTING Historically, the Company had four reportable segments: network products, business systems, customer support and Europe, Middle East, Africa. The network products segment includes domestically-sold products and managed services that increase the customers' revenues through increased subscription or user fees. Business systems includes domestically sold products and managed services that reduce customers' costs or improve the efficiency of services provided to end-user customers. Customer support includes the provision of services to both network products and business systems customers through maintenance contracts, installation services, time and materials billing and training. Europe, Middle East, Africa includes all of the Company's products and services in that geographic area. The Company evaluated performance based on profit or loss from operations before corporate overhead. Intersegment sales are eliminated for evaluation purposes. The Company's reportable segments offered different products and services. They were managed separately because each required different marketing strategies.
YEAR ENDED DECEMBER 31, --------------------------------- BUSINESS SEGMENTS 1998 1997 1996 - --------------------------------------------------------------------- ---------- ---------- --------- (IN THOUSANDS) Revenues: Network Products................................................... $ 52,402 $ 20,893 $ 13,650 Business Systems................................................... 30,094 35,782 40,907 Customer Support................................................... 12,469 9,080 8,895 Europe, Middle East, Africa........................................ 40,750 37,618 30,714 ---------- ---------- --------- $ 135,715 $ 103,373 $ 94,166 ---------- ---------- --------- ---------- ---------- --------- Contribution to Overhead: Network Products................................................... $ 10,939 $ 1,805 $ (634) Business Systems................................................... 13,080 8,448 12,509 Customer Support................................................... 5,930 2,987 3,239 Europe, Middle East, Africa........................................ (3,204) 183 9,248 ---------- ---------- --------- $ 26,745 $ 13,423 $ 24,362 ---------- ---------- --------- ---------- ---------- --------- Capital Expenditures: Network Products................................................... $ 1,708 $ 778 $ 513 Business Systems................................................... 118 619 540 Customer Support................................................... 332 359 195 Europe, Middle East, Africa........................................ 4,063 1,485 2,856 Corporate.......................................................... 3,245 1,188 1,254 ---------- ---------- --------- $ 9,466 $ 4,429 $ 5,358 ---------- ---------- --------- ---------- ---------- ---------
40 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 14: SEGMENT REPORTING (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------- BUSINESS SEGMENTS 1998 1997 1996 - --------------------------------------------------------------------------- --------- --------- --------- (IN THOUSANDS) Depreciation Expense: Network Products......................................................... $ 416 $ 586 $ 525 Business Systems......................................................... 180 876 962 Customer Support......................................................... 204 171 99 Europe, Middle East, Africa.............................................. 1,991 1,473 962 Corporate................................................................ 1,625 347 857 --------- --------- --------- $ 4,416 $ 3,453 $ 3,405 --------- --------- --------- --------- --------- ---------
During 1998, the Company restructured its operations, resulting in global product management. Under the new operating structure, the Europe, Middle East, Africa segment is included in the product business segments:
BUSINESS SEGMENTS 1998 - ---------------------------------------------------------------------------------------- -------------- (IN THOUSANDS) Revenues: Network Products...................................................................... $ 83,401 Business Systems...................................................................... 34,916 Customer Support...................................................................... 17,398 -------------- $ 135,715 -------------- -------------- Contribution to Overhead: Network Products...................................................................... $ 11,533 Business Systems...................................................................... 8,353 Customer Support...................................................................... 6,859 -------------- $ 26,745 -------------- -------------- Capital Expenditures: Network Products...................................................................... $ 3,460 Business Systems...................................................................... 133 Customer Support...................................................................... 464 Corporate............................................................................. 5,409 -------------- $ 9,466 -------------- -------------- Depreciation Expense: Network Products...................................................................... $ 1,021 Business Systems...................................................................... 292 Customer Support...................................................................... 513 Corporate............................................................................. 2,590 -------------- $ 4,416 -------------- --------------
41 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 15: FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Operations for the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 ---------- ---------- --------- Sales from: United States...................................................... $ 94,965 $ 65,755 $ 63,452 Europe, Middle East, Africa........................................ 40,750 37,618 30,714 ---------- ---------- --------- Total.......................................................... $ 135,715 $ 103,373 $ 94,166 ---------- ---------- --------- ---------- ---------- --------- Operating profit (loss): United States...................................................... $ 2,784 $ (10,610) $ 4,354 Europe, Middle East, Africa........................................ 923 (127) 2,985 ---------- ---------- --------- Total.......................................................... $ 2,218 $ (10,737) $ 7,339 ---------- ---------- --------- ---------- ---------- --------- Identifiable assets: United States...................................................... $ 101,341 $ 73,079 $ 49,712 Europe, Middle East, Africa........................................ 20,778 31,147 24,781 ---------- ---------- --------- Total.......................................................... $ 122,119 $ 104,226 $ 74,493 ---------- ---------- --------- ---------- ---------- --------- Export sales from United States...................................... $ 19,293 $ 7,113 $ 8,355 ---------- ---------- --------- ---------- ---------- ---------
One domestic customer represented 16% of total revenues in 1998 and one international customer represented 11% of consolidated revenues in 1998, and 12% of consolidated revenues for each of 1997 and 1996. NOTE 16: UNAUDITED QUARTERLY FINANCIAL INFORMATION
1998 QUARTER ENDED -------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ----------- --------- --------- --------- Revenues.............................................................. $ 25,375 $ 34,158 $ 35,449 $ 40,733 Operating income (loss)............................................... 249 778 1,286 (95) Net income............................................................ 696 1,219 1,314 9,888 Basic earnings per common share....................................... 0.06 0.10 0.11 0.81 Diluted earnings per common share..................................... 0.06 0.10 0.11 0.81
1997 QUARTER ENDED -------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ----------- --------- --------- --------- Revenues.............................................................. $ 27,630 $ 25,705 $ 25,006 $ 25,032 Operating income (loss)............................................... 1,798 (7,339) (2,161) (3,035) Net income (loss)..................................................... 1,291 (4,876) (968) 16,235 Basic earnings (loss) per common share................................ 0.11 (0.41) (0.08) 1.36 Diluted earnings (loss) per common share.............................. 0.11 (0.41) (0.08) 1.34
42 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 16: UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED) The 1998 results included a pre-tax gain of $14,670,000 relating to the sale of the Company's telecommunications management services division, which was effective December 1, 1998, and nonrecurring charges of $1,410,000. The 1997 results included a pre-tax gain of $29,091,000 relating to the sale of the Company's electronic publishing business, which was consummated on October 30, 1997, and restructuring and other non-recurring charges of $10,980,000. 43 BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES ------------ SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - ------------------------------------------------------------------ ----------- ----------- ----------- ----------- Allowance for doubtful accounts: Year ended December 31, 1998.................................... $ 1,134 $ 1,657 $ 1,030 $ 1,761 Year ended December 31, 1997.................................... $ 471 $ 1,296 $ 633 $ 1,134 Year ended December 31, 1996.................................... $ 481 $ 429 $ 439 $ 471 Allowance for obsolete inventory: Year ended December 31, 1998.................................... $ 1,759 $ 850 $ 345 $ 2,264 Year ended December 31, 1997.................................... $ 1,415 $ 750 $ 406 $ 1,759 Year ended December 31, 1996.................................... $ 1,069 $ 625 $ 279 $ 1,415 Restructuring Reserves Year ended December 31, 1998.................................... $ 2,393 $ 1,410 $ 2,757 $ 1,046 Year ended December 31, 1997.................................... $ -- $ 10,980 $ 8,587 $ 2,393
44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS The information concerning Directors of the Company required by Item 401 of Regulation S-K will be contained in the Company's 1999 Proxy Statement under the heading "Election of Directors", and is incorporated herein by reference. EXECUTIVE OFFICERS The information concerning executive officers of the Company required by this Item is set forth in Item 1 hereof under the heading "Executive Officers". ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K will be contained in the Company's 1999 Proxy Statement under the headings "Compensation of Directors and Executive Officers", "Compensation Committee Interlocks and Insider Participation", "Report of Compensation Committee on Executive Compensation" and "Company Performance", and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K will be contained in the Company's 1999 Proxy Statement under the heading "Common Stock Ownership", and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 404 of Regulation S-K will be contained in the Company's 1999 Proxy Statement under the heading "Compensation Committee Interlocks and Insider Participation", and is incorporated herein by reference. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements. The financial statements, notes and independent auditors' reports described in Item 8, to which reference is hereby made. (2) Financial Statement Schedules. The financial statement schedules described in Item 8, to which reference is hereby made. (3) Exhibits. The following exhibits:
EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization and Merger dated May 24, 1995 by and among Brite Voice Systems, Inc., Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West), Inc., TSL Software Services, Inc., TSL Management Group, Inc. and Alan C. Maltz, Scott A. Maltz, Stephen B. Rockoff and Alan C. Maltz as custodian for Sari Maltz and Lori Maltz (incorporated by reference to Annex A to the Company's definitive proxy statement dated July 17, 1995). 2.2 Asset Purchase Agreement dated September 23, 1997 between the Registrant and IT Network, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Current Report on Form 8-K dated October 30, 1997). 2.3 Amendment to Asset Purchase Agreement dated October 7, 1997 between the Registrant and IT Network, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Current Report on Form 8-K dated October 30, 1997). 2.4 Stock Purchase Agreement dated November 30, 1998, by and among Brite Voice Systems, Inc., BVS Investco, Inc., TSL Services, Inc. and ProfitSource Corporation, together with the related TSL Services, Inc. Agreement Re: Preferred Stock (incorporated by reference to the Exhibits filed with the Registrant's Current Report on Form 8-K dated December 14, 1998). 3.1 Restated Articles of Incorporation of the Registrant (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-1, No. 33-29750). 3.2 Bylaws of the Registrant (incorporated by reference to the Exhibit filed with Registrant's Registration Statement on Form S-1, No. 33-29750). 10.1 Registrant's 1984 Incentive Stock Option Plan, as amended (incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 10.2 1993 Amendments to the Registrant's 1984 Incentive Stock Option Plan (incorporated by reference to the Exhibit filed with Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1993). 10.3 Registrant's 1990 Non-Employee Director Stock Option Plan dated February 6, 1990 (incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.4 Registrant's Amended and Restated Non-Employee Director Stock Option Plan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
46
EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- 10.5 Office Lease Agreement between the Registrant and Heathrow Office Building Corporation dated April 16, 1997 pertaining to the Registrant's headquarters facility in Lake Mary, Florida (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 10.6 First Amendment to Lease dated June 30, 1997 between the Registrant and Heathrow Office Building Corporation (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.7 Sublease dated June 1, 1997 between the Registrant and Olsten Staffing Services, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.8 Lease covering the Registrant's facility at Brook House, Park Road, Gatley, England dated June 24, 1996 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). 10.9 Lease covering the Registrant's facility at 40 Shawmut Road, Canton, Massachusetts, dated March 15, 1993 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). 10.10 Registrant's 1994 Stock Option Plan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.11 Registrant's 1994 Employee Stock Purchase Plan (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-8, No. 33-80478). 10.12 Registrant's 1994 Employee Stock Purchase Plan (as amended through May 12, 1998) (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-8, No. 333-70005). 10.13 Employment Agreement dated December 4, 1996 between the Registrant and David S. Gergacz (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). 10.14 Stock Option Agreement dated May 13, 1997 between the Registrant and David S. Gergacz (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.15 Employment Agreement dated February 25, 1997 between the Registrant and Samuel J. Kline (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.16 Employment Agreement dated March 22, 1997 between the Company and Christine King (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.17 Employment Agreement dated March 27, 1997 between the Company and Brian Klumpp (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.18 Employment Agreement dated June 23, 1997 between the Company and Glenn A. Etherington (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
47
EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- 10.19 Amendment to Employment Agreement dated June 1, 1997 between the Registrant and Alan C. Maltz (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.20 Employment Agreement dated July 1, 1997 between the Registrant and Donald R. Walsh (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.21 Employment Agreement dated July 23, 1997 between the Registrant and Ray S. Naeini (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.22 Agreement between the Registrant and AT&T Corp. dated December 12, 1997. (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). Confidential treatment has been granted with respect to portions of this exhibit. 10.23 Supplemental Agreement between the Registrant and AT&T Corp. dated May 29, 1998. Confidential treatment has been requested with respect to portions of this Exhibit. 10.24 Supplemental Agreement between the Registrant and AT&T Corp. dated September 8, 1998. Confidential treatment has been requested with respect to portions of this Exhibit. 10.25 Office Lease Agreement between the Registrant and 701 International Parkway Development Corporation dated March 3, 1998 covering the Registrant's facility in Lake Mary, Florida (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.26 Agreement dated January 12, 1998 between the Registrant and Stanley G. Brannan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.27 Amended and Restated Credit Agreement between the Registrant and NationsBank, N.A. dated December 9, 1998, including the Amended and Restated Revolving Promissory Note, Negative Pledge Agreement and the Tax Indemnity Agreement. 10.28 Employment Agreement dated October 12, 1997 between the Company and Garrett H. Digman (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 21.1 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule
(b) Reports on Form 8-K. During the last quarter of the period covered by this Re port, the Registrant filed Current Reports on Form 8-K as follows: 1. Form 8-K dated November 16, 1998, wherein the Registrant announced the resignation of David S. Gergacz as Chairman of the Board of Directors, President and Chief Executive Officer. The Registrant also reported that Stanley G. Brannan, founder of the Company and member of the Board would replace Mr. Gergacz on an interim basis until a new CEO is hired. 2. Form 8-K dated December 23, 1998, wherein the Registrant reported the sale of its telecommunications management services division effective December 1, 1998 to EPS Solutions Corporation. 3. Form 8-K/A dated December 30, 1998, wherein the Registrant amended the Form 8-K filed on December 23, 1998, to include pro forma financial statements. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRITE VOICE SYSTEMS, INC. DATED: MARCH 30, 1999 By: /s/ STANLEY G. BRANNAN ----------------------------------------- Stanley G. Brannan CHIEF EXECUTIVE OFFICER By: /s/ GLENN A. ETHERINGTON ----------------------------------------- Glenn A. Etherington CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ STANLEY G. BRANNAN - ------------------------------ Chairman of the Board, March 30, 1999 Stanley G. Brannan CEO and President /s/ C. MACKAY GANSON, JR. - ------------------------------ Director March 30, 1999 C. MacKay Ganson, Jr. /s/ DAVID S. GERGACZ - ------------------------------ Director March 30, 1999 David S. Gergacz /s/ J. DARRELL KELLEY - ------------------------------ Director March 30, 1999 J. Darrell Kelley /s/ JOHN F. KELSEY, III - ------------------------------ Director March 30, 1999 John F. Kelsey, III /s/ ALAN C. MALTZ - ------------------------------ Director March 30, 1999 Alan C. Maltz /s/ SCOTT A. MALTZ - ------------------------------ Director March 30, 1999 Scott A. Maltz
49 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization and Merger dated May 24, 1995 by and among Brite Voice Systems, Inc., Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West), Inc., TSL Software Service, Inc., TSL Management Group, Inc., and Alan C. Maltz, Scott A. Maltz, Stephen B. Rockoff and Alan C. Maltz as custodian for Sari Maltz and Lori Maltz (incorporated by reference to Annex A to the Company's definitive proxy statement dated July 17, 1995). 2.2 Asset Purchase Agreement dated September 23, 1997 between the Registrant and IT Network, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Current Report on Form 8-K dated October 30, 1997). 2.3 Amendment to Asset Purchase Agreement dated October 7, 1997 between the Registrant and IT Network, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Current Report on Form 8-K dated October 30, 1997). 2.4 Stock Purchase Agreement dated November 30, 1998, by and among Brite Voice Systems, Inc., BVS Invesco, Inc., TSL Services, Inc. and ProfitSource Corporation, together with the related TSL Services, Inc. Agreement Re: Preferred Stock (incorporated by reference to the Exhibits filed with the Registrants's Current Report on Form 8-K dated December 14, 1998. 3.1 Restated Articles of Incorporation of the Registrant (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-1, No. 33-29750). 3.2 Bylaws of the Registrant (incorporated by reference to the Exhibit filed with Registrant's Registration Statement on Form S-1, No. 33-29750). 10.1 Registrant's 1984 Incentive Stock Option Plan, as amended (incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 10.2 1993 Amendments to the Registrant's 1984 Incentive Stock Option Plan (incorporated by reference to the Exhibit filed with Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1993). 10.3 Registrant's 1990 Non-Employee Director Stock Option Plan dated February 6, 1990 (incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.4 Registrant's Amended and Restated Non-Employee Director Stock Option Plan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995). 10.5 Office Lease Agreement between the Registrant and Heathrow Office Building Corporation dated April 16, 1997 pertaining to the Registrant's headquarters facility in Lake Mary, Florida (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 10.6 First Amendment to Lease dated June 30,1997 between the Registrant and Heathrow Office Building Corporation (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.7 Sublease dated June 1, 1997 between the Registrant and Olsten Staffing Services, Inc. (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- 10.8 Lease covering the Registrant's facility at Brook House, Park Road, Gatley, England dated June 24, 1996 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). 10.9 Lease covering the Registrant's facility at 40 Shawmut Road, Canton, Massachusetts, dated March 15, 1993 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). 10.10 Registrant's 1994 Stock Option Plan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.11 Registrant's 1994 Employee Stock Purchase Plan (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-8, No. 33-80478). 10.12 Registrant's 1994 Employee Stock Purchase Plan (as amended through May 12, 1998) (incorporated by reference to the Exhibit filed with the Registrant's Registration Statement on Form S-8, No. 333-70005). 10.13 Employment Agreement dated December 4, 1996 between the Registrant and David S. Gergacz (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). 10.14 Stock Option Agreement dated May 13, 1997 between the Registrant and David S. Gergacz (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.15 Employment Agreement dated February 25, 1997 between the Registrant and Samuel J. Kline (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.16 Employment Agreement dated March 22, 1997 between the Company and Christine King (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.17 Employment Agreement dated March 27, 1997 between the Company and Brian Klumpp (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.18 Employment Agreement dated June 23, 1997 between the Company and Glenn A. Etherington (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.19 Amendment to Employment Agreement dated June 1, 1997 between the Registrant and Alan C. Maltz (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.20 Employment Agreement dated July 1, 1997 between the Registrant and Donald R. Walsh (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.21 Employment Agreement dated July 23, 1997 between the Registrant and Ray S. Naeini (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.22 Agreement between the Registrant and AT&T Corp. dated December 12, 1997. (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). Confidential treatment has been granted with respect to portions of this exhibit. 10.23 Supplemental Agreement between the Registrant and AT&T Corp. dated May 29, 1998.
51
EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------- Confidential treatment has been requested with respect to portions of this Exhibit. 10.24 Supplemental Agreement between the Registrant and AT&T Corp. dated September 8, 1998. Confidential treatment has been requested with respect to portions of this Exhibit. 10.25 Office Lease Agreement between the Registrant and 701 International Parkway Development Corporation dated March 3, 1998 covering the Registrant's facility in Lake Mary, Florida (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.26 Agreement dated January 12, 1998 between the Company and Stanley G. Brannan (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.27 Amended and Restated Credit Agreement between the Registrant and NationsBank, N.A. dated December 9, 1998, including the Amended and Restated Revolving Promissory Note Negative Pledge Agreement and the Tax Indemnity Agreement. 10.28 Employment Agreement dated October 12, 1997 between the Company and Garrett H. Digman (incorporated by reference to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 21.1 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule
52 EX-10.23 2 EX10.23 Exhibit 10.23 5/26/98 Contract No. LLJ268E Page 1 of 30 SUPPLEMENTAL AGREEMENT FOR *********** ON NSAP BETWEEN AT&T CORP. AND BRITE VOICE SYSTEMS, INC. AND BRITE VOICE SYSTEMS GROUP, LTD. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 2 of 30 TABLE OF CONTENTS
SECTION DESCRIPTION PAGE NO. - ------- ----------- -------- 1.1 STATEMENT OF PURCHASES 4 1.2 GOVERNING TERMS 4 1.3 DURATION 5 1.4 DEFINITIONS 5 1.5 DESCRIPTION 12 1.6 REPRESENTATIVES 12 1.7 SERVICES 14 1.7.1 Documentation 14 1.7.2 Training 14 1.7.2.1 Pilot Training 14 1.7.2.2 Rollout Training 15 1.7.2.3 Additional Training 15 1.7.3 Engineering and Installation 15 1.8 SPECIFICATIONS 16 1.9 APPLICATION PROGRAMMING INTERFACE 17 1.10 DESIGN REVIEWS 18 1.11 CHANGE CONTROL AND MODIFICATION REQUESTS 18 1.11.1 Changes in Scope 18 1.11.2 Non-Compliance 19 1.12 ACCEPTANCE CRITERIA 20 1.12.1 Software Acceptance Criteria 20 1.12.1.1 Entrance Criteria for Q4 20 1.12.1.2 Entrance Criteria for Q2 21 1.12.1.3 Exit Criteria for Q2 22 1.12.2 Product Acceptance Criteria 23 1.13 SUPPLIER'S SUPPORT AT ITN AND FFA SITES 23 1.14 QUALITY AUDITS 24 1.15 PARTIAL SHIPMENTS 24 1.16 APPLICABILITY OF LIQUIDATED DAMAGES 24 1.16.1 Software 24 1.16.2 Product 24 1.17 SUPPLIER'S MILESTONES 25 1.17.1 Milestones Applicable to Liquidated Damages 25 1.17.2 Supplier's Other Key Milestones 25 1.18 PRICES AND PAYMENT 27 1.19 FIELD SUPPORT AGREEMENT 27 1.19.1 Software Distribution Process 28 1.19.1.1 Scheduled Software Release 28 1.19.1.2 Unscheduled Software Patches 28
AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 3 of 30 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
1.19.2 Trouble Ticket Reporting Process 28 1.19.3 Supplier Consultation Support 29 APPROVALS 30 EXHIBITS: Exhibit A Central Office Sites for the Initial Deployment of ******** Exhibit B ******* Service Description and NSAP Product Description and Configuration Exhibit C NSAP Feature Commitments and Exclusivity Designation Exhibit D NSAP Platform Feature and ****** Service Feature Specifications Exhibit E NSAP Documentation Provided by Brite Voice Systems, Inc. Exhibit F NSAP & ******* Training Provided by Brite Voice Systems, Inc. Exhibit G Severity Level Definitions and Response Times Exhibit H Prices and Payment Schedule for ***************** and NSAP - Release 1.0 Exhibit I Additional Pricing
AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 4 of 30 AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. [LOGO] 1200 Peachtree Street Atlanta, Georgia 30309 ACCEPTANCE SHALL BE INDICATED BY SIGNING AND RETURNING DUPLICATE TO: Brite Voice Systems AT&T Corp. 250 International Parkway 101 Crawfords Corner Road. Suite 300 Room 1F229 Heathrow, FL 32746-5006 Holmdel, NJ 07733-3030 Attn. Ray Naeini Attn. Victoria Melillo This agreement ("Agreement") is made between AT&T Corp., ("Company"), having a place of business at 101 Crawfords Corner Road, Holmdel, NJ 07733-3030, and Brite Voice Systems Inc. and Brite Voice Systems Group, Ltd. (jointly and severally "Supplier") having a place of business at 250 International Parkway, Suite 300, Heathrow, Florida 32746-5006 and Brite Court, Park Road, Gatley, Cheshire, SK8 4HZ respectively, do hereby agree as follows. 1.1 STATEMENT OF PURCHASES: Company agrees to purchase and Supplier agrees to sell Products and Services and develop and license Software on an "as-ordered" basis for deployment of the Network Service Adjunct Platform (NSAP) into Company's Development Lab, Integrated Test Network (ITN), and the Central Office sites noted in Exhibit A. 1.2 GOVERNING TERMS: The terms and conditions of General Agreement (GA) GA0023D apply to this Agreement as if fully set forth herein. Should the terms and conditions of this Agreement conflict with the GA terms and conditions referenced above, this Agreement shall prevail. Capitalized terms not defined herein shall have the same definition as in GA0023D. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 5 of 30 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit A, "Prices and Payment Schedule for the ****** Service," is hereby removed from the GA, modified, and made part of this Supplemental Agreement (SA) as Exhibit H, Prices and Payment Schedule for ****************** and NSAP - -Release 1.0. Exhibit B, "****** Service and Configuration Description," is hereby removed from the GA, modified, and made part of this SA as Exhibit B, "****** Service Description and NSAP Product Description and Configuration." Exhibit C, "Exclusivity Designation for *****************," is hereby removed from the GA, modified, and made part of this SA as Exhibit C, "NSAP Feature Commitments and Exclusivity Designation." 1.3 DURATION: This Agreement shall be effective as of January 1, 1998 and shall continue in effect for a three and one half (3 1/2) year period, ending June 30, 2001 (the "Term"). The Term of this Agreement shall thereafter be automatically extended for two (2) additional one (1) year periods unless either party provides the other party six (6) months prior written notice of its desire to permit this Agreement to expire without further extension of its Term, in which event this Agreement shall expire on the day before this Agreement would otherwise be automatically extended. The termination of this Agreement shall not affect the obligations of Company or Supplier under any then existing Order or Technology Commitment Letter (TCL). 1.4 DEFINITIONS: ACTUAL DELIVERY DATE means the date Supplier delivers to Company key documentation and Product which are not subject to Company's formal Acceptance testing. ACTUAL PRODUCT DELIVERY DATE means the date Supplier turns over Product or Software for Company to begin Acceptance testing. Supplier will notify Company's Order Management Representative in writing of turn over of Supplier's Product. Supplier will notify Company's Technology Management Representative in writing of turn over of Supplier's Software. APPLICATION PROGRAMMING INTERFACE (API) means the interface or calling conventions by which Service Applications access Platform resources and capabilities. The API also defines autonomous indications provided by the Platform to the Service Applications. APPLICATION PROGRAMMING INTERFACE SPECIFICATIONS means the documentation of the APIs. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 6 of 30 ASSIGNED means that a Modification Request (MR) has been accepted by Company and Company has authorized Supplier to begin the work described in the MR. CCB means Change Control Board and represents a group comprised of Company's personnel and Supplier's personnel who are responsible for reviewing MRs. CENTRAL OFFICE means the physical location where communications common carriers terminate customer lines and locate the switching equipment that interconnects those lines to trunks. COMMITTED DELIVERY DATE means the date Supplier commits to deliver to Company key documentation and Product which are not subject to Company's formal Acceptance testing. COMMITTED PRODUCT DELIVERY DATE means the date Supplier commits to turn over Product or Software for Company to begin Acceptance testing. COMPANY'S CCB COORDINATOR means the person designated by Company as the person responsible for managing Company's change control process. Company's CCB Coordinator has authority to accept or reject an MR. COMPANY'S NESAC REPRESENTATIVE means the person designated by Company as the single point of interface to the NESAC. COMPANY'S PRODUCT ACCEPTANCE TEST PLAN means the mutually agreed to document, authored by Company, which is based on Supplier's Hardware Installation Procedures and Acceptance Plan. COMPANY'S TECHNOLOGY MANAGEMENT REPRESENTATIVE means the person designated by Company as the person responsible for Development Management. COMPANY'S TRAINING REPRESENTATIVE means the person designated by Company as the person responsible for approving Supplier's training material and courses. DEVELOPMENT LAB means Company's development, test and trial facility used to evaluate technology used to provide consumer services. DRAFT COPY means a form in which Supplier delivers documentation. A Draft Copy is a copy which is still undergoing Supplier reviews and revisions and is intended to provide Company with an advance view of the document. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 7 of 30 EF&I means Engineer, Furnish and Install and refers to the activities associated with all elements of central office equipment installation engineering, material procurement and related installation. EIS means External Interface Specification which is created by Company and Supplier, owned solely by Company, and which defines the interface specifications between the Platform and Company's network elements, operations support systems and service support systems. FEATURE means Software and/or Product that implements a communications service and related Supplier provided technical services (e.g., systems engineering, integration planning and test, technical planning, Software design/evolution consulting), documented in one or more FSDs and identified in a TCL by means of a unique FRF number. FIELD GRADE means Supplier has used Supplier's standard processes to manufacture and deliver Product, spares, Software or documentation and such Product, spares, Software or documentation is of sufficient quality to be deployed directly into a live field site handling live network traffic. FINAL COPY means a form in which Supplier delivers documentation. A Final Copy is a copy which is in its final bound form and is no longer undergoing revisions. A Final Copy is the copy which one receives from Supplier if ordered using Supplier's assigned order number. FINAL WORKING DRAFT COPY means a form in which Supplier delivers documentation. A Final Working Draft is a copy which may undergo revisions between the Actual Product Delivery Date of the Platform Feature Software and the Actual Product Delivery Date of the Service Feature Software due to the fact that Supplier is still testing the Service Feature Software after the Actual Delivery Date for the Final Working Draft Copy of a particular document. FIX TIME means the interval of time, in days, allowed for Supplier to provide a fix or work-around to a non-compliance MR or Trouble Ticket. FTP means File Transfer Protocol and refers to a standard protocol which supports both connection-less as well as connection-oriented file transfer sessions between remote computers. ISV means Inter-System Verification and refers to tests, conducted by Supplier, which verify that the Platform, Platform Feature(s) and Service Feature(s) developed by Supplier meet the interfaces to Company's network elements, operations support systems and service support systems as specified in Company's Specifications. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 8 of 30 IVBN means Interactive Voice Broadcast Network and represents the location where Company's broadcast training is conducted. MR means Modification Request and serves as written notice by Company or Supplier of a request to change the scope of work done under this Agreement, an Order, or TCL. An MR also serves as written notice from Company to Supplier of Supplier's non-compliance to (i) Company's requirements documented in Company's Specifications, or (ii) Supplier's documentation listed on Pages one (1) or two (2) of Exhibit E. MTBF means Mean Time Between Failures and refers to the value which represents the expected value of time, in hours, until the next failure of an item assuming that the item is renewed to "as-good-as-new" condition through replacement, maintenance or repair1. MTP means Master Test Plan which is created and owned solely be Company, and which describes Company's testing methodology used from Q5 through SG0. The MTP contains, at least, test suite definitions, test scheduling and planning requirements, test documentation and reporting requirements, test execution and personnel scheduling, test execution documentation and change control, master test schedule, and supporting test plans. NESAC means Company's National Electronic System Assistance Center. NCC means Company's Network Control Center. NSAP means Network Service Adjunct Platform which is a network element designed to provide a platform for Company's business units to implement adjunct-based communications services. NSAP ORDERING SPECIFICATIONS means the single line order number and bill of material associated with each NSAP node, which is used by Company in ordering NSAP nodes. OPEN INTERFACE means an interface specification which is documented and is an industry standard or exists in the public domain. OSWF means Company's On Site Work Force. PLATFORM means hardware and software which together provide common resources to Service Applications. ******************************************************************************** ******************************************************************************** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS - -------- 1 What Every Engineer Should Know About Reliability and Risk Analysis, M. Modarres AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 9 of 30 **************************************************************** A Platform is implemented to support one or more Service Applications. PLATFORM ACCEPTANCE CRITERIA means the criteria specified in Company's Product Acceptance Test Plan upon which acceptance of Supplier's Product will be based. PLATFORM FEATURE means Software implemented to support Service Features on NSAP Products. PRODUCT INSTALLATION START DATE means the earliest date when Supplier can begin its installation activities of Supplier's Product in Company's Central Office sites. PRODUCT ON-SITE DATE means the earliest date that Supplier's Product can arrive at Company's Central Office sites. PV means Performance Verification and refers to tests, conducted by Supplier, which verify that (i) the performance of the Platform, Platform Feature(s) and Service Feature(s) developed by Supplier meet the performance requirements specified in Company's Specifications, and (ii) the Platform, Platform Feature(s) and Service Feature(s) can communicate with and transfer data to Company's network elements, operations support systems and service support systems as specified in Company's Specifications. Performance Verification measures, verifies and demonstrates the performance of the completed system against a given workload benchmark. The PV test suite is defined as a weighted mix of tests covering throughput, response time, system availability and guaranteed next cycle availability (for real time systems). Upon completion of the PV tests, the Platform, Platform Feature(s) and Service Feature(s) must meet the entrance criteria for Q4. Q8, Q7 and Q6 means the Company Quality Gates as pertain to Orders, Supplemental Agreements or TCLs under this Agreement or under the GA as follows: Q8 Start design implementation Q7 Start unit test Q6 Start integration REGRESSION VERIFICATION means tests extracted from Supplier's test suites, conducted by Supplier, which are executed following problem resolution to (i) verify that tests which had executed successfully prior to problem resolution continue to execute successfully CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 10 of 30 following the resolution, and (ii) verify that tests which had failed prior to problem resolution execute successfully following the resolution. REGULAR BUSINESS HOURS means the start and end time for a typical work day as defined by Company. Company reserves the right to have Regular Business Hours begin any time within the twenty-four (24) hour clock and end no later than ten (10) hours after the start of Company's defined Regular Business Hours. RESPONSE TIME means the interval of time, in minutes or days, allowed for Supplier's Tier III Support/Supplier Support personnel or Supplier's management personnel to respond to Company indicating that Supplier is ready to begin diagnosing a non-compliance MR or Trouble Ticket. SCHEDULED SOFTWARE RELEASE means a software release defined by one or more FRFs, and having FSDs associated with each FRF. SERVICE APPLICATION means one or more software modules, each containing specific call processing logic for a particular Company service, such as the ******* Service. A Service Application can consist of one or more Service Features. SERVICE FEATURE means a Software Feature which will operate on the NSAP to implement a communications service. SG0 means Company's Service Gates as pertain to Orders, Supplemental Agreements or TCLs under this Agreement or under the GA as follows: SG0 Deployment complete for all technologies supporting a specific service SOFTWARE ACCEPTANCE CRITERIA means the requirements as set forth in Exhibit D upon which acceptance of Supplier's Platform Feature software and Service Feature software will be based. STATUS INTERVAL means the frequency for Supplier to provide status to Company on outstanding Severity Level 1, 2, 3, or 4 Trouble Tickets. SUPPLIER'S CUSTOMER SUPPORT ORGANIZATION means the organization responsible for providing Tier III Support/Supplier Support to Company. SUPPLIER'S CUSTOMER SUPPORT REPRESENTATIVE means the person designated by Supplier as the single point of interface to Supplier's Customer Support Organization. SUPPLIER'S HARDWARE INSTALLATION PROCEDURES AND ACCEPTANCE PLAN means the document, authored and owned by Supplier, which contains the installation procedures for Supplier's Product and contains the criteria upon which Supplier declares the AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 11 of 30 installation of the Product complete and ready for turnover to Company for Company's Acceptance. SV means System Verification and refers to tests, conducted by Supplier, which verify that the Platform, Platform Feature(s) and Service Feature(s) developed by Supplier meet the requirements as specified in Company's Specifications. TAB means Technical Analysis Brief and represents the document which is created and owned solely by Company, and which captures the key decision criteria and analysis of proposed architectural solutions. The reasons for choosing a solution provided in a TAB is to provide an audit path for a project to assess and reassess decisions later in the life of a project. The analysis required to produce a TAB is structured to encourage attention to customer needs. TARGET RESPONSE TIME means the interval of time, in minutes, that Supplier's Tier III Support/Supplier Support personnel or Supplier's management personnel will attempt to respond to Company indicating that Supplier is ready to begin diagnosing a non-compliance MR or Trouble Ticket. TIER I SUPPORT means actions, taken by Company's OSWF and NCC personnel, required to (i) maintain the Product, (ii) monitor the Product, Software, Platform, Platform Feature(s) and Service Feature(s), (iii) analyze alarm data and error logs, (iv) repair problems discovered through analysis of alarm data and error logs, (v) restore Product, Software, Platform, Platform Feature(s) and/or Service Feature(s) to normal operational processing capabilities, and (vi) verify that Product, Software, Platform, Platform Feature(s), and/or Service Feature(s) are operating as described in documentation provided by Supplier. Tier I Support is also referred to as Maintenance Support. TIER II SUPPORT means actions, taken by Company's NESAC personnel, required to resolve problems with Supplier's Product, Software, Platform, Platform Feature(s) and/or Service Feature(s) which could not be resolved by Company's personnel providing Tier I Support/Maintenance Support. Tier II Support is also referred to as Technical Support. TIER III SUPPORT means actions, taken by Supplier's Customer Support personnel to assist in the diagnosis of problems with Supplier's Product, Software, Platform, Platform Feature(s) and/or Service Feature(s) referred to Supplier by Company's Tier II Support/Technical Support personnel. Tier III Support is initiated by a telephone request from Company's authorized Tier II Support/Technical Support personnel to Supplier's published support line. Company shall provide to Supplier all information requested by CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS Supplier and which can be obtained by Company. Tier III Support is provided by telephone from Supplier locations remote to Company's installation sites through AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 12 of 30 consultative communication with Tier II Support/Technical Support personnel. Tier III Support is also referred to as Supplier Support. TP means Technical Plan and represents the document which is created and owned solely by Company, and which generally precedes system-specific requirements and serves to (i) define the key functional requirements of a service and, (ii) allocate functions across the various physical and logical components affected. TRACEABILITY MATRIX means Supplier's document which correlates each test case to an enumerated requirement(s) specified in Company's FSD(s) and/or EIS(s). TROUBLE TICKET means the medium used by Company's Tier II Support/Technical Support personnel to notify Supplier of problems detected in Supplier's Product or Software from Q2 through the life of the Product or Software. UNSCHEDULED SOFTWARE PATCHES means software which (i) does not have an FSD associated with it and (ii) incorporates fixes to Severity Level 1, Severity Level 2, Severity Level 3 and/or Severity Level 4 MRs, and (iii) is initiated and managed by Company's Tier II Support/Technical Support personnel. VERIFICATION COPY means a form in which Supplier delivers documentation. A Verification Copy is a copy which is as close to the Final Copy as possible. The only modifications that are intended to be made to a Verification Copy are those that are requested by Company via an MR during the acceptance testing of Supplier's Product or Software. 1.5 DESCRIPTION: Exhibit B describes the first Service Application, *******, which will reside on the NSAP, and provides the Product description and Product configuration for NSAP. Platform Feature Software and Service Feature Software commitments are listed in Exhibit C, or in an Order or in a TCL issued hereunder and subject to the provisions hereof. Platform Feature Software Specifications for NSAP and Service Feature Software Specifications for ******* are listed in Exhibit D. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 13 of 30 1.6 REPRESENTATIVES: For purposes of this Agreement, Company's Agreement Representative(s), Company's Technical Representative(s), Company's Technology Management Representative(s), Company's Order Management Representative(s), Company's Training Representative(s), and Company's NESAC Representative(s) shall be specified either in an Order, TCL or this Supplemental Agreement. All Work rendered under this Agreement is subject to inspection and acceptance by Company's Technology Management Representative or, in the Technology Management Representative's absence, by others as may be delegated in writing by Company. Company's Agreement Representative is: Victoria Melillo AT&T Corp. Supplier Management Division 101 Crawfords Corner Road Holmdel, NJ 07733-3030 Phone (732) 949-4717 Facsimile (732) 949-8982 Company's Technical Representative is: Julie D. Regalado AT&T Corp. 101 Crawfords Corner Road Holmdel, NJ 07733-3030 Phone (732) 949-1554 Facsimile (732) 949-5955 Company's Technology Management Representative is: Edward R. Carlucci AT&T Corp. 200 Route 202/206N PO Box 752 Bedminster, NJ 07921-0752 Phone (908) 234-6262 Facsimile (908-234-8776 Company's Order Management Representative is: Julie D. Regalado AT&T Corp. 101 Crawfords Corner Road 5/26/98 Contract No. LLJ268E Page 14 of 30 Holmdel, NJ 07733-3030 Phone (732) 949-1554 Facsimile (732) 949-5955 Company's Training Representative is: Eric S. Norman AT&T Corp. 101 Crawfords Corner Road Holmdel, NJ 07733-3030 Phone (732) 949-7691 Facsimile (732) 949-5955 Company's NESAC Representative is: Pat Litzo AT&T Corp. 28W 615 Ferry Road Warrenville, IL. 60555 Phone (630) 393-5430 Facsimile (630) 393-5595 or such other persons as may be designated in writing from time to time by Company. Supplier's Agreement Representative is: Ray Naeini Brite Voice Systems, Inc. 250 International Parkway Suite 300 Heathrow, FL 32746-5006 Phone (407) 357-1010 Facsimile (407) 357-1410 Supplier's Technical Representative is: Steve Wilcox Brite Voice Systems, Inc. 7309 E. 21st Street North Wichita, KS 67206-1083 Phone (316) 652-6500 Facsimile (316) 652-6800 AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 15 of 30 Supplier's Customer Support Representative is: Paul Epps Brite Voice Systems, Inc. 2377 Gold Meadow Way, Suite 100 Gold River, CA. 95670 Phone (916) 631-1588 Facsimile (916) 631-1515 or such other persons as may be designated in writing by Supplier from time to time. 1.7 SERVICES: In addition to Services specifically listed in the GA as being offered by Supplier, Supplier agrees to provide the Services listed in the following sections. 1.7.1 DOCUMENTATION: Supplier will provide the documentation described and listed in Exhibit E according to the date(s) specified in Section 1.17, "SUPPLIER'S MILESTONES." Supplier agrees to grant and hereby grants to Company the right to use the Supplier-owned documents listed in Exhibit E. Supplier agrees that Company may make a reasonable number of copies of such documents for internal business purposes of Company and Ordering Companies. 1.7.2 TRAINING: Supplier will provide training courses as described in Exhibit F. 1.7.2.1 PILOT TRAINING: Supplier will conduct pilot training courses associated with each new Generic Release, for up to twenty (20) students, covering the operations, administration, maintenance, and provisioning processes for Company personnel that will perform Tier I Support/Maintenance Support and Tier II Support/Technical Support for the Product. The location of this training is dependent on the hardware and software needed to conduct the course and will be mutually agreed upon and documented in Exhibit F or Company's Quality Plan for each new Generic Release. Company's Training Representative will be responsible for ensuring training materials and supporting documentation are thoroughly reviewed by Company subject matter experts, and that feedback is provided to Supplier regarding the content of the course. Following the completion of the pilot training course and prior to the rollout training, Supplier agrees to modify training materials, training content, and related documentation to AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 16 of 30 incorporate mutually agreed upon corrections and mutually agreed upon improvements identified during pilot training. 1.7.2.2 ROLLOUT TRAINING: After completion of the pilot training course(s), Supplier will offer two (2) hands-on sessions and at least two (2) classroom sessions of the rollout training course. The number and location of the hands-on and broadcast sessions will be mutually agreed to and documented in Exhibit F or in Company's Quality Plan. The total of all rollout training sessions will provide training for at least fifty (50) of Company's personnel who will be performing Tier I Support/Maintenance and Tier II Support/Technical Support for the Product and Software. 1.7.2.3 ADDITIONAL TRAINING: At Company's request, Supplier agrees to develop and deliver a "Train-the-Trainer" course, intended for use (i.e., delivery and modification) by Company, which will be subject to content and pricing agreed to in a separate purchase order. This course will be designed to provide Company's training personnel and selected subject matter experts education, skills and knowledge for their use in delivering end-user, maintenance and system administration training to Company's personnel without the aid of Supplier's trainers or subject matter experts. This training will be designed to be equivalent to and will capture all of the pertinent subjects covered during training delivered under contract by Supplier. At Company's request, Supplier further agrees to offer additional training, for a Generic or Non-Generic Release, which will be subject to content and pricing agreed to in a separate purchase order. Supplier agrees to update the training material concurrently with Generic Software Releases to reflect subsequent and continuing technology releases. 1.7.3 ENGINEERING AND INSTALLATION: Supplier will provide engineering and installation services, including site surveys, identification of power and cooling requirements, and installation of the NSAP Product at the request of Company. Supplier agrees that Company shall own all rights, title and interest associated with all documents, including but not limited to interconnection drawings, cabling plans and installation specification drawings, that Supplier either creates, updates or provides in the course of performing Services for Company relating to EF&I, or that are required by Company to perform EF&I. Supplier has the right to use the aforementioned drawings as necessary for Supplier to perform Services. The provisions of the previous two (2) sentences (i) shall apply to all documents, drawings or plans that are shown in Exhibit E and that are marked "AT&T Proprietary" and, (ii) shall not apply to all documents, drawings or plans that are shown in Exhibit E and that are marked "Brite Proprietary". AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 17 of 30 1.8 SPECIFICATIONS: Service Feature Specifications and Platform Feature Specifications are listed in Exhibit D. Said Service Features and Platform Features shall perform in accordance with the mutually agreed upon Specifications for these Features. All rights, title and interest to feasibility documents (e.g., Technical Analysis Brief (TAB)), requirements documents (e.g., Technical Plan (TP), Feature Specification Document (FSD), External Interface Specification (EIS)), and test documents which are used for post-Q4 testing (e.g., Master Test Plan (MTP), Test Specification) will be owned by Company even if Supplier provides some input to the creation of such feasibility, requirements and test documents. All rights to Product and Software design documents (e.g., Functional Design Specification (FDS)) and test documents created by Supplier for pre-Q4 testing will be owned by Supplier even if Company provides some input to the creation of such Product and Software design documents and test documents. Supplier agrees to provide copies of such Product test documents and such Software design documents and test documents to Company for its internal use by Company and Ordering Companies solely in conjunction with the Deliverables furnished hereunder. Company may distribute any feasibility, requirements or test document to a third party without Supplier's written consent. Notwithstanding the Use of Information clause in the General Agreement, Supplier may distribute any design document to a third party provided that all technical and business information that is Company's proprietary information, which includes but is not limited to any Company proprietary information relating to the concept defined in paragraph two (2) of Exhibit C, is expunged from such document by Supplier. Feasibility, requirement and test documents will be marked as follows: - - "This document is AT&T Proprietary and shall not be disclosed to a third party without Company's prior written express approval. - - "The AT&T proprietary information and Brite Voice Systems proprietary information, if any, are governed by the applicable terms and conditions of the GA, and/or relevant Non-Disclosure Agreements, and/or relevant Supplemental Agreements." - - Design documents will be marked as follows: - - "This document is Brite Voice Systems, Inc. Proprietary. However, it may contain information specific to and/or proprietary to AT&T. Brite Voice Systems personnel are responsible for protecting any AT&T proprietary information. If this document is not associated with a feature designated as exclusive to AT&T, it may be shared with a third party, but the Senior Vice President of Engineering for Brite Voice Systems or other CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 18 of 30 - - designated Brite individual, as appropriate, has the responsibility for deleting any AT&T proprietary information." - - "The Brite Voice Systems proprietary information and AT&T proprietary information, if any, are governed by the applicable terms and conditions of the GA, and/or relevant Non-Disclosure Agreements, and/or relevant Supplemental Agreements." 1.9 APPLICATION PROGRAMMING INTERFACE: Supplier agrees to provide the NSAP Voice and Telephony Application Programming Interface Specification which contains the Application Programming Interface (API) Specifications for the APIs that exist within the NSAP for communication between the Service Applications and Platform as defined by Company's Specifications listed in Exhibit D. Supplier agrees that the scope of the API Specifications will include all Service Application to Platform communications defined for the Platform software to be delivered to Company. The API Specifications will include calling conventions and autonomous indications associated with the following areas: - - ******* - - ******* - - ******* - - ******* - - ******* Supplier agrees that the API Specifications will include all Platform capabilities available in the Software, including capabilities not used at all by the ************* Application as well as unused arguments or options of capabilities that are used by the ************ Application. Supplier further agrees that the API Specifications will include the following: - - ******* - - ******* - - ******* - - ******* - - ******* - - ******* Upon completion of the API Specifications, Supplier agrees to make the APIs an Open Interface. The API Specifications will be delivered as per the milestone specified in Section 1.17, "SUPPLIER'S MILESTONES". Supplier agrees that Company may release the API Specifications to a third party, without Supplier's written consent, for use in developing other Service Applications on the NSAP. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 19 of 30 1.10 DESIGN REVIEWS: Supplier agrees to provide to Company a list of design, development and testing milestones along with definitions of said milestones. Supplier further agrees to notify Company ten (10) days prior to Supplier's Software and user interface screen design reviews. Supplier further agrees that Company may participate in said reviews and reviews of any associated documentation. 1.11 CHANGE CONTROL AND MODIFICATION REQUESTS: 1.11.1 CHANGES IN SCOPE: Company may, at any time, by written notice, advise Supplier of Company's intent to make changes in, alterations of, or deductions from (all hereinafter referred to as "Changes"), the work performed hereunder. Rigorous change control shall be implemented to monitor such Changes which are prompted primarily by modifications to FSD(s) and External Interface Specifications (EIS(s)). These Changes may affect committed schedules and committed costs. Company or Supplier may request Changes to the work called for by an FSD(s) or an EIS(s). All requests for Changes in FSD(s), EIS(s), Services or Work must be made in writing, via an MR, to the appropriate Company Change Control Board (CCB) which shall include Supplier representation. Company's notification of acceptance or rejection of Change(s) shall be documented in said MR. No Change shall be considered as an addition to or deduction from work called for by an FSD(s), an EIS(s), an Order, or TCL nor shall Supplier be entitled to any compensation for work done pursuant to or in contemplation of a Change, unless the Change is made pursuant to a written MR Assigned to Supplier by Company's CCB Coordinator. Supplier shall, within ten (10) working days after receipt of an MR from Company requesting an addition, alteration, deduction or deviation to work called for by an FSD(s), an EIS(s), an Order or TCL, submit a proposal to Company which includes any change in Supplier's price or change in delivery schedule necessitated by such Change. Supplier's response may include a recommendation against pursuing such Change. Supplier's response also may include a request to extend the response to a mutually agreed upon date. In any instances where the schedule will be impacted by the analysis of such Change, the scope and duration of the analysis will be negotiated before the analysis of the Change is started. Company shall, within ten (10) working days of receipt of Supplier's proposal, either (i) accept the proposal, in which event Company shall, in writing, Assign the MR to Supplier, thus directing Supplier to perform the Change(s), or (ii) advise Supplier via the MR not to perform the Change(s), in which event Supplier shall proceed with the original work. MRs which are Assigned to Supplier will be assigned a Severity Level as defined in Exhibit G. If under this Section 1.11.1, Supplier recommends against making a Change that adversely impacts Supplier or Supplier's obligations under this Agreement or the GA, and Company AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 20 of 30 still desires to make such Change, then Supplier shall at its option determine whether to make such Change and if not, Supplier and Company will cooperate in good faith to determine if alternative options are available to implement such Change for Company. Should Company choose to make any Change as specified above, the applicable FSD(s) or EIS(s), will be changed accordingly and the appropriate Order(s) or TCL(s) changed to reflect any agreed to changes to committed schedules or prices. If the cost of supplies or materials made obsolete or excess as a result of such change is included in Supplier's claim for adjustment, Company shall have the right to prescribe the manner of disposition of such supplies or materials. Any claim for adjustment under this clause must be asserted within thirty (30) days from the date the change is ordered. However, if Company determines that the facts justify such action, it may receive, consider and adjust any such claim asserted at any time prior to the date of final payment. Nothing contained in this clause shall excuse Supplier from proceeding with the work so changed. 1.11.2 NON-COMPLIANCE: Company may, at any time after Q4, by written notice, advise Suppler of (i) Supplier's non-compliance of any requirements documented in FSD(s) and/or EIS(s), or (ii) Supplier's non-compliance to Supplier's documentation listed in Exhibit E (all hereinafter referred to as "Modifications"). Rigorous change control shall be implemented to monitor such Modifications which are prompted primarily from Company's acceptance testing of Supplier's Product and Software, as well as Company's acceptance testing of Company's network elements requiring development to support Features identified in Exhibit C. These Modifications shall not affect committed schedules or committed costs. All requests for Modifications shall be made in writing, via Company's Change Control Board, to Supplier. An MR created as a result of a request for a Modification shall be assigned a Severity Level as defined in Exhibit G. All Modifications must be completed by Supplier prior to exiting Q2, unless specified otherwise in Company's Quality Plan. If Company agrees that some Modifications are not to be completed prior to exiting Q2, Supplier agrees to, at Company's option, either (i) reduce the final invoice by an amount that is mutually agreed to, or (ii) agree to implement the Modifications is a subsequent Release, to be determined by Company, at no cost to Company. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 21 of 30 1.12 ACCEPTANCE CRITERIA: Company business operates under quality standards and International Standards Organization (ISO) 9001 guidelines. Quality processes are in place to govern the execution of the Quality Plans for the various company organizations. Supplier agrees to participate with Company in developing Supplier's deliverables in accordance with the criteria specified in this Section 1.12 and in the Quality Plans as mutually agreed upon by both parties. The Acceptance Criteria specified herein are the key criteria used to determine Company's Acceptance of Supplier's Product and Software. A complete set of criteria used to monitor the progress from one quality gate to another will be specified in Company's Quality Plan for the NSAP. 1.12.1 SOFTWARE ACCEPTANCE CRITERIA: Software acceptance will not occur until after completion of the entrance criteria for Q4 and entrance and exit criteria for Q2. Supplier agrees that acceptance of the Software will be based on the Software Acceptance Criteria. 1.12.1.1 ENTRANCE CRITERIA FOR Q4: The following criteria will be used to determine whether Supplier's Software will pass the Q4 Quality Gate so that Acceptance testing can begin in the ITN. 1. ***************************************************************************** 2. ***************************************************************************** 3. ***************************************************************************** ***************************************************************************** ***************************************************************************** ***************************************************************************** ***************************************************************************** ************************************ 4. ***************************************************************************** ******************************************************************* 5. **************************************************************************** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 22 of 30 6. *************************************************************************** 7. *************************************************************************** ********************************************************************** 8. *************************************************************************** ********************************************************************** 9. *************************************************************************** 10. *************************************************************************** ********************************************************************** 11. *************************************************************************** 12. *************************************************************************** ********************************************************************** 13. *************************************************************************** 14. *************************************************************************** ********************************************************************** 15. *************************************************************************** ********************************************************************** 16. *************************************************************************** *************************************************************************** **************************************************************** 17. *************************************************************************** * 18. *************************************************************************** ********************************************************************** 19. *************************************************************************** * 20. ******* 21. ******* 22. ******* CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS 1.12.1.2 ENTRANCE CRITERIA FOR Q2: AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 23 of 30 The following criteria will be used to determine whether Supplier's Software will pass the Q2 Quality Gate so that Acceptance testing can proceed into the FFA. 1. **************************************************************************** 2. **************************************************************************** ********************************************************************* 3. **************************************************************************** 4. **************************************************************************** 5. **************************************************************************** 6. **************************************************************************** 7. **************************************************************************** - ******* - ******* - ******* 8. ******* 9. ***************************************************************************** ******************************************************************** 10.**************************************************************************** ******************************************************************** 11.***************************************************************************** ******************************************************************** 12.***************************************************************************** ******************************************************************** 13.***************************************************************************** ******************************************************************** 14.**************************************************************************** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 24 of 30 15.***************************************************************************** ******************************************************************** 16.******* 17.***************************************************************************** ******************************************************************** 1.12.1.3 EXIT CRITERIA FOR Q2: The following criteria will be used to determine whether Supplier's Software will exit the Q2 Quality Gate so that deployment at the remaining sites can begin. 1. **************************************************************************** 2. **************************************************************************** 3. **************************************************************************** 4. **************************************************************************** 5. **************************************************************************** 6. **************************************************************************** 7. ***************************************************************************** ******************************************************************** 1.12.2 PRODUCT ACCEPTANCE CRITERIA: Product Acceptance at a particular site will not begin until (i) after full shipment of Product for that site has been received at Company's site, (ii) full product installation has occurred, and (iii) Supplier has provided written notice to Company of the completion of installation, if Supplier provides installation services, or Supplier has provided written notice to Company that Product has been delivered to Company's site. The Product Acceptance test period shall conclude thirty (30) days from Supplier's written notice of installation completion, if Supplier provides installation services. If Supplier does not provide installation services, the Product Acceptance test period shall conclude thirty (30) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 25 of 30 days from Supplier's Actual Product Delivery Date. Product Acceptance will be based upon Company's Platform Acceptance Criteria. 1.13 SUPPLIER'S SUPPORT AT ITN AND FFA SITES: Supplier agrees to provide ************************************************** ******************************************************************************** ******************************************************************************** ****************************************. Supplier further agrees to provide ******************************************** ******************************************************************************** *****************************************. Supplier further agrees that Company will be able to contact ******************* ******************************************************************************** ******************************************************************************** ******************************************************************************** ***************************************************************. 1.14 QUALITY AUDITS: Supplier shall, upon written request by Company and based on agreement as to appropriate confidentiality restrictions, permit Company to conduct a quality audit of Supplier's production and other processes for purposes of validating intervals. Supplier further agrees to reasonably review and consider implementation of any reasonable processes and/or suggestions resulting from this audit based upon a mutually-agreed to implementation schedule. 1.15 PARTIAL SHIPMENTS: Supplier may deliver partial shipments only upon written authorization from Company. 1.16 APPLICABILITY OF LIQUIDATED DAMAGES: 1.16.1 SOFTWARE: Company agrees that, for this initial contract only, liquidated damages for the Software will be based on the latest Q4 date between the Platform Feature software and Service CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 26 of 30 Feature software. Company and Supplier agree that liquidated damages for Software, if applicable, will be (i) calculated from Supplier's Committed Product Delivery Date of the ********************************************* **************************, and(ii) based on ***************************** ************************************************************************** ************************************************************************** ***********************************************. 1.16.2 PRODUCT: Company and Supplier agree that, since there were no previously Committed Product Delivery Dates for Product delivery to Company's ITN, FFA or Central Office sites, liquidated damages, if applicable, will be calculated from the Committed Product Delivery Dates for said sites as documented in Section 1.17.1, "Milestones Applicable to Liquidated Damages" and Exhibit A. Company agrees to allow a ********** grace period for the Product delivery to the ITN before imposing liquidated damages, which means that liquidated damages, if applicable, will be calculated from the **************************************************** *****************. Company further agrees that liquidated damages for Product will be applied on a per Product delivery basis and will be based on a per Product price of *************************************************************** ******************************************************************************** *********************************************************. 1.17 SUPPLIER'S MILESTONES: Supplier shall comply with the milestones set forth in this Section 1.17. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 27 of 30 1.17.1 MILESTONES APPLICABLE TO LIQUIDATED DAMAGES:
- ---------------------------------------------- -------------------------------------------- ---------------- MILESTONE LOCATION COMMITTED PRODUCT DELIVERY DATE - ---------------------------------------------- -------------------------------------------- ---------------- ************************** **************** ***** **************** **************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** *********************** ******************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************** ***************** ***** **************** **************** - ---------------------------------------------- -------------------------------------------- ----------------
1.17.2 SUPPLIER'S OTHER KEY MILESTONES:
- ---------------------------------------------- -------------------------------------------- ---------------- MILESTONE LOCATION COMMITTED DELIVERY DATE - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************** *************** ****** *************** *************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************** *************** ***** *************** *************** *********************************************** - ---------------------------------------------- -------------------------------------------- ---------------- *********************************** ************** ****************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- **************************** ************** ******************* ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************** ************** ****** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- - ---------------------------------------------- -------------------------------------------- ---------------- - ---------------------------------------------- -------------------------------------------- ---------------- - ------------------------------------------------------------------------------------------------------------
5/26/98 Contract No. LLJ268E Page 28 of 30
- ------------------------------------------------------------------------------------------------------------ CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS - ------------------------------------------------------------------------------------------------------------ - ---------------------------------------------- -------------------------------------------- ---------------- ************************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- **************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************* ************** ******************** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************* ************** ******************* ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************* ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************************************* ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- *************************************** ************** ***** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ***************************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- *************************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ***************************************** ************** ***** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- **************************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- *************************** ************** ******************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- - ---------------------------------------------- -------------------------------------------- ---------------- - ---------------------------------------------- -------------------------------------------- ----------------
5/26/98 Contract No. LLJ268E Page 29 of 30
- ------------------------------------------------------------------------------------------------------------ CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS - ------------------------------------------------------------------------------------------------------------ - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ******************************************** ******************** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ******************************************** ************ ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ******************************************** ********** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ************************************ **************************************** ***************************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ******************************************** ****************** ************** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ******************************************** ************** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- ******************** ************** ******************** ************** - ---------------------------------------------- -------------------------------------------- ---------------- *********************** ******************* ******************* - ---------------------------------------------- -------------------------------------------- ---------------- *********************** ******************* ******************* - ---------------------------------------------- -------------------------------------------- ---------------- ********************************************** ********************************* ***** ************** ************** ************** - ---------------------------------------------- -------------------------------------------- ----------------
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 30 of 30 1.18 PRICES AND PAYMENT: The prices and payment schedule for NSAP - Release 1 and ***************** are listed in Exhibit H and Exhibit I. 1.19 FIELD SUPPORT AGREEMENT: Company and Supplier agree that Company shall provide Tier I Support/Maintenance Support and Tier II Support/Technical Support. Supplier agrees to provide Tier III Support/Supplier Support during the Warranty Period and under the terms of the maintenance contract during the period of time that a maintenance contract is in effect. Company agrees that Supplier shall not be responsible or liable for Company's action or inaction in providing Tier I Support/Maintenance Support or Tier II Support/Technical Support, unless Company was specifically instructed to take such action by Supplier in providing Tier III Support/Supplier Support or in Supplier's support documentation listed in Exhibit E. 1.19.1 SOFTWARE DISTRIBUTION PROCESS: The following sections are meant to provide additional clarification to the Software update requirements specified in Company's Specifications. 1.19.1.1 SCHEDULED SOFTWARE RELEASE: Company and Supplier shall mutually agree to all Committed Product Delivery Dates for Scheduled Software Releases. For Scheduled Software Releases, Supplier agrees to deliver two (2) sets of tapes each for the Platform Feature Software and/or Service Feature Software to the ITN at Q4 for Company's Acceptance. The name and address for the person to whom the tapes should be delivered is provided in Section 1.17 "SUPPLIER'S MILESTONES". After Company has completed Acceptance testing at the ITN and at Company's direction, Supplier agrees to deliver two (2) sets of tapes each for the Platform Feature Software and/or Service Feature Software to the FFA at Q2 for Company's Acceptance testing. Upon meeting the exit criteria at Q2, Supplier agrees to deliver two (2) sets of tapes each for the Platform Feature Software and Service Feature Software to each remaining Central Office site listed in Exhibit A. 1.19.1.2 UNSCHEDULED SOFTWARE PATCHES: For Unscheduled Software Patches, Company shall access Supplier's FTP server on the public internet and FTP the Unscheduled Software Patch to Company's ITN. Company agrees to be responsible for distribution of Unscheduled Software Patches to Company's Central Office Sites. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 31 of 30 1.19.2 TROUBLE TICKET REPORTING PROCESS: This section is meant to provide a high level description of the process used by Company to refer a Trouble Ticket to Supplier. A document describing the details of the mechanics (e.g., method of communicating Trouble Tickets - email, facsimile, etc.) will be developed jointly between Company's NESAC Representative and Supplier's Customer Support Representative prior to Company's Q2 date. Company agrees that only authorized persons from Company's Tier II Support/Technical Support organization will refer Trouble Tickets to Supplier. When Company's Tier II Support/Technical Support personnel determine the need to refer a Trouble Ticket to Supplier, Company shall initiate a telephone call to Supplier's published support line and, at a minimum, shall describe the nature of the problem, the Severity Level of the problem, and shall provide Company's Trouble Ticket number. Supplier agrees that Supplier's support line personnel will contact Supplier's Tier III Support/Supplier Support personnel for resolution of Company's Trouble Ticket. Supplier further agrees to respond to Company's Tier II Support/Technical Support personnel per the Response Times documented in Exhibit G. 1.19.3 SUPPLIER CONSULTATION SUPPORT: Supplier agrees that, from time to time, Company may initiate a call directly to Supplier's Tier III Support/Supplier Support personnel for general consultation and questions. Company agrees that at no time shall Company refer a Trouble Ticket directly to Supplier's Tier III Support/Supplier Support personnel. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E Page 32 of 30 IN WITNESS WHEREOF, the Supplier and Company have executed this Agreement in duplicate as of the dates set forth below. BRITE VOICE SYSTEMS, INC. BRITE VOICE SYSTEMS GROUP, LTD. /S/ D. S. GERGACZ /S/ D. S. GERGACZ - ---------------------------------- ------------------------------- Signature Signature DAVID S. GERGACZ DAVID S. GERGACZ - ---------------------------------- ------------------------------- Name - typed or printed Name - typed or printed CHAIRMAN & CEO DIRECTOR - ---------------------------------- ------------------------------- Title - typed or printed Title - typed or printed 5/29/98 5/29/98 - ---------------------------------- ------------------------------- Date Date On behalf of AT&T CORP. /S/ BY JUDY L. BURDS - ---------------------------------- Signature JUDY L. BURDS - ---------------------------------- Name - typed or printed DIRECTOR - NETWORK SUPPLIER MGMT. - ---------------------------------- Title - typed or printed 5/26/98 - ---------------------------------- Date AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 5/26/98 Contract No. LLJ268E EXHIBIT A (PAGE 1 OF 2) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELYWITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. CENTRAL OFFICE SITES FOR THE INITIAL DEPLOYMENT OF *******
- -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- COMMON LANGUAGE LOCATION ADDRESS NUMBER OF NSAP PRODUCT ON-SITE PRODUCT IDENTIFIER (CLLI) CODE NODES DATE INSTALLATION START DATE - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** ********* ****** ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- --------------------
- ---------------------------------------------- --------------------- COMMON LANGUAGE LOCATION COMMITTED PRODUCT COMMENTS IDENTIFIER (CLLI) CODE DELIVERY DATE [+] - ---------------------------------------------- --------------------- ***************** ****** ********* - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- --------------------- ***************** ****** - ---------------------------------------------- ---------------------
AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT A (PAGE 2 OF 2) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
- -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- COMMON LANGUAGE LOCATION ADDRESS NUMBER OF NSAP PRODUCT ON-SITE PRODUCT IDENTIFIER (CLLI) CODE NODES DATE INSTALLATION START DATE - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ****** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** ********* ******* ****** **************** **************** **************** - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- - -------------------------- -------------------------------------------- ----------------- -------------------- -------------------- ***************** **************** * ****** ******* **************** - -------------------------- -------------------------------------------- ----------------- -------------------- --------------------
- -------------------------- -------------------- --------------------- COMMON LANGUAGE LOCATION PRODUCT DELIVERY COMMENTS IDENTIFIER (CLLI) CODE DATE [+] - -------------------------- -------------------- --------------------- ***************** ****** - -------------------------- -------------------- --------------------- - -------------------------- -------------------- --------------------- ***************** ****** ********************** - -------------------------- -------------------- --------------------- - -------------------------- -------------------- --------------------- ***************** ****** ************* - -------------------------- -------------------- --------------------- - -------------------------- -------------------- --------------------- ***************** ****** - -------------------------- -------------------- --------------------- - -------------------------- -------------------- --------------------- ***************** ****** ************* - -------------------------- -------------------- ---------------------
+ Company and Supplier agree that any modifications to Committed Product Delivery Dates shall be mutually agreed to and documented in an amendment to this Agreement. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT B (Page 1 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ********* DESCRIPTION AND NSAP PRODUCT DESCRIPTION AND CONFIGURATION 1.0 ************** DESCRIPTION *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** ***************************. 2.0 PRODUCT CONFIGURATION *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** ********************. ***********************************************************: - ******************************* - ******************************* - ******************************* - ************************************************************************ ************************************************* - ************************************************************************ ************************************************************************ ************************************************************************ ************************************************************************ ************************************** - ******************************************** - ************************************************************************ ***************** ********************************************************************. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT B (Page 2 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NSAP NODE TELCO CABINET CONFIGURATION TO SUPPORT THE ****** SERVICE *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *********************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT B (Page 3 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NSAP NODE APPLICATION PROCESSING UNIT (APU) CABINET CONFIGURATION TO SUPPORT THE ****** SERVICE *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *************************************************************************** *********************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT C (PAGE 1 OF 1) AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NSAP FEATURE COMMITMENTS AND EXCLUSIVITY DESIGNATION (FRF 6672 & FRF 6776)
- --------------------------- ------------ -------- --------------------------------------------------------- -------------------- FEATURE NAME Q4 DATE FRF# COMPANY SPECIFICATION DOCUMENT DEVELOPMENT + RTU LICENSE FEE - --------------------------- ------------ -------- --------------------------------------------------------- -------------------- ***************** ****** 6672 ****** Service Release 1.0 ********************* ************ **********Issue 1.0 - --------------------------- ------------ -------- --------------------------------------------------------- -------------------- - --------------------------- ------------ -------- --------------------------------------------------------- -------------------- NSAP - Release 1.0 ****** 6776 Network Service Adjunct Platform (NSAP) Feature Specification Document Release 1.0 - --------------------------- ------------ -------- --------------------------------------------------------- --------------------
- --------------------------- --------------------- ---------------------- FEATURE NAME EXCLUSIVITY / UNLIMITED EXCLUSIVITY PERIOD REPLICATION RIGHTS - --------------------------- --------------------- ---------------------- ***************** No / N/A No - --------------------------- --------------------- ---------------------- - --------------------------- --------------------- ---------------------- NSAP - Release 1.0 No / N/A No - --------------------------- --------------------- ----------------------
[++] This total includes the cost for FRF 6672 and FRF 6776. Company and Supplier agree that all Features in the initial commitment for ****** Service-Release 1.0 and NSAP-Release 1.0 are included in FRF 6672 & FRF 6776 and no such features are considered to be exclusive, developed information or an original work of authorship and no such Features shall be considered to be inventions owned by the Company. Company and Supplier further agree that Company shall solely own all intellectual property rights, including, without limitation, patent rights and trade secret rights that are associated with the following concept: The combination of the following elements, an account number that can be used as a dialable number to receive telecommunication services from a particular carrier and operating as a billing mechanism to which such communication services and communication services from other carriers can be charged. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT D (PAGE 1 OF 1) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NSAP PLATFORM FEATURE AND ****** SERVICE FEATURE SPECIFICATIONS - - NETWORK SERVICE ADJUNCT PLATFORM NSAP FEATURE SPECIFICATION DOCUMENT - (RELEASE 1.0) VERSION 2, FRF 6776, Mayra Caceres (coordinator), March 19, 1998 - - ****** SERVICE RELEASE 1.0 ******************* ISSUE 1.0- FINAL COPY, FRF 6672, Kwang Suh, Cory Ginourginas (coordinators), March 16, 1998 - - NETWORK SERVICE ADJUNCT PLATFORM ****** INTERFACE SPECIFICATIOn, Brunken, Jere (AT&T), Bugga, Prabhakar (AT&T), Leavell, Blair (Brite Voice Systems), April 22,1998 - - NETWORK SERVICE ADJUNCT PLATFORM ****** INTERFACE SPECIFICATION, DasGupta, Naupam (AT&T), Leavell, Blair (Brite Voice Systems), April 22, 1998 - - NETWORK SERVICE ADJUNCT PLATFORM ***** INTERFACE SPECIFICATIOn, Leavell, Blair (Brite Voice Systems), Wu, Hui-Ling (AT&T), TBD + - - PLATFORM TO ********** INTERFACE SPECIFICATION DOCUMENt, January 9, 1998 + Company and Supplier shall mutually agree to the delivery date of this document by ******. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 1 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (TIER I SUPPORT/MAINTENANCE SUPPORT AND TIER II SUPPORT/TECHNICAL SUPPORT DOCUMENTATION) ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 2 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (TIER I SUPPORT/MAINTENANCE SUPPORT AND TIER II SUPPORT/TECHNICAL SUPPORT DOCUMENTATION) ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 3 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (TRAINING MATERIAL) ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 4 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (ENGINEERING DRAWINGS) ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 5 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (DEVELOPMENT MANAGEMENT DOCUMENTS) [+] ******************************************************************************** ******************************************************************************** ******************************************************************************** **************************** + These documents are not orderable through Supplier's standard, published practices. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT E (PAGE 6 OF 6) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP DOCUMENTATION PROVIDED BY BRITE VOICE SYSTEMS, INC. (THIRD PARTY VENDOR DOCUMENTATION) ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT F (PAGE 1 OF 1) AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ****** AND NSAP TRAINING PROVIDED BY BRITE VOICE SYSTEMS, INC. (TIER I SUPPORT/MAINTENANCE SUPPORT AND TIER II SUPPORT/TECHNICAL SUPPORT TRAINING)
- -------------------------------------------------------------------- ------------------- ------------------------------- COURSE # OF COURSE # OF STUDENTS OCCURRENCES - -------------------------------------------------------------------- ------------------- ------------------------------- **************************** * ***************************** - -------------------------------------------------------------------- ------------------- ------------------------------- **************************** * ***************************** - -------------------------------------------------------------------- ------------------- ------------------------------- **************************** * ********* - -------------------------------------------------------------------- ------------------- ------------------------------- **************************** * ********* - -------------------------------------------------------------------- ------------------- -------------------------------
- -------------------------------------------------------------------- ------------------------------------ ------------------ COURSE LOCATION DATES - -------------------------------------------------------------------- ------------------------------------ ------------------ **************************** ********************** ********** ********** - -------------------------------------------------------------------- ------------------------------------ ------------------ **************************** ********************** ********** ********** - -------------------------------------------------------------------- ------------------------------------ ------------------ **************************** **************** ******** - -------------------------------------------------------------------- ------------------------------------ ------------------ **************************** **************** ******** - -------------------------------------------------------------------- ------------------------------------ ------------------
AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT G (Page 1 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. SEVERITY LEVEL DEFINITIONS AND RESPONSE TIMES ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ************************* AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT G (Page 2 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ******************************************************************************** ******************************************************************************** ******************************************************************************* ******************************************************************************** ******************************************************************************** ************************* AT&T Proprietary (Restricted) Solely for Those Persons Having a Need to Know Use Pursuant to Company Instructions 5/26/98 Contract No. LLJ268E EXHIBIT G (Page 3 of 3) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ************************* AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT H (Page 1 of 1) EXHIBIT H, PAGES 1 THROUGH 8, CONTAINS MATERIAL WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS 5/26/98 Contract No. LLJ268E EXHIBIT I (Page 1 of 4) ADDITIONAL PRICING CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. The following information details the pricing for the additional items and for extra training courses and documentation guides. ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ********************************************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS ADDITIONAL PRICING 5/26/98 Contract No. LLJ268E EXHIBIT I (Page 2 of 4) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ONE-TIME DISCOUNT ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ************************* *ADDITIONAL ITEMS PRICING NOTES Payment terms are net thirty (30) days from signing of this Agreement. Notwithstanding the foregoing, Company and Supplier have removed the following items, and their associated prices, from the list of requirements shown on Page one (1) of this exhibit: o *********** o *********** o *************************************************************************** *************************************************************************** ****************************************. AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS ADDITIONAL PRICING 5/26/98 Contract No. LLJ268E EXHIBIT I (Page 3 of 4) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXTRA TRAINING AND DOCUMENTATION Company may order additional training and documentation at the prices set forth below. ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** **************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS ADDITIONAL PRICING 5/26/98 Contract No. LLJ268E EXHIBIT I (Page 4 of 4) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** **************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS HAVING A NEED TO KNOW USE PURSUANT TO COMPANY INSTRUCTIONS ADDITIONAL PRICING EX-10.24 3 EXHIBIT 10.24 Exhibit 10.24 Contract No. LH0827D Page 1 of 22 SUPPLEMENTAL AGREEMENT FOR ********* MANAGED SERVICE BETWEEN AT&T CORP. AND BRITE VOICE SYSTEMS, INC. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 2 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. TABLE OF CONTENTS
Section Description Page No. - ------- ----------- -------- 1.1 STATEMENT OF SERVICES 3 1.2 GOVERNING TERMS 3 1.3 RELATED AGREEMENTS 4 1.4 DURATION 4 1.5 DEFINITIONS 4 1.6 DESCRIPTION 7 1.7 INTELLECTUAL PROPERTY RIGHTS 7 1.8 REPRESENTATIVES 8 1.9 INSTALLATION 9 1.9.1 Initial Installation 9 1.9.2 Subsequent Installations for Capacity Expansion 9 1.10 DIRECT MEASURES OF QUALITY 10 1.11 NETWORK AVAILABILITY AND INTEGRITY 10 1.12 CHANGES FOR NONCOMPLIANCE 10 1.13 SUPPLIER'S INTEGRATION AND SERVICE TESTING 11 1.14 ENTRANCE CRITERIA FOR SUPPLIER TESTING IN COMPANY'S LIVE NETWORK 11 1.15 COMPANY'S SERVICE TESTING 12 1.15.1 Exit Criteria from Company's Service Testing 13 1.16 SUPPLIER'S COMMITTED MILESTONES 13 1.17 PRICES AND PAYMENT 14 1.18 MAINTENANCE SUPPORT AGREEMENT 14 1.19 TRANSITION PLAN 14 1.20 DAMAGES 14 1.21 CREDIT FOR FUTURE PURCHASE 15 1.22 MALICIOUS TERMINATION OF MANAGED SERVICE 15 Exhibit A ******* Service Description and NSAP Product Description and Configuration 17 Exhibit B Network Connectivity to NSAP for the Managed Service 20 Exhibit C Calculation for Liquidated Damages 21 Exhibit D Managed Service Confidence Suite 22
AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 3 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. [LOGO] 1200 Peachtree Street Atlanta, Georgia 30309 ACCEPTANCE SHALL BE INDICATED BY SIGNING AND RETURNING DUPLICATE TO: Brite Voice Systems AT&T Corp. 250 International Parkway 101 Crawfords Corner Road Suite 300 2B-406A Heathrow, FL 32746-5006 Holmdel, NJ. 07733-3030 Attn: Ray Naeini Attn: William F. Condon This agreement ("Agreement") is made between AT&T Corp., ("Company"), having a place of business at 101 Crawfords Corner Road, Holmdel, NJ 07733-3030, and Brite Voice Systems Inc. ("Supplier") having a place of business at 250 International Parkway, Suite 300, Heathrow, Florida 32746-5006, do hereby agree as follows. 1.1 STATEMENT OF SERVICES: Supplier agrees to provide, at no charge to Company, ******* as a Managed Service (as defined herein) to Company during the Term of this Agreement. 1.2 GOVERNING TERMS: The terms and conditions of General Agreement (GA) GA0023D apply to this Agreement as if fully set forth herein, except for Sections 5.2, "Indemnity", 5.4, "Network Outage", 5.6, "Service Availability", 6.2, "Documentation", 6.12, "Training" and 6.13, "Spares" which do not apply to this Agreement. Should the terms and conditions of this Agreement conflict with the GA terms and conditions referenced above, this Agreement shall prevail. Capitalized terms not defined herein shall have the same definition as in GA0023D or in the Supplemental Agreement for ******* on NSAP (SA-LLJ268E). AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 4 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Should the capitalized terms in SA-LLJ628E conflict with the capitalized terms in GA0023D, SA-LLJ628E shall prevail. 1.3 RELATED AGREEMENTS: Except as otherwise set forth herein, Supplier agrees that this Agreement shall in no way negatively affect Supplier's obligations under SA-LLJ268E. Nothing in this Agreement supersedes the provisions in SA-LLJ268E, except as specified in Sections 1.9, "INSTALLATION" and 1.19 "DAMAGES" of this Agreement, and the parties agree that Supplier's milestones contained in SA-LLJ268E are hereby superseded and shall be replaced by written modification between the parties setting forth new milestones. 1.4 DURATION: This Agreement shall be effective as of July 24, 1998 and shall continue in effect until the earlier to occur of the following two (2) events: (i) Q1 occurs for ******* as defined by SA-LLJ268E and all customers provisioned on the Managed Service Nodes have been transitioned to Installed Service Nodes deployed per SA-LLJ268E; or (ii) ************ (the "Term"). Company and Supplier agree that if the Q4 date for the Installed Service slips beyond the ************************ ********************************, the date in (ii) of the previous sentence shall be extended accordingly. Company and Supplier further agree to use best efforts to complete the transition of customers from the Managed Service Nodes to the Installed Service Nodes by **************. The Term of this Agreement may thereafter be extended by mutual written agreement of the parties. 1.5 DEFINITIONS: COMPANY'S CUSTOMER DATABASE means Company's database which is used to store information relating to Company's calling card customers. COMPANY'S LIVE NETWORK means the telecommunications network carrying Company's live, revenue bearing traffic for all of Company's customers. This includes, but is not limited to, AT&T's*************************************. COMPANY'S SERVICE DATE means the date that Company provides the Managed Service to Company's customers. COMPANY'S SERVICE TESTING means the testing which is performed by Company to determine if the Managed Service Software and associated Managed Service Nodes meet the Managed Service Specifications. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 5 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. CUSTOMER PROVISIONING ACTIVITIES means the tasks required to provision a customer in Company's Customer Database and to provision a customers personal ************** number to access a specific Managed Service Node. INSTALLED SERVICE means the ************* service provided under SA-LLJ628E. INSTALLED SERVICE NODE means an NSAP node which has been deployed in Company's Central Office and on which the Installed Service Software shall execute following Company's acceptance of the Installed Service Softwars. INSTALLED SERVICE SOFTWARE means the software that will be providing the Installed Service on the Installed Service Nodes. INSTALLED SERVICE SPECIFICATIONS means the complete set of requirements specified in the documents listed Exhibit D of SA-LLJ628E. ISDN/PRI means the telephony link protocol used for inbound calls to the Managed Service Nodes and outbound calls from the Managed Service Nodes. LIVE MANAGED SERVICE NODE means a Managed Service Node that is carrying Company's revenue bearing traffic. MAINTENANCE PLAN means a mutually agreed interface agreement specifying the methods and procedures for addressing (i) customer complaints, and (ii) troubles with Company-provided network facilities. MANAGED SERVICE means a consumer service provided by Supplier, and operated and maintained by Supplier at Supplier's NOC(s). Associated services, provided by Supplier, include operations surveillance, technical support structure and operations management for managed service systems. MANAGED SERVICE CONFIDENCE SUITE means the set of test scenarios, listed in Exhibit D, used by Supplier to demonstrate to Company, Supplier's progress during Supplier's engineering integration and system integration test intervals. MANAGED SERVICE FEATURES means the features that will be tested by Company during the acceptance testing for the Managed Service. MANAGED SERVICE NODE means an NSAP node which has been deployed in Supplier's NOC and on which the Managed Service Software shall execute. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 6 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. MANAGED SERVICE SOFTWARE means the software that will be providing the Managed Service on the Managed Service Notes. MANAGED SERVICE SPECIFICATIONS means the Installed Service Specifications excluding the references to (i) the NSAP interface to *******************, (ii) the NSAP interface to ********, (iii) the NSAP interface to **********, and (iv) the operations and maintenance requirements specific to Company's Central Office sites documented in said requirements. NETWORK CONNECTIONS means (i) the ************** facilities connecting Supplier's equipment in Supplier's NOCs to Company's switched network, (ii) the Network Interconnect (NI) links connecting a Managed Service Node to Company's signaling network, (iii) the ******** connections between Supplier's ethernet network within the NSAP and Company's *********** network, and (iv) the TIs between a Managed Service Node and the LEC. NETWORK OPERATIONS CENTER OR (NOC) means Supplier's operations center(s) used to operate the Managed Service. SERVICE RELIABILITY AND AVAILABILITY REQUIREMENTS means the requirements which specify the service reliability and availability on a per adjunct basis. SOFTWARE UPDATE means a modification made to the Managed Service Software after Supplier's Turnover To Company. SUPPLIER'S CUSTOMER SUPPORT ORGANIZATION means the organization responsible for providing Tier 1 Support, Tier II Support and Tier III Support to Company. SUPPLIER'S SERVICE TEST means a series of new tests for the equipment and procedures used exclusively for the Managed Service environment, a subset of Company's operational readiness tests, and Supplier's tests contained in the NSAP Installation Guide. SUPPLIER'S SYSTEM INTEGRATION TEST means a series of test activities that verifies system adherence to Installed Service Specifications. SUPPLIER'S TURNOVER TO COMPANY means the date that Supplier has made available to Company the Managed Service Software and Managed Service Nodes for Company to begin Company's Service Testing. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract NO. LH0827D Page 7 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. TIER I SUPPORT means actions, taken by Supplier's Network Operation Center personnel, required to (i) maintain the Managed Service, (ii) monitor the Managed Service, (iii) analyze alarm data and error logs, (iv) repair problems discovered through analysis of alarm data and error logs, (v) restore the Managed Service to normal operational processing capabilities, and (vi) verify that the Managed Service is operating as required in the Managed Service Specifications. TIER II SUPPORT means actions, taken by Supplier's Product Engineering and Deployment personnel, required to resolve problems with the Managed Service which could not be resolved by Supplier's Network Operation Center personnel providing Tier I Support. TIER III SUPPORT means actions, taken by Supplier's Customer Support Organization personnel to assist in the diagnosis of problems with the Managed Service which could not be resolved by Supplier's Product Engineering and Deployment personnel providing Tier II Support. TRANSACTION CAPABILITIES APPLICATION PART OR (TCAP) means the protocol layer of the ***************************** that defines the signaling interface between Company's Customer Database and NSAP. TRANSITION PLAN means the document that describes the process and sequence of tasks that must be done to move customers from the Managed Service Nodes to the Installed Service Nodes. 1.6 DESCRIPTION: Exhibit A describes the ******* Service Application which will reside on the NSAP, access to which will be offered as the Managed Service, and provides the Product description and Product configuration for NSAP. Supplier agrees that, as a function of the Managed Service, Supplier will own, operate, maintain and provision the NSAP platforms on which the Managed Service is provided for the Term of this Agreement. Supplier further agrees that the Managed Service Software shall meet the Installed Service Specifications. Company and Supplier agree that the Managed Service will be provided using Supplier's existing standard NOC facilities and capabilities for generating reports, provisioning, maintaining, and monitoring the Managed Service Nodes. Supplier will provide new and or additional equipment, processes and personnel that, in Supplier's opinion, are required for the Managed Service. Company and Supplier will mutually agree on a plan for generating reports requested by Company. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company's Instructions. 8/24/98 Contract NO. LH0827D Page 8 of 22 1.7 INTELLECTUAL PROPERTY RIGHTS: Company and Supplier agree that no features provided by the Managed Service are considered to be exclusive, developed information or an original work of authorship and no such features shall be considered to be inventions owned by the Company. Company and Supplier further agree that Company shall solely own all intellectual property rights, including, without limitation, patent rights and trade secret rights that are associated with the following concept: The combination of the following elements, an account number that can be used as a dialable number to receive telecommunication services from a particular carrier and operating as a billing mechanism to which such communication services and communication services from other carriers can be charged. 1.8 REPRESENTATIVES: For purposes of this Agreement, Company's Agreement Representative(s) and Company's Technical Representative(s), shall be as specified below. Company's Agreement Representative is: William F. Condon AT&T Corp. Supplier Management Division 101 Crawfords Corner Road Holmdel, NJ 07733-3030 Phone (732) 949-7256 Facsimile (732) 949-4364 Company Technical Representative is: Julie D. Regalado AT&T Corp. 101 Crawfords Corner Road Holmdel, NJ 07733-3030 Phone (732) 949-1554 Facsimile (732) 949-5955 or such other persons as may be designated in writing from time to time by Company. Supplier's Agreement Representative is: Ray Naeini Brite Voice Systems, Inc. 250 International Parkway Suite 300 AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company's Instructions. 8/24/98 Contract NO. LH0827D Page 9 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Heathrow, FL 32746-5006 Phone (407) 357-1010 Facsimile (407) 357-1410 Supplier's Senior Program Manager is: Jim Dedmon Brite Voice Systems, Inc. 250 International Parkway Suite 300 Heathrow, FL 32746-5006 Phone (407) 357-1056 Facsimile (407) 357-1400 or such other persons as may be designated in writing by Supplier from time to time. 1.9 INSTALLATION: 1.9.1 INITIAL INSTALLATION: Supplier agrees to install one (1) NSAP node at Supplier's facility in Wichita, Kansas and one (1) NSAP node at Supplier's facility in Heathrow, Florida, to ensure the Service Reliability and Availability Requirements specified in "******* SERVICE RELEASE 1.0 ****************** 1.0 - FINAL COPY, FRF 6672". For such installation, Company and Supplier agree that Supplier shall use the two (2) NSAP nodes which were designated to be delivered to Oxnard, California and Lansing, Michigan (second of two (2) nodes) as defined in SA-LLJ268E. Company agrees that Supplier shall not be responsible to deliver or liable for failure to deliver such nodes as required under SA-LLJ268E, but shall deliver them to Company as set forth in a mutually agreed to Transition Plan. Supplier agrees that the initial installation of ******* NSAP nodes will support a service capacity of ************************ customers across the ********* NSAP nodes at the completion of Supplier's Service Test milestone listed in Section 1.16, "SUPPLIER'S COMMITTED MILESTONES". Supplier further agrees that during a disaster recovery event involving only one (1) site, the service capacity shall not degrade. Within ************* business days following execution of this Agreement, Company and Supplier may mutually agree that the Managed Service be initially installed and thereafter provided by Supplier through NSAP nodes located at Company's Central Offices as AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 10 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. designated by Company. Promptly thereafter, Company and Supplier shall mutually develop a plan to implement such agreement. 1.9.2 Sub sequent Installations for Capacity Expansion: Supplier agrees to provide capacity to support an additional ***************** customers if such capacity is determined by Company to be needed. For such capacity, Company and Supplier agree that Supplier shall use the Installed Service Node that is designated to be delivered to Flemington, New Jersey as defined in SA-LLJ268E. Company agrees that Supplier shall not be responsible to deliver or liable for failure to deliver such node as required under SA-LLJ268E, but shall deliver the node to Company as set forth in a mutually agreed to Transition Plan. Supplier agrees that during a disaster recovery event involving only one (1) site, the service capacity shall not degrade below *********************** customers. Supplier further agrees that during a disaster recovery event involving ************ Managed Service Node, the service capacity shall not degrade below ************************ customers. 1.10 DIRECT MEASURES OF QUALITY: The Direct Measures of Quality (DMoQ's) monitored by Company shall be based on the following: 1. ************************************************************************** ************************************************************************** ************************************************************************** ************************************************************************** ************************************************************************** 2. ************************************************************************** ************************************************************************** ************************************************************************** 3. ************************************************************************** ************************************************************************** ************************************************************************** 4. ************************************************************************** ************************************************************************** 1.11 NETWORK AVAILABILITY AND INTEGRITY: Company agrees to provide and maintain, at Company's expense, the integrity of all network connections in Company's Live Network denoted by the dashed lines in Exhibit B. AT&T Proprietary (Restricted) Solely for Those Persons with a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 11 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Company agrees to provide additional network connectivity to Company's ITN no later than ********** days prior to Supplier's Service Test milestone listed in Section 1.16, "SUPPLIER'S COMMITTED MILESTONES". Company further agrees to provide network connectivity to Company's Live Network and make operational and available such connectivity no later than ********** days prior to Supplier's Service Test milestone listed in Section 1.16, "SUPPLIER'S COMMITTED MILESTONES". Actual use of Company's ITN and Company's Live Network will be based on mutual agreement of the parties. Company further agrees to provide all Customer Provisioning Activities necessary to support the Managed Service. 1.12 CHANGES FOR NONCOMPLIANCE: Company may, at any time during the Term of this Agreement, by written notice, advise Supplier of Supplier's non-compliance of the Managed Service Specifications. Supplier shall not be required to modify or enhance the Managed Service, except for such modifications relating to non-compliance of the Managed Service Specifications (all hereinafter referred to as "Modifications"). Rigorous change control shall be implemented to monitor such Modifications that are prompted primarily from Company's testing of the Managed Service. Supplier agrees that such Modifications shall not relieve Supplier from its obligations to meet committed schedules documented in Section 1.16, "SUPPLIER'S COMMITTED MILESTONES". All requests for Modifications shall be made in writing, via Company's Change Control Board, to Supplier. An MR created as a results of a request for a Modification shall be assigned a Severity Level as defined in Exhibit G of SA-LLJ628E. All Modifications shall be completed by Supplier within a mutually agreed time frame. 1.13 SUPPLIER'S INTEGRATION AND SERVICE TESTING: Supplier shall conduct Supplier's System Integration Test to demonstrate that the Managed Service complies with the Managed Service Specifications prior to Supplier's Turnover To Company. Supplier agrees to allow Company to participate, when possible, during Supplier's System Integration Test milestone interval, documented in Section 1.16, "SUPPLIER'S COMMITTED MILESTONES", to reduce the time frames for testing by Company. Company shall notify Supplier if its testing indicates that the Managed Service fails to comply with the Managed Service Specifications, specifically identifying each such failure. Supplier shall correct such failures and proceed to re-test prior to Supplier's Turnover To Company. If such failures are detected after Supplier's Turnover To Company and before Company's Service Date, Supplier shall correct such AT&T Proprietary (Restricted) Solely for Those Persons with a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 12 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. failures prior to Company's Service Date. If such failures are detected after Company's Service Date, Supplier shall correct such failures only at the direction of Company. For any Software Updates, software upgrades or hardware upgrades, (all hereinafter referred to as "System Modifications"), Supplier shall conduct Supplier's System Integration Test (or relevant part thereof) (to demonstrate that the Managed Service Software which incorporates System Modifications, complies with the Managed Service Specifications. Supplier agrees that no System Modifications shall be made to the Managed Service Nodes after Supplier's Turnover To Company without Company's consent. 1.14 ENTRANCE CRITERIA FOR SUPPLIER TESTING IN COMPANY'S LIVE NETWORK: The following criteria will be used to determine whether Supplier will be allowed to use Company's Live Network for Supplier's Service Test prior to Supplier's Turnover To Company. 1. ************************************************************************** ************************************************************************** ************************************************************************** 2. ************************************************************************** ************************************************************************** ************************************************************************** 3. ************************************************************************** ************************************************************************** ************************************************************************** 4. ************************************************************************** ************************************************************************** 5. ************************************************************************** ************************************************************************** ************************************************************************** 6. ************************************************************************** ************************************************************************** 7. ************************************************************************** ************************************************************************** 8. **************************************************************** 9. ************************************************************************** ***************************************************************** 10.************************************************************************** ************************************************************ AT&T Proprietary (Restricted) Solely for Those Persons with a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 13 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 11.**************************************************************************** **************************************************************************** ***************************************************** 12.**************************************************************************** **************************************************************************** ************************ 13.**************************************************************************** ************************************ 14.**************************************************************************** ***************************************************************** 15.********************************************************************** 16.**************************************************************************** ******************************************************** 17.**************************************************************************** ******************************************************** 18.**************************************************************************** **************************************************** 1.15 COMPANY'S SERVICE TESTING: Upon completion of Supplier's System Integration Test interval, Company agrees to immediately begin to perform testing at Supplier's NOC facility located in Heathrow, Florida, on the Managed Service Node located at said facility, which is connected to Company's ITN, in order for Company to complete items********************** of Section 1.14. "ENTRANCE CRITERIA FOR SUPPLIER'S TESTING IN COMPANY'S LIVE NETWORK". Upon Supplier's Turnover To Company, Company shall begin Company's Service Testing. Company's Service Date shall be determined by the completion of Company's Service Testing and by meeting the exit criteria documented in Section 1.15.1, "Exit Criteria from Company's Service Testing". Company agrees that Company's Service Testing shall be based on the Managed Service Specifications. 1.15.1 EXIT CRITERIA FROM COMPANY'S SERVICE TESTING: The following criteria will be used to determine whether Supplier's Managed Service Software will exit Company's Service Testing and revenue bearing traffic will be routed to the Live Managed Service Nodes. 1.***************************************************************************** ***************************************************************************** AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 14 of 22 2. **************************************************************************** **************************************************************** 3. **************************************************************************** ********************************************************************* 4. **************************************************************************** ************************************************************************* 5. **************************************************************************** **************************************************************************** 1.16 SUPPLIER'S COMMITTED MILESTONES: Supplier shall comply with the committed milestones set forth in this Section 1.16.
- ------------------------------------------------------------------------------- MILESTONE START END DATE DATE - ------------------------------------------------------------------------------- *********************************************** ****** ******** ************************************************* ********** ****** ********** ************************************************* ******** ******** - -------------------------------------------------------------------------------
- -Dagger- Use of Company's Live Network shall be dependent on meeting the criteria specified in Section 1.14, "ENTRANCE CRITERIA FOR SUPPLIER TESTING IN COMPANY'S LIVE NETWORK". 1.17 PRICES AND PAYMENT: Supplier agrees to provide the Managed Service contracted under this Agreement at *********** to Company. Supplier further agrees that Company will ********* for any equipment at Supplier's NOCs. 1.18 MAINTENANCE SUPPORT AGREEMENT: Company and Supplier agree that Supplier shall provide Tier I Support, Tier II Support, and Tier III Support for the Managed Service during the Term of this Agreement. Supplier agrees to provide proactive maintenance during the ******* per week and ***************** per day surveillance of the Managed Service. Company CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 15 of 22 and Supplier further agree to develop a Maintenance Plan. Supplier agrees to provide reactive maintenance based on customer complaints as outlined in said Maintenance Plan. 1.19 TRANSITION PLAN: Company and Supplier agree that a written transition plan will be developed and mutually agreed upon no later than the ******************************** ****************************************************. The transition plan, among other things, will contain milestones to de-install, pack and ship NSAP nodes in Wichita, Kansas and Heathrow, Florida to the designated Company locations following the completion of the transition to NSAP nodes installed in Company's Central Office sites. 1.20 DAMAGES: Neither party shall be responsible to the other for any damages of any type arising under this Agreement or from access to or lack of access to the Managed Service. Supplier specifically disclaims all warranties including warranties of merchantability and fitness for a particular purpose. Notwithstanding the first sentence of this Section 1.20, Supplier shall be responsible for its obligations to indemnify and to pay damages as provided under Section 4.3 of GA0023D, with the exception of the last sentence of such section 4.3. Under no circumstances, shall either party be responsible to the other for any lost profits or expectation damages of any type. Company agrees that Supplier is not liable for any liquidated damages under Section 1.16 of SA-LLJ628E with respect to the timing of delivery of Software. If Supplier's ****************************************************** ************************, is not met, Supplier agrees to pay Company liquidated damages************************************************************ ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ***********************************************. 121. CREDIT FOR FUTURE PURCHASE: ****************************************************************************** ****************************************************************************** ****************************************************************************** ***************************************************************************** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 16 of 22 ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** 1.22 MALICIOUS TERMINATION OF MANAGED SERVICE: If Supplier intentionally and maliciously permanently ceases to provide the Managed Service, in breach of this Agreement and as long as SA-LLJ628E has not been canceled, then Supplier agrees to pay Company liquidated damages ******** ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ***************************. Any termination of providing the Managed Service under the terms of Section 4.3 of GA0023D shall not give rise to any liquidated damages. The total of all liquidated damages under this Agreement shall be limited to the amount of ******************************************** ****************************************************************************** *******************. IN WITNESS WHEREOF, the Supplier and Company have executed this Agreement in duplicate as of the dates set forth below. BRITE VOICE SYSTEMS, INC. /s/ Ray S. Naeini - ------------------------- Signature Ray S. Naeini - ------------------------- Name - typed or printed SVP & GM - ------------------------- Title - typed or printed 9-8-98 - ------------------------- Date AT&T CORP. AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 17 of 22 /s/ William F. Condon - ------------------------------- Signature William F. Condon - ------------------------------- Name - typed or printed Manager -- Supplier Management Division - --------------------------------------- Title - typed or printed 8/25/98 - ------------------------------- Date AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 18 of 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXHIBIT A *******Service Description and **** Product Description and Configuration 1.0 ******Service Description ************************************************************************** ************************************************************************** ************************************************************************** ****************************************** 2.0 Product Configuration ************************************************************************** - ******************************** - ******************************************************* - ***************************************** - *********************************************************** - *************************************************************** - ***************************************************** - ******************************************************************** ********************* ********************************************************************** AT&T Proprietary (Restricted) Solely for Those Persons With a Need to Know. Use Pursuant to Company Instructions. 8/24/98 Contract No. LH0827D Page 19 of 22 Confidential material omitted and filed separately with the Commission. Asterisks denote such omissions. NSAP NODE TELCO CABINET CONFIGURATION TO SUPPORT THE MANAGED SERVICE ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ***************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS WITH A NEED TO KNOW. USE PURSUANT TO COMPANY INSTRUCTIONS. 8/24/98 Contract No. LH0827D Page 20 of 22 Confidential material omitted and filed separately with the Commission. Asterisks denote such omissions. NSAP NODE APPLICATION PROCESSING UNIT (APU) CABINET CONFIGURATION TO SUPPORT THE MANAGED SERVICE ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ***************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS WITH A NEED TO KNOW. USE PURSUANT TO COMPANY INSTRUCTIONS. 8/24/98 Contract No. LH0827D Page 21 of 22 Confidential material omitted and filed separately with the Commission. Asterisks denote such omissions. EXHIBIT B NETWORK CONNECTIVITY TO NSAP FOR THE MANAGED SERVICE ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ***************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS WITH A NEED TO KNOW. USE PURSUANT TO COMPANY INSTRUCTIONS. 8/24/98 Contract No. LH0827D Page 22 of 22 Confidential material omitted and filed separately with the Commission. Asterisks denote such omissions. EXHIBIT C CALCULATION FOR LIQUIDATED DAMAGES ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ***************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS WITH A NEED TO KNOW. USE PURSUANT TO COMPANY INSTRUCTIONS. 8/24/98 Contract No. LH0827D Page 23 of 22 Confidential material omitted and filed separately with the Commission. Asterisks denote such omissions. EXHIBIT D MANAGED SERVICE CONFIDENCE SUITE ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ********************************************************************* ***************************************** AT&T PROPRIETARY (RESTRICTED) SOLELY FOR THOSE PERSONS WITH A NEED TO KNOW. USE PURSUANT TO COMPANY INSTRUCTIONS. EX-10.27 4 EXHIBIT 10.27 AMENDED AND RESTATED CREDIT AGREEMENT NationsBank, N.A. Date: As of December 9, 1998 390 N. Orange Avenue; Suite 700 Orlando, Florida 32801 RE: BRITE VOICE SYSTEMS, INC., a Kansas Corporation ("Borrower") THIS AMENDED AND RESTATED CREDIT AGREEMENT ("AGREEMENT") IS BEING EXECUTED AND DELIVERED BY BORROWER TO REPLACE AND SUPERSEDE, IN ITS ENTIRETY, THAT CERTAIN BUSINESS LOAN AGREEMENT, DATED JULY 28, 1997 AND EXECUTED BY AND BETWEEN BORROWER AND BARNETT BANK, N.A. (THE "PRIOR LOAN AGREEMENT"). THE PRIOR LOAN AGREEMENT SHALL HAVE NO FURTHER FORCE AND EFFECT, AND THE TERMS AND CONDITIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL THE TERMS OF THE LOAN DESCRIBED HEREIN. In consideration of NationsBank, N.A., a national banking association, successor by merger to Barnett Bank, N.A. ("Bank"), making an unsecured loan of TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) to Borrower (the "Loan"), as evidenced by that certain Amended and Restated Revolving Promissory Note dated as of December 9, 1998 (the "Note"), Borrower agrees as follows: 1. THE LOAN. a. AMOUNT AND TERM. From the date hereof until November 30, 2001 (the "Loan Term") and subject to the terms and conditions of this Agreement, Bank will lend to Borrower and Borrower will borrow from Bank certain funds, on a revolving credit basis, up to the principal amount of the Loan. b. EVIDENCE OF INDEBTEDNESS. The obligation of Borrower to repay the Loan is evidenced by the Note, this Agreement and other loan documents, along with any written modifications thereof as may be approved by Bank from time to time. The Note shall evidence cash advances and the issuance of Letters of Credit. Principal and interest on the Loan shall be due and payable as set forth in the Note. c. CASH ADVANCES. i. MAXIMUM AMOUNT AVAILABLE. During the Loan Term, Borrower may borrow, repay and reborrow funds under the Note, at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of the Loan LESS the face amount of any outstanding Letters of Credit issued by Bank pursuant to Section 1(d) below. Bank's records of amounts borrowed and face amounts of outstanding Letters of Credit shall be conclusive proof thereof. ii. CONDITIONS TO FIRST ADVANCE. Bank may, but shall not be required to, make any advances to Borrower under the Loan until Bank has received the following documentation in form acceptable to Bank and its counsel: (1) the Note, this Agreement, the Negative Pledge Agreement (as defined below) and documents related thereto, the Guaranties (as defined below), and any other documents and instruments necessary or advisable in connection with the Loan duly executed by Borrower (the "Loan Documents"); (2) written opinion of Borrower's and Guarantors' counsel as to the validity and enforceability of the Loan Documents and such other matters as Bank may reasonably require; and (3) such other financial or other information as Bank may reasonably require. iii. CONDITIONS TO EACH ADVANCE. Bank may, but shall not be required to, make any additional advances to Borrower under the Loan unless and until Bank has determined that: (1) the conditions listed in Section 1(c)(ii) above have been met; (2) no Event of Default or Default under the Loan has occurred; (3) the representations and warranties contained in the Loan Documents shall be true and accurate as of the date of such advance; (4) no material adverse change in the financial condition of Borrower or any Guarantor has occurred; and (5) the prospect of payment or performance of the Loan has not been materially impaired. d. LETTERS OF CREDIT. Bank shall, from time to time during the Loan Term, issue Letters of Credit on behalf of Borrower in accordance with the terms, conditions and limitations of this Section 1(d). If requested by Borrower, Bank shall issue a Letter of Credit and/or Letters of Credit provided that: (i) Borrower submits to Bank Bank's standard form of letter of credit application and agreement, and such other documents as Bank may require; (ii) no Event of Default or Default under the Loan has occurred; (iii) the aggregate face amount of all issued and outstanding Letters of Credit do not and will not exceed TWO MILLION AND NO/100 DOLLARS ($2,000,000.00); and (iv) the aggregate outstanding principal balance of all advances under the Loan PLUS the face amount of all issued and outstanding Letters of Credit do not and will not exceed the principal amount of the Loan. Bank shall have no liability to Borrower for its refusal to issue Letters of Credit based upon a determination that any conditions of such issuance have not been met. Any Letter of Credit issued hereunder shall have a term no greater than twelve (12) months from the date of issuance, and may expire later than the expiration of the Loan Term. e. PAYMENT OF LETTERS OF CREDIT IF DRAWN UPON. If a Letter of Credit is drawn upon, all such funds shall be immediately due and payable, in full. If such drawn funds are not fully paid when due, the outstanding balance of such funds shall bear interest at the Default Rate provided in the Note. - 2 - f. APPLICATION OF PAYMENTS. The application of all payments received on the Loan shall be determined by Bank, and if not otherwise determined shall be applied first to costs, expenses, and fees hereunder, next to interest to the extent then accrued, and then to principal. g. FEES. i. COMMITMENT FEE. On a quarterly basis, commencing on March 9, 1999, and continuing for each quarter thereafter until the Loan is paid in full, Borrower shall pay Bank an unused commitment fee in the amount of one tenth percent (0.10%) of the difference between the maximum principal amount of the Loan and the average principal amount outstanding under the Loan for the preceding calendar quarter. ii. LETTER OF CREDIT ISSUANCE FEE. A fee equal to one-half percent (0.50%) of the face amount of the Letter of Credit shall be due and payable by Borrower to Bank simultaneously with the issuance and/or renewal of each Letter of Credit. Borrower shall also pay all reasonable, standard and customary fees or expenses charged or incurred by Bank when issuing a Letter of Credit. 2. USE OF LOAN PROCEEDS. The proceeds of the Loan will be used by Borrower only for the purpose or purposes of general business and working capital needs and to purchase outstanding shares of Borrower. 3. NEGATIVE PLEDGE AGREEMENT. In consideration of the Loan, Borrower hereby agrees to execute a Negative Pledge Agreement in form and content as set forth in EXHIBIT A attached hereto and incorporated herein by this reference (the "Negative Pledge"). Borrower further agrees to pay all documentary stamp and intangible taxes that may be associated with the creation or recordation of the Negative Pledge, as well as all costs to record the Negative Pledge in the counties and file it in the personal property records when and where Bank deems appropriate. 4. GUARANTY. The Loan shall be guarantied by the following subsidiaries of Borrower (each a "Guarantor" and collectively, "Guarantors"): (a) Brite Voice Systems Group, Limited (United Kingdom); and (b) BVSI, Inc. (Wilmington, DE). Each Guarantor shall execute and deliver a guaranty agreement in form and content acceptable to Bank. The guaranty to be provided from Brite Voice Systems Group, Limited, may be delivered within thirty (30) days from the date hereof. Any newly created or acquired U.S. based subsidiaries must promptly execute guaranties of the Loan, and if the sale of Borrower's TSL Division does not close by March 31,1999, then TSL Services, Inc. and BVS Invesco, Inc. shall execute and deliver to Bank, on or before April 15, 1999, guaranty agreements guarantying the Loan. - 3 - 5. REPRESENTATIONS AND WARRANTIES. To induce Bank to make the Loan, Borrower makes the following representations and warranties, which shall survive the execution and delivery of the Note: a. FINANCIAL CONDITION. The financial information furnished to Bank in connection with its application for the Loan and in the financial statements submitted to Bank is complete and accurate and Borrower has no undisclosed direct or contingent liabilities. There has been no material adverse change in the operations or the financial condition of Borrower since September 30, 1998. b. ORGANIZATION AND AUTHORITY. Borrower is duly organized, existing and in good standing under the laws of the State of Kansas, is qualified to do business in the State of Florida, has corporate power to carry on the business in which it is engaged, and the obtaining and performance of the Loan have been duly authorized by all necessary action of the board of directors and shareholders of Borrower under applicable law, and do not and will not (i) violate any provision of law or any of its organizational or other organic documents, or (ii) result in a breach of, constitute a default under, require any consent under, or result in the creation of any lien, charge, or encumbrance upon any property of Borrower pursuant to any instrument, order, or other agreement to which Borrower is a party or by which Borrower, any of its officers as such, or any of its property is bound. c. OWNERSHIP OF ASSETS; NO LITIGATION OR LIENS. Borrower has good, marketable title to all the assets reflected on the financial statements submitted to Bank, and such assets are free and clear of all liens, charges and encumbrances except as shown on such financial statements. There are no actions, proceedings investigations, judgments, liens, encumbrances, or other security interests outstanding against Borrower or any of its property other than those disclosed to Bank in connection with its request for the Loan. d. LIABILITIES. Borrower has not incurred any debts, liabilities, or obligations and has not committed itself to incur any debts, liabilities, or obligations other than those disclosed to Bank in connection with its request for the Loan or shown on the financial statements submitted to Bank. e. PAYMENT OF TAXES. Borrower has filed all federal and state tax returns which are required to be filed, and has paid all taxes as shown on the returns and on all assessments received by it to the extent that the taxes have become due. f. PRINCIPAL PLACES OF BUSINESS. Borrower's principal place of business in Kansas is located at 9229 East 37th Street N., Wichita, Kansas 67726-2001. Borrower's principal place of business in Florida is located at 250 International Parkway, Suite 300, Heathrow, Florida 32746. g. COMPLIANCE WITH ENVIRONMENTAL LAWS. Borrower and the property owned by Borrower (the "Property") are in full compliance with all Environmental - 4 - Laws (as hereinafter defined), and there are no civil, criminal or administrative actions, suits, demands, claims, hearings, notices or demand letters, notices of violation, investigations, or proceedings pending or threatened against Borrower or the Property relating in any way to any Environmental Law or any agreement, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved under any Environmental Law. No notice or advice has been received by Borrower of any condition or state of facts that would be contributing to a claim of pollution or any other damage to the environment by reason of the conduct of any business on the Property or operation of the Property, whether past or present. As used in this Agreement, the term "Environmental Law" shall mean any federal, state or local law, statute, ordinance, code, rule, regulation, license, authorization, decision, order, injunction, decree, or rule of common law, and any judicial or agency interpretation of any of the foregoing, which pertains to health, safety, any Hazardous Material (as hereinafter defined), or the environment (including but not limited to ground or air or water or noise pollution or contamination, and underground or above ground tanks) and shall include without limitation, the Solid Waste Disposal Act, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; the Florida Resource Recovery and Management Act, the Water Quality Assurance Act of 1983, The Florida Resource Conversation and Recovery Act, the Florida Air and Water Pollution Control Act, The Florida Safe Drinking Water Act, The Pollution Spill Prevention and Control Act and any other local, state or federal environmental statutes, and all rules, regulations, orders and decree now or hereafter promulgated under any of the foregoing, as any of the foregoing now exist or may be changed or amended or come into effect in the future. For purposes of this Agreement, "Hazardous Materials" shall include, without limitation, asbestos, polychlorinated biphynals, petroleum products, any flammable explosives, radioactive materials, hazardous materials, hazardous waste, hazardous or toxic substance or similar term defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (42 USC Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 USC Section 1801, et seq.), the Resource Conservation and Recovery Act, as amended ("RCRA") (42 USC Section 6901, et seq.), the Toxic Substances Control Act, a amended (15 USC Section 2601, et seq.) or in the regulations adopted and publications promulgated pursuant thereto or defined in any other present or future federal, state or local governmental law, ordinance, rule or regulation relating in whole or in part to environmental regulation. h. YEAR 2000 COMPLIANCE. Borrower has: (i) initiated a review and assessment of all areas within the business and operations of Borrower and each of its respective affiliates, subsidiaries and other related entities (the "Related Entities"), including those areas affected by suppliers and vendors, that could be adversely affected - 5 - by the "Year 2000 Problem" (that is, the risk that computer applications used by Borrower or any of its respective Related Entities or its respective suppliers and vendors may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and after December 31, 1999); (ii) developed a plan and a timetable for addressing the Year 2000 Problem on a timely basis; and (iii) to date, implemented that plan in accordance with that timetable. Borrower reasonably believes that all computer applications (including those of their suppliers and vendors) that are material to the business and operations of Borrower or any of its Related Entities will, on a timely basis, be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, operations, creditworthiness or financial status of Borrower or any of its Related Entities. i. EMPLOYEE BENEFIT PLANS. No employee benefit plan established or maintained, or to which contributions have been made, by Borrower which is subject to Part 3 of Subtitle 13 of Title 1 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), had an "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, or would have had such an accumulated funding deficiency on such day if such year were the first year of such plan to which such Part 3 applied; and no material liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any such plan by Borrower. j. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Bank, without independent investigation, is relying upon the above representations and warranties in extending advances to Borrower under the Loan. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as the Loan shall be paid in full, or until this Agreement shall be terminated in the manner provided herein, whichever is the last to occur. 6. AFFIRMATIVE COVENANTS. Borrower will: a. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and qualification to do business where required, and preserve and keep in force all licenses, permits, and franchises necessary for the proper conduct of its business, and comply with all laws, regulations and governmental requirements including, without limitation, Environmental Laws applicable to it or to any of its property, business operations and transactions. b. TAXES. Duly pay and discharge all taxes, assessments, and governmental charges upon Borrower or against Borrower's property before the date on which penalties attach thereto, unless and to the extent only that the same shall be contested in good faith and by appropriate proceedings. - 6 - c. FINANCIAL STATEMENTS AND SEC FILINGS. Furnish to Bank: (i) immediately upon filing, copies of all SEC filings, including Borrower's 10K and 10Qs; (ii) annually, a copy of the CPA Management Letter that Borrower's certified public accountant addresses to Borrower and Borrower's response thereto; and (iii) such other information respecting the financial condition and operations of Borrower as Bank may from time to time reasonably request. At or before the time of furnishing the annual report of audit and each quarterly report, Borrower shall provide to Bank a compliance certificate containing a calculation of each of the financial ratio covenants with which Borrower must comply and a non-default statement signed by Borrower's certified public accountant, as to each annual report, or Borrower's Chief Financial Officer, as to each quarterly report. d. INSURANCE. Maintain with financially sound and reputable insurance companies insurance of the kinds, covering the risks, and in the amounts usually carried by companies engaged in businesses similar to that of Borrower and which provide that Notice will be sent to Bank thirty (30) days prior to cancellation thereof. Borrower will also exhibit or deliver such policies of insurance to Bank upon request by Bank. e. CONTINGENT LIABILITIES. Borrower shall immediately notify Bank if it obtains knowledge of the existence of contingent liabilities of Borrower that exceed $1,000,000.00 in the aggregate for any fiscal year. For the purposes hereof, "contingent liabilities" shall mean actual or potential liabilities that would be required to be disclosed in accordance with GAAP. f. INSPECTION OF BOOKS AND RECORDS. Permit any representative or agent of Bank to examine and audit any or all of Borrower's books and records when requested by Bank. g. NOTICE OF ADVERSE CHANGE, LITIGATION AND ENVIRONMENTAL CLAIMS. Inform Bank immediately of any material adverse change in the financial condition of Borrower. Borrower will also promptly inform Bank of any litigation, threatened litigation, or any notice of a claim that it may not be in compliance with any Environmental Law, which might substantially affect Borrower's financial condition. h. MAINTENANCE OF PROPERTY. Maintain Borrower's property and equipment in a state of good repair. i. FINANCIAL COVENANTS: Maintain the following financial ratios and covenants: i. DEFINITIONS: The following terms shall have the meanings set forth below: (1) "Capital Expenditures" shall mean, for the period under consideration, Borrower's ending net fixed assets LESS Borrower's beginning net fixed assets PLUS depreciation expense, - 7 - LESS any gains on the sale of fixed assets PLUS any losses on the sale of fixed assets. (2) "EBITDA" shall mean Borrower's consolidated net income before interest, taxes, depreciation and amortization. (3) "Total Capitalization" shall mean the sum of Total Funded Debt and book net worth. (4) "Total Funded Debt" shall mean the sum of all indebtedness for money borrowed, purchase money mortgages, capitalized leases, outstandings under asset securitization vehicles, conditional sales contracts and similar title retention debt instruments, including any current maturities of such indebtedness, and shall include all Funded Debt of Borrower and its Related Entities, PLUS all Funded Debt of other entities or persons which have been guaranteed by Borrower or any subsidiary or which is supported by a letter of credit issued for the account of Borrower or any Related Entities, PLUS the redemption amount with respect to any redeemable preferred stock of Borrower or its Related Entities required to be redeemed within the next twelve months from the date of this Agreement. (5) Unless defined otherwise herein, all terms noted herein shall have the meaning accorded to them under Generally Accepted Accounting Principals ("GAAP"). ii. The ratio of Total Funded Debt to EBITDA (calculated on a trailing four quarter basis) shall not exceed 2.0:1.0 iii. (EBITDA LESS Capital Expenditures) DIVIDED BY (interest expense PLUS scheduled maturities of long term debt and capitalized leases PLUS dividends) shall be no less than 2.0:1.0. iv. Total Funded Debt to Total Capitalization shall not exceed 0.40:1.0. v. Borrower shall maintain a minimum net worth at all times during the term of this Agreement as follows: not less than $75,000,000.00 initially, which amount shall increase each quarter in an amount equal to 85% of net income (with no adjustment for losses and excluding any comprehensive income gains/losses, including foreign exchange transactions) PLUS 100% of the proceeds from stock issuances. j. YEAR 2000 COMPLIANCE. Borrower will promptly notify Bank in the event Borrower discovers or determines that any computer application (including those - 8 - of its suppliers and vendors) that is material to the business and operations of Borrower or any of its affiliates, subsidiaries, or Related Entities will not be Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a material adverse effect on the business, operations, creditworthiness or financial status of Borrower or any of its Related Entities. 7. NEGATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, and without limiting any other requirement of the Loan Documents, Borrower will not, without prior written consent of Bank: a. INDEBTEDNESS AND OBLIGATIONS. Create, incur, assume or become liable in any manner for ANY indebtedness for borrowed money or contingent liability, other than to Bank, except for existing indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. For the purposes hereof, the sale or assignment of accounts receivable, the deferred payment for the purchase of assets (but excluding accounts payable incurred in the normal course of business) and the execution of agreements which would be classified as capitalized leases pursuant to GAAP shall constitute incurring indebtedness for borrowed money, and the execution of any guaranty agreement or letter of credit agreement shall constitute the incurrence of a contingent liability. b. LIENS. Assign, mortgage, pledge, encumber, or grant, suffer or permit any contractual or non-contractual lien or security interest in its assets, whether now owned or hereafter acquired, EXCEPT those statutory liens incurred in the ordinary course of Borrower's business and liens in favor of Bank, or fail to promptly pay when due all lawful claims, whether for labor, materials or otherwise. c. MERGERS OR ACQUISITIONS. Enter into any mergers, consolidations, or acquisitions UNLESS viewing each on a pro-forma basis: (i) Borrower would not be in violation of any of the covenants set forth in this Agreement or otherwise be in default under the Loan; and (ii) Borrower would be the surviving or parent entity. d. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise dispose of or transfer any of its assets, EXCEPT in the ordinary course of its business and except as between or to its subsidiaries, whether now owned or hereafter acquired. Notwithstanding the foregoing, the sale of Borrower's TSL division shall be permitted. e. INVESTMENTS/EXTENSIONS OF CREDIT. Make any investments EXCEPT investments in United States Government obligations, provided that Borrower may make transfers to, or, investments in non U.S. based subsidiaries, and/or in joint ventures with third parties, and may loan money or credit to individuals, corporations, partnerships or other entities, provided such loans, investments and transfers to not exceed TWO MILLION AND NO/100 DOLLARS ($2,000,000.00), in the aggregate, during - 9 - any fiscal year. The foregoing provision shall not prohibit Borrower from using Loan proceeds to purchase outstanding shares of Borrower. f. CHARACTER AND OPERATION OF BUSINESS. Change the general character of its business as conducted on the date of this Agreement, or engage in any type of business that is not reasonably related to its business as presently conducted. Borrower will not change its name or any name in which it does business; or move its principal place of business without giving written notice thereof to Bank at least thirty (30) days prior thereto. 8. EVENTS OF DEFAULT. Bank shall have the option to declare the entire unpaid amount of the Loan and accrued interest immediately due and payable, without presentment, demand, or notice of any kind, if any of the following events occur before the Loan is fully repaid: a. Any payment of principal or interest on the Loan is not made when due. b. Any provision of this Agreement is breached or proves to be untrue or misleading in any material respect. c. Any warranty, representation, or statement made or furnished to Bank by Borrower in connection with the Loan and this Agreement (including any warranty, representation, or statement in Borrower's financial statements) or to induce Bank to make the Loan, is untrue or misleading in any material respect. d. Any default occurs under any agreement with another financial institution, which default is not corrected within the cure period provided in such agreement, if any. e. Any voluntary or involuntary bankruptcy, reorganization, insolvency, arrangement, receivership, or similar proceeding is commenced by or against Borrower under any federal or state law, or Borrower makes any assignment for the benefit of creditors. f. Any substantial part of the inventory, equipment, or other property of Borrower, real or personal, tangible or intangible, is damaged or destroyed and the damage or destruction is not covered by collectible insurance. g. Borrower defaults in the payment of any principal or interest on any obligation to Bank or any other creditor. h. Borrower suffers or permits any lien, encumbrance, or security interest to arise or attach to any of the Borrower's property, or any judgment is entered against Borrower that is not satisfied or appealed within thirty days. - 10 - i. The failure to deliver the guaranty from Brite Voice Systems, Limited in accordance with Section 4 hereof. 9. REMEDIES UPON DEFAULT. Upon the occurrence, or the discovery by Bank of the occurrence, of any of the foregoing events, circumstances, or conditions of default, Bank shall have, in addition to its option to declare the entire unpaid amount of the Loan and accrued interest thereon immediately due and payable, all of the rights and remedies under applicable State law. Without in any way limiting the generality of the foregoing, Bank shall also have the following specific rights and remedies: a. To exercise any and all rights of set-off which Bank may have against any account, fund, or property of any kind, tangible or intangible, belonging to Borrower which shall be in Bank's possession or under its control. b. To cure such defaults, with the result that all costs and expenses incurred or paid by Bank in effecting such cure shall be additional charges on the Loan which bear interest at the interest rate of the Loan and are payable upon demand. 10. WAIVER; MODIFICATION. No failure or delay on the part of Bank in exercising any power or right hereunder, and no failure of Bank to give Borrower notice of a default hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. No modification or waiver of any provision of this Agreement or any instrument executed pursuant hereto or consent to any departure by Borrower from this Agreement or such instrument shall in any event be effective unless the same shall be in writing, and such waiver or consent shall be effective only in the specific instance and for the particular purpose for which given. 11. BENEFIT; ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of Borrower and Bank and their respective successors and assigns. Bank may assign this Agreement in whole or in part with any assignment of the Loan. Borrower may not assign this Agreement or its obligations under the Loan without Bank's prior written consent. 12. CONSTRUCTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, and, subject to the requirements of Section 13 hereof, any litigation arising out of or relating to this Agreement or the Loan shall be commenced and conducted in the courts of the State of Florida or in the federal courts located in the State of Florida. 13. MANDATORY ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING - 11 - ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. a. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN ORANGE COUNTY, FLORIDA AND ADMINISTERED BY ENDISPUTE, INC., D/B/A J.A.M.S./ENDISPUTE, WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S./ENDISPUTE IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. b. RESERVATIONS OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO: (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (ii) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION, FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. - 12 - BRITE VOICE SYSTEMS, INC, WITNESSES A KANSAS CORPORATION /s/ Gaylyn K. McGregor By: /s/ Stanley G. Brannan - ------------------------------ ------------------------------ Name: Stanley G. Brannan ---------------------------- Title: President - ------------------------------ ---------------------------- CORPORATE SEAL ACCEPTED: NATIONSBANK, N.A., A NATIONAL BANKING ASSOCIATION, SUCCESSOR BY MERGER TO BARNETT BANK, N.A. /S/ Misty R. Lawson By: Gaylyn K. McGregor - ------------------------------ ------------------------------ Name: /s/ Gaylyn K. McGregor ---------------------------- Title: Vice President - ------------------------------ ---------------------------- - 13 - AMENDED AND RESTATED REVOLVING PROMISSORY NOTE DATE: AS OF DECEMBER 9, 1998 / / NEW /X/ RENEWAL - THIS NOTE IS A RENEWAL OF NOTE #3229452-026 & 034 AMOUNT: $25,000,000.00 MATURITY DATE: NOVEMBER 30, 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ BANK: BORROWER: NATIONSBANK, N.A, A NATIONAL BANKING ASSOCIATION, SUCCESSOR TO BRITE VOICE SYSTEMS, INC., A KANSAS CORPORATION BARNETT BANK, N.A. 250 International Parkway; Suite 300 Heathrow, Seminole County, Florida 32746 Banking Center: 390 N. Orange Avenue; Suite 700 Orlando, Orange County, Florida 32801 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises to pay to the order of Bank, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note, or at such other place as may be designated by Bank, the principal amount of TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or so much thereof as may be advanced from time to time, in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below. 1. AMENDED AND RESTATED NOTE. This Amended and Restated Revolving Promissory Note ("Note") is given in renewal of that that certain Promissory Note, dated July 28, 1997 and executed by Borrower to and in favor or Barnett Bank, N.A., in the original principal amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (the "Original Note"). It is the intention of Borrower and Bank that this Note shall not extinguish the Original Note; however, the indebtedness represented by the Original Note will be paid in accordance with the terms and conditions provided herein. This Note is also given to enlarge the outstanding principal balance of the Original Note to TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) and to amend and restate certain other provisions of the Original Note. 2. RATE. The outstanding principal balance of this Note shall bear interest at a fixed interest rate per annum equal to the Fixed Adjusted LIBOR Rate (as defined below), plus seventy-five (75) basis points (0.75%) (the "Fixed Rate"). The Fixed Adjusted LIBOR Rate shall be fixed at the beginning of each Interest Period (as defined below). Each Interest Period shall begin on the first (1st) Business Day (as defined below) of each calendar month. As used herein, the following terms shall have the respective meanings set forth below: a. "BUSINESS DAY" means a banking day which shall be a day on which Bank is open for the transaction of domestic and foreign exchange business in both Fort Lauderdale, Florida and Charlotte, North Carolina and on which the London Interbank Market is open for the transaction of foreign exchange business, excluding any national holidays, and any performance which would otherwise be required on a day other than a banking day shall be timely performed in such instance, if performed on the next succeeding banking day. b. "FIXED ADJUSTED LIBOR RATE" means a rate per annum equal to the sum of (a) the quotient of (i) the LIBOR Rate (as hereinafter defined), divided by (ii) the remainder of 1.00 minus the LIBOR Reserve Requirement (as hereinafter defined), plus (b) the net assessment rate (expressed as a percentage rounded to the next highest .01 of 1%) which is in effect on such day [under the regulations of the Federal Deposit Insurance Corporation ("FDIC") or its successor] for determining the assessments paid by Bank to the FDIC for insuring time deposits made in dollars at Bank's principal offices in Tampa, Florida. The computation of the Fixed Adjusted LIBOR Rate shall include adjustments in respect of impositions or assessments on Bank for FDIC insurance or other insurance or other fees, reserves, assessments and surcharges which occur for insuring time deposits or because of the sale of a related deposit. c. "INTEREST PERIOD" means the time period during which the Fixed Rate (as such term is defined in the first paragraph of this Section 2) shall apply, which time period shall be a thirty (30) day period and shall begin on the first (1st) Business Day of each calendar month. d. "LIBOR RATE" means the rate of interest per annum equal to the interest settlement rate for U.S. Dollars as published by the British Bankers Association as of 11:00 a.m. London time two (2) Business Days before the first day of the Interest Period and for a period comparable to the applicable Interest Period. e. "LIBOR RESERVE REQUIREMENT" means on any day, that percentage (expressed as a decimal fraction) which is in effect on such date, as provided by the Federal Reserve System for determining the maximum reserve requirements generally applicable to financial institutions regulated by the Federal Reserve Board (including, without limitation, basic supplemental, marginal and emergency reserves) under Regulation D with respect to "Eurocurrency liabilities" as currently defined by Regulation D, or under any similar or successor regulation with respect to Eurocurrency liabilities or Eurocurrency funding (or other category of liabilities which includes deposits by reference to which the interest rate is determined or any category or extensions of credit which includes loans by a non-United States office of Bank to United States residents). Each determination by Bank of the LIBOR Reserve Requirement, shall, in the absence of manifest error, be conclusive and binding. Notwithstanding any provision of this Note, Bank does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by the applicable law of the State of Florida; if any higher rate ceiling is lawful, then that higher rate ceiling shall apply. Any payment in excess of such maximum shall be refunded to Borrower or credited against principal, at the option of Bank. 3. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth above will be calculated by the 365/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder). 4. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will change, unless otherwise provided, each time and as of the date that the index or base rate changes. In the event any index is discontinued, Bank shall substitute an index determined by Bank to be comparable, in its sole discretion. 5. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Bank shall determine at its option. SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single payment on November 30, 2001. Interest thereon shall be paid monthly, commencing on January 28, 1999, and continuing on the same day of each successive month thereafter, with a final payment of all unpaid interest at the stated maturity of this Note. 6. REVOLVING FEATURE. Borrower may borrow, repay and reborrow hereunder at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided that Borrower is not in default under any provision of this Note, any other Loan Documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Borrower to Bank, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Borrower and are in accordance with the terms of the Loan Documents. Bank shall incur no liability for its refusal to advance funds based upon its determination that any conditions of such further advances have not been met. Bank records of the amounts borrowed from time to time shall be conclusive proof thereof. 7. AUTOMATIC PAYMENT. Borrower has elected to authorize Bank to effect payment of sums due under this Note by means of debiting Borrower's account number 2835559595. This authorization shall not affect the obligation of Borrower to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if Bank fails to debit the account. - 2 - 8. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor hereof, or any other party hereto (individually an "Obligor" and collectively "Obligors") and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Bank, including without limitation the Amended and Restated Credit Agreement (the "Loan Documents"); (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Bank of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Bank, or any indulgence shown by Bank (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Bank's rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorneys' and paralegals' fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable. 9. INDEMNIFICATION. Obligors agree to promptly pay, indemnify and hold Bank harmless from all State and Federal taxes of any kind and other liabilities with respect to or resulting from the execution and/or delivery of this Note or any advances made pursuant to this Note. 10. PREPAYMENTS. This Note may be prepaid in whole or in part at any time. All prepayments of principal shall be applied in the inverse order of maturity, or in such other order as Bank shall determine in its sole discretion. 11. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge may be imposed in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late. 12. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation, whether under this Note or any Loan Documents, as and when due (whether upon demand, at maturity or by acceleration); (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to any other party; (c) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity; (d) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor; (e) the determination by Bank that any representation or warranty made to Bank by any Obligor in any Loan Documents or otherwise is or was, when it was made, untrue or materially misleading; (f) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Bank shall request from time to time; (g) the entry of a judgment against any Obligor which Bank deems to be of a material nature, in Bank's sole discretion; (h) the seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of any Obligor; (i) the determination by Bank that a material adverse change has occurred in the financial condition of any Obligor; or (j) the failure of Borrower's business to comply with any law or regulation controlling its operation. 13. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Bank (however acquired or evidenced) shall, at the option of Bank, become immediately due and payable and any obligation of Bank to permit further borrowing under this Note shall immediately cease and terminate, and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Bank's discretion up to the maximum rate allowed by law, or if none, 25% per annum (the "Default Rate"). The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a "grace period" - 3 - giving Obligors a right to cure any default. At Bank's option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon a default under this Note, Bank is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Bank or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Bank shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity. Any judgment rendered on this Note shall bear interest at the highest rate of interest permitted pursuant to Chapter 687, Florida Statutes. 14. NON-WAIVER. The failure at any time of Bank to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Bank shall be cumulative and may be pursued singly, successively or together, at the option of Bank. The acceptance by Bank of any partial payment shall not constitute a waiver of any default or of any of Bank's rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Bank unless the same shall be in writing, duly signed on behalf of Bank; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Obligors to Bank in any other respect at any other time. 15. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and obligations of Borrower and Bank shall be governed by and interpreted in accordance with the law of the State of Florida. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Florida or the United States located within the State of Florida and expressly waive any objections as to venue in any such courts. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law. The interest rate charged on this Note is authorized by Chapter 655, Florida Statutes and Section 687.12, Florida Statutes. 16. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. 17. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Bank and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Bank. 18. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue. 19. DOCUMENTARY STAMP AND INTANGIBLE TAXES. This Note is not secured by Florida real property and will be executed and delivered outside the State of Florida. Therefore, this Note is not subject to State of Florida Documentary Stamp or Intangible Taxes. 20. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF - 4 - ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. a. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. b. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (ii) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. Borrower represents to Bank that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note and hereby executes this Note under seal as of the date here above written. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. - 5 - EXECUTION DATE: December 9, 1998 BORROWER: BRITE VOICE SYSTEMS, INC., A KANSAS CORPORATION By: /s/ Stanley G. Brannan (Seal) -------------------------------- STANLEY G. BRANNAN, President [Corporate Seal] STATE OF KANSAS COUNTY OF SEDGWICK The foregoing instrument was acknowledged before me on December 9th, 1998, by STANLEY G. BRANNAN, as President of BRITE VOICE SYSTEMS, INC., a Kansas corporation, on behalf of the corporation. He is personally known to me or has produced _____________________________ as identification. /s/ Misty R. Lawson --------------------------------------- Notary Public in and for the State of Kansas ------------------------------ Misty R. Lawson --------------------------------------- Print Name of Notary My Commission Expires 10-12-99 ----------------- - 6 - THIS INSTRUMENT PREPARED BY AND SHOULD BE RETURNED TO: Cindy L. Rodgers, Esq. FOLEY & LARDNER 111 North Orange Avenue, Suite 1800 Post Office Box 2193 Orlando, FL 32802-2193 (407) 423-7656 FOR RECORDING PURPOSES ONLY NEGATIVE PLEDGE AGREEMENT THIS NEGATIVE PLEDGE AGREEMENT dated as of December 9, 1998, by and between NATIONSBANK, N.A. ("Bank") whose mailing address is 390 North Orange Avenue, 7th Floor, Orlando, Florida 32801 and BRITE VOICE SYSTEMS, INC., a Kansas corporation ("Borrower"), whose address is 250 International Parkway, Suite 300, Heathrow, Florida 32746. WITNESSETH: WHEREAS, Borrower desires to modify and increase the principal amount of an existing loan from Bank to Borrower, dated as of even date herewith (together with all extensions and renewals thereof hereafter referred to as the "Loan"), in order to finance its working capital needs; and WHEREAS, Bank is willing to modify and increase the Loan provided Borrower agrees not to encumber Borrower's real or personal property. NOW, THEREFORE, for and in consideration of the Loan made or to be made by Bank to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by both Borrower and Bank, the parties hereto do agree as follows: 1. PROPERTY Borrower hereby agrees that, for so long as any part of the Loan remains outstanding, that it will not, without first obtaining the prior written consent of Bank, create or permit any lien, encumbrance, charge, or security interest of any kind to exist on: Any real or personal property now owned or hereinafter acquired by Borrower (the "Property"), nor will Borrower transfer, sell, assign or in any manner dispose of the Property or any interest therein (except for statutory liens incurred in the ordinary course of Borrower's business and easements, rights of way and similar rights granted in connection with the provision of utilities to the Property or in connection with any construction on the Property). 2. RECORDING. Bank is hereby authorized and permitted to cause this instrument, and notice hereof, to be recorded and filed at such times and at such places as Bank, at its option, may elect. 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and warrants to Bank as follows: (i) Borrower is a corporation duly organized and validly existing and in good standing under the laws of the State of Kansas and has all requisite power and authority to enter into this Agreement. (ii) The execution and delivery by Borrower of this Agreement and the performance of the respective obligations hereunder and thereunder have been duly authorized. This Agreement constitutes the legal valid and binding obligation of Borrower enforceable in accordance with their terms. The execution and delivery of this Agreement and the compliance with the provisions thereof will not conflict with or constitute a breach of, or default under, any of the provisions of any other agreement to which the Borrower is a party. (iii) The continued validity in all respects of the aforesaid representations and warranties shall be a condition precedent to Bank's obligation to fund the Loan. If any of the representations and warranties shall not be correct at the time the same is made or at the time a request for an advance under the Loan is made, Bank will be under no obligation to make any such advance under the Loan. 4. DEFAULT. Any failure by Borrower to comply with the terms of this Agreement shall constitute an event of default under the documents evidencing the Loan and the Borrower agrees that in such event Bank shall have the right in addition to such other remedies as may be available to it, to injunctive relief enjoining such breach of this Agreement and neither Borrower, its officers, directors, employees, agents or representatives shall urge that such remedy is not appropriate under the circumstances, it being expressly acknowledged by Borrower that such action shall cause Bank irreparable damage for which legal remedies are inadequate to protect Bank. 5. TERMINATION. This Agreement shall remain in full force and effect until the Loan described above shall have been paid in full, or until sooner terminated by Bank. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. Signed, sealed and delivered in BRITE VOICE SYSTEMS, INC., :a Kansas the Presence of corporation /s/ W. T. Braun III By: /s/ Stanley G. Brannan - ----------------------------------- ----------------------------------- Print Name W. T. Braun III Stanley G. Brannan, President ------------------------ /S/ Gaylyn K. McGregor - ----------------------------------- Print Name Gaylyn K. McGregor ------------------------ Signed, sealed and delivered in the NATIONSBANK, N.A., a national banking Presence of association /S/ Misty R. Lawson By: /S/ Gaylyn K. McGregor - ----------------------------------- ----------------------------------- Print Name Misty R. Lawson Print Name: Gaylyn K. McGregor ------------------------ -------------------------- Title: Vice President - ----------------------------------- ------------------------------- Print Name ------------------------ STATE OF KANSAS COUNTY OF SEDGWICK) The foregoing instrument was acknowledged before me on December 9th, 1998, by STANLEY G. BRANNAN, as President of BRITE VOICE SYSTEMS, INC., a Kansas corporation, on behalf of the corporation. He is personally known to me or has produced _____________________________ as identification. /s/ Misty R. Lawson -------------------------------------- Notary Public in and for the State of Kansas ----------------------------- /S/ Misty R. Lawson -------------------------------------- Print Name of Notary My Commission Expires 10-12-99 ---------------- 3 STATE OF KANSAS COUNTY OF SEDGWICK) The foregoing instrument was acknowledged before me on December 9th, 1998, by Gaylyn McGregor, as Vice President of NATIONSBANK, N.A., a national banking association, on behalf of the bank. He is personally known to me or has produced _____________________________ as identification. /s/ Misty R. Lawson -------------------------------------- Notary Public in and for the State of Kansas ----------------------------- /S/ Misty R. Lawson -------------------------------------- Print Name of Notary My Commission Expires 10-12-99 ---------------- 4 TAX INDEMNITY AGREEMENT (FLORIDA EXCISE TAXES) THIS TAX INDEMNITY AGREEMENT (this "Agreement") is made and entered into this 9th day of December, 1998, by and among NATIONSBANK, N.A. (hereinafter referred to as "Bank") and BRITE VOICE SYSTEMS, INC., a Kansas corporation (hereinafter referred to as "Borrower"). W I T N E S S E T H: WHEREAS, Bank has agreed to modify a certain unsecured line of credit loan to Borrower increasing the line from Ten Million Dollars ($10,000,00.00) to TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) (the "Loan"); and WHEREAS, simultaneously with the execution of this Agreement, Borrower has executed various instruments related to the modification of the Loan including, but not limited to that certain Amended and Restated Revolving Promissory Note in the principal amount of the Loan (the "Note"); and WHEREAS, Bank and Borrower have each been advised by, or have had the opportunity to seek advice from, their own counsel with respect to whether the Note and/or the Loan are subject to Documentary Stamp Tax under Chapter 201 of the, Florida Statutes, as amended, and other applicable laws and regulations; and WHEREAS, Bank and Borrower have each been advised by, or have had the opportunity to seek advice from, their own counsel with respect to whether the Note and/or the Loan, are subject to intangible tax under Chapter 199 of the Florida Statutes, and other applicable laws and regulations ("Intangible Taxes"); and WHEREAS, Documentary Stamps, Intangible Taxes and all other transaction or loan taxes imposed at this time or at any time in the future by any state, local or federal governmental entity (a "Governmental Entity") shall be hereinafter referred to collectively as "Excise Taxes"; and WHEREAS, Bank and Borrower believe in good faith that the Note and the Loan are not subject to Excise Taxes other than those provided in the Loan Closing Statement of even date herewith; and WHEREAS, Borrower has not relied on any statement, representation, advice, or knowledge on the part of Bank in the structuring or closing of the Loan and is consummating the extension and modifications to the Loan regardless of whether the same are subject to additional Excise Taxes. WHEREAS, in order to induce Bank to modify the Loan, Borrower has agreed to indemnify Bank should it be determined that the Note are subject to additional Excise Taxes. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The foregoing recitals are true and correct and are hereby incorporated as a part of this Agreement. 2. Borrower hereby agrees, jointly and severally, to defend, indemnify and hold Bank harmless from and against the payment of any and all Excise Taxes due to any Governmental Entity, together with all interest, fines, penalties, costs or other charges thereon, regardless of when, or the party against whom, the same may be assessed or imposed. 3. In the event an Excise Tax assessment is made against any of the parties hereto, Borrower shall pay the full amount of such assessment before a warrant for the collection of the same is issued by a Governmental Entity. Borrower shall not contest or otherwise challenge the assessment except in connection with a request for a refund in accordance with the applicable regulations adopted by the applicable Governmental Entity. 4. Borrower waives any defense to an action by Bank to enforce the Loan or collect the indebtedness evidenced by the Loan or the Note based upon the nonpayment of Excise Taxes. 5. The obligations of Borrower under this Agreement shall survive the repayment of the indebtedness evidenced by the Loan and the Note. 6. In the event it becomes necessary for Bank to institute litigation or otherwise engage the services of any attorney to enforce the terms of this Agreement, Bank shall be entitled to recover its reasonable attorneys' fees from Borrower. 7. This Agreement shall be governed and construed in accordance with the laws of the State of Florida and any laws of the United States preempting the same. The venue for any action pertaining to this Agreement shall be Orange County. 8. Borrower hereby agrees to pay to Bank, its successors and/or assigns, all sums of money requested by Bank hereunder, which Bank shall or may advance, pay or cause to be paid, or become liable to pay, on account of or in connection with the failure by Borrower to pay such Excise Taxes and any interest and penalties associated therewith, and will make such payment to Bank within ten (10) days after Bank shall request the same under the reasonable belief that Bank has become liable therefor. If such payment is not made within ten (10) day period provided above, all sums due shall bear interest at the default rate set forth in the Note. In any accounting which may be had between Bank and Borrower, Bank shall be entitled to charge for any and all disbursements made in connection with the matters herein contemplated in good faith under the reasonable belief that it is or was liable for the amounts so assessed. - 2 - 9. In the event of an assignment of the Loan, Borrower agrees that this Agreement shall inure to the benefit of the assignee of the Loan and shall be fully enforceable by the assignee of the Loan. IN WITNESS WHEREOF, the parties hereto have caused this Tax Indemnity Agreement to be properly executed as of the day and year first set forth above. BORROWER: BRITE VOICE SYSTEMS, INC., a Kansas Corporation By: /s/ Stanley G. Brannan ---------------------------------- STANLEY G. BRANNAN, President BANK: NATIONSBANK, N.A., a national banking association By: /s/ Gaylyn K. McGregor --------------------------------- Name: Gaylyn K. McGregor ------------------------------- Title: Vice President ------------------------------ - 3 - EX-21.1 5 EX 21.1 EXHIBIT 21.1 BRITE VOICE SYSTEMS, INC. SUBSIDIARIES Brite Voice Systems Group, Limited Manchester, England Brite Voice Systems Group, GmbH Germany Brite Holding AG Switzerland Brite Voice Systems AG Switzerland Brite Voice Systems S.p.A. Italy Brite Voice Systems Pte Ltd. Singapore Brite Voice Systems S.A. (Pty) Ltd. South Africa BVSI, Inc. Wilmington, Delaware BVS Investco, Inc. Wilmington, Delaware EX-23.1 6 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-44609, 33-59371, 33-66812, 33-67274, 33-80478 and 333-70005. Arthur Andersen LLP March 26, 1999, Orlando, Florida EX-27 7 EXHIBIT 27
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 11,208 0 57,559 1,761 21,676 97,410 27,655 10,480 122,119 35,373 0 0 0 45,221 39,692 122,119 97,984 135,715 50,556 133,497 (628) 0 (204) 2,846 1073 1,773 11,344 0 0 13,117 1.08 1.07
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