U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ Annual report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the fiscal year ended December 31, 1996
/ / Transition report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from to .
COMMISSION FILE NUMBER 33-97876
USTN HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-4042177
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4501 Intelco Loop, Lacey, Washington 98503
(Address of principal executive office) (Zip code)
(360) 493-6000
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes_X_ No__
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $37,887,878
Voting stock held by non-affiliates has no currently quoted market value. No
voting stock held by non-affiliates has been sold or been the subject of bid or
ask prices in the past 60 days.
At December 31, 1996, 5,262,354 shares of common stock, $0.01 per share par
value.
Transitional Small Business Disclosure Format (check one): Yes /_/ No /X/
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USTN HOLDINGS, INC.
INDEX TO 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
PAGE
----
PART I
ITEM 1: DESCRIPTION OF BUSINESS 3
ITEM 2: DESCRIPTION OF PROPERTY 4
ITEM 3: LEGAL PROCEEDINGS 5
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
ITEM 7: FINANCIAL STATEMENTS
USTN Holdings, Inc. Consolidated Balance Sheets -
December 31, 1996 and 1995 11
USTN Holdings, Inc. Consolidated Statements of Operations -
Years ended December 31, 1996 and 1995 13
USTN Holdings, Inc. Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1996 and 1995 14
USTN Holdings, Inc. Consolidated Statements of Cash Flows -
Years ended December 31, 1996 and 1995 15
Notes to Consolidated Financial Statements - December 31, 1996 16
Report of Ernst & Young LLP, Independent Auditors 25
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 25
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 26
ITEM 10: EXECUTIVE COMPENSATION 31
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 33
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 36
ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K
SIGNATURES 40
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
USTN Holdings, Inc., and its wholly-owned subsidiary Illuminet, Inc.,
(collectively referred to as ("ILLUMINET") were incorporated in the State of
Delaware on August 2, 1995 to effect the merger of U.S. Intelco Holdings, Inc.
("U.S. Intelco") and Independent Telecommunications Network, Inc. ("ITN"). In
accordance with terms of the merger, U.S. Intelco and ITN merged with and into
USTN Services, Inc. ("USTN Services") on February 23, 1996 (the "Merger").
USTN Services subsequently changed its name to Illuminet, Inc.
The Merger was accounted for as a purchase business combination in accordance
with generally accepted accounting principles with U.S. Intelco designated as
the acquiring company. Accordingly, the consolidated statements of operations
and cash flows for the year ended December 31, 1995 presented in this Form
10-KSB represent the stand-alone results of operations and cash flows of U.S.
Intelco. The results of ITN's operations are included in the consolidated
financial statements prospectively from the date of the Merger. The pro forma
information presented in the Management's Discussion and Analysis or Plan of
Operations item reflects the combined activities of U.S. Intelco and ITN as if
the Merger had occurred effective January 1, 1995.
ILLUMINET is engaged in the business of developing, managing and marketing a
Signaling System 7 ("SS7") network and related products and services based on SS
technology to the entire telecommunications marketplace, including network
services and other products and services to the cellular market. SS7 is
a telecommunications industry-standard system of protocols and procedures that
is used to control telephone communications and provide routing information
in association with vertical calling features, such as card validation,
Advanced Intelligent Network ("AIN") services, cellular services, 800 Number
Portability, and Calling Name Delivery. Additionally, ILLUMINET provides
advanced data base services, billing-and-collection services, and calling card
services to a range of telephone companies as well as inter-exchange carriers
("Carriers"), operator service providers ("OSPs") and other telecommunications
companies and providers of telecommunications services. ILLUMINET primarily
provides services to companies in the telecommunications industry that are
located throughout the United States and considers all of its operations as
one segment.
COMPETITION
The advanced data base, billing and collection, calling card and SS7
network services offered by ILLUMINET are offered by a number of other
companies. In the area of billing-and-collection services, ILLUMINET competes
with Independent NECA Services, a New Jersey-based company. Each of the Regional
Bell Operating Companies ("RBOCs") created by the AT&T break-up, Southern New
England Telephone Company ("SNET"), Sprint Corporation ("Sprint"), MCI
Communications Corporation ("MCI"), and GTE Corporation ("GTE") operate line
information data bases and SS7 networks that are in competition with ILLUMINET's
services. In addition, a few state telecommunications associations have formed
intrastate networks to provide services to member companies. These are primarily
equal access and facilities networks; however, their associations with carriers
could allow these statewide associations to offer competing calling card and
marketing services on a local level.
Although ILLUMINET's network may be similar to the other SS7 networks,
ILLUMINET believes its network offers its customers significant advantages apart
from the technology. Since the ILLUMINET network is dedicated to serving
customers without competing with them, customers provide viewpoints on
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services offered by the network and the timing of the delivery of such services
without the concern of aiding their competitors.
REGULATION
ILLUMINET does not provide voice-grade or data telecommunications services
to the public. ILLUMINET will provide facilities and services on a private
contractual basis to other entities in the telecommunications industry which
will utilize the services and facilities in their provision of both regulated
and nonregulated telecommunications services. In as much as ILLUMINET does not
provide voice-grade or data common carrier telecommunications services, it is
anticipated that the construction of facilities and provision of services by
ILLUMINET will not be subject to regulation by the FCC or state public utility
commissions.
SUPPLIERS
Certain aspects of ILLUMINET's services incorporate services or products
provided by third parties. For example, Ameritech Corp. provides the data base
used in ILLUMINET's 800 data base services which allow carriers to query an 800
data base to obtain screening and routing information for originating 800 calls.
Additionally, several inter-exchange carriers provide data transmission lines
that are integral to ILLUMINET's SS7 network. The providers of these services
are not the only available sources of such services. Consequently, ILLUMINET
believes that if necessary, such services can be obtained from alternative
vendors at competitive rates.
INTELLECTUAL PROPERTY
ILLUMINET relies on a combination of copyright, trademark, trade secret,
unfair competition and other intellectual property laws, a patent,
confidentiality procedures and contractual provisions to protect its
proprietary rights. Such protections, however, may not be adequate to prevent
misappropriation of such rights and may not preclude competitors from
independently developing services similar to the ILLUMINET's services. The
technology underlying ILLUMINET's patent is a usage measurement system for a
telephone signaling network. The patent will expire on January 18, 2010. As part
of a patent settlement arrangement, ILLUMINET has granted UNISYS Corporation
("UNISYS") a non-exclusive, irrevocable, fully paid license to make, have made,
sell, offer to sell and/or use products, systems, methods and/or processes under
the patent. The license granted to UNISYS does not include any right of UNISYS
in or to any particular technology of ILLUMINET which embodies the patent, such
as ILLUMINET's INMART or AMAT7 (TM) software. From time to time ILLUMINET
receives or solicits inquiries for the sale or licensing of certain of its
assets, including the patent, which it will consider on a case-by-case basis.
EMPLOYEES
As of December 31, 1996, ILLUMINET had 199 full time employees.
ITEM 2: DESCRIPTION OF PROPERTY
ILLUMINET's headquarters and a portion of its operations center are located
in Lacey, Washington, where it owns a 70,000 square foot facility. The
building, approximately 13.7 acres of land on which the building is
constructed, and certain of ILLUMINET's computer hardware and software are
financed by Rural Telephone Finance Cooperative ("RTFC"). RTFC has a first
priority lien on substantially all of ILLUMINET's assets, revenues and
property, excluding cash collected and held on behalf of others in the
normal course of providing ILLUMINET's services.
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ILLUMINET also leases 18,683 square feet of office space in Overland Park,
Kansas, where in addition to certain selling and administrative functions,
ILLUMINET has its Network Surveillance and Control Center (NSCC) which operates
on a 24-hour a day basis, 7 days a week. The lease term began August 16, 1993
and expires August 15, 1998, with an option to renew the lease for two
additional five-year periods.
ILLUMINET's network operations include redundant Signal Transfer Points
("STPs") facilities located in Mattoon, Illinois, and Rock Hill, South Carolina.
Additional STP facilities are currently being installed in Lacey, Washington and
Las Vegas, Nevada. ILLUMINET has subleased 4,657 square feet for its STP
facilities at Mattoon, Illinois in the headquarters of Consolidated
Communications, Inc., a shareholder of ILLUMINET. The sublease expired on July
31, 1996, and was renewed under one of the three additional five-year period
renewal options. ILLUMINET leases 6,468 square feet for its STP facilities at
Rock Hill, South Carolina, of which it subleases 1,243 square feet to another
party. The lease expired April 30, 1996, and was renewed under one of three
additional five-year period renewal options. In February 1997, ILLUMINET
negotiated a five-year lease expiring in December 2001 for 600 square feet with
an unrelated party for its STP facilities at Las Vegas, Nevada.
ITEM 3: LEGAL PROCEEDINGS
On February 6, 1996, one ITN shareholder filed a lawsuit in Delaware
Chancery Court against ITN and its board of directors alleging breaches of
fiduciary duty on the part of the ITN board of directors related to their
approval of the Merger into ILLUMINET. In February 1997, this suit was
voluntarily dismissed without prejudice by the plaintiff.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
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PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There are no established public trading markets for shares of USTN
Holdings, Inc. Common Stock ("USTN Common Stock") or USTN Holdings, Inc. Series
A Preferred Stock ("USTN Series A Preferred").
At December 31, 1996, USTN Holdings, Inc. had 267 holders of USTN Common
Stock (43 of which also hold USTN Series A Preferred Stock), and 78 holders of
USTN Series A Preferred Stock (43 of which also hold USTN Common Stock).
When authorized by the USTN Holdings, Inc. Board of Directors, payments of
dividends are restricted under ILLUMINET's long-term debt arrangements, as
follows: (1) approval of RTFC is required unless ILLUMINET's ratio of equity to
total assets exceeds 40% and (2) dividends are restricted to 75% of net income
as defined in the indenture relating to the USTN debentures. Dividends are not
payable to USTN Series A Preferred Stock unless dividends are declared, set
aside or paid simultaneously to holders of USTN Common Stock. To date, no
dividends have been declared.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
BASIS OF PRESENTATION
USTN Holdings, Inc., and its wholly-owned subsidiary, Illuminet, Inc.
(formerly named USTN Services, Inc.), (collectively referred to as
("ILLUMINET"), were incorporated for the purpose of effecting the merger of
U.S. Intelco Holdings, Inc. ("U.S. Intelco") and Independent
Telecommunications Network, Inc. ("ITN") that was consummated effective
February 23, 1996 ("Merger"). The Merger was accounted for as a purchase
business combination in accordance with generally accepted accounting
principles, with U.S. Intelco designated as the acquiring company.
Accordingly, the consolidated statements of operations and cash flows for the
year ended December 31, 1995, and the balance sheet as of December 31, 1995,
represent the stand-alone results of operations and cash flows of U.S.
Intelco. The results of ITN's operations are included in the consolidated
financial statements prospectively from the date of the Merger. The pro forma
information presented in this Management's Discussion and Analysis or Plan of
Operations reflects the combined activities of U.S. Intelco and ITN as if the
Merger had occurred effective January 1, 1995.
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RESULTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
REVENUES. The following table summarizes ILLUMINET's services and the effect
of the Merger on ILLUMINET revenues:
1996 1995
---- ----
Billing-and-collection services $ 7,895,674 $ 7,048,625
Data base services 7,427,696 7,468,156
Network usage measurement 557,932 1,123,541
Other services 742,998 1,464,099
---------- ----------
16,624,300 17,104,421
---------- ----------
Services acquired by Merger:
- ---------------------------
Intelligent network services 21,408,804 20,276,749
Wireless services 3,664,001 1,703,646
---------- ----------
25,072,805 21,980,395
---------- ----------
Pro forma revenue 41,697,105 39,084,816
Financial statement reporting adjustment
for operations prior to the Merger (3,809,227) (21,980,395)
---------- ----------
Revenues per statements of operations $37,887,878 $17,104,421
========== ==========
Billing-and-collection services revenues for 1996 increased primarily as a
result of a $966,926, or 18%, increase in clearinghouse product line revenues.
This increase reflects a 28% increase in messages processed from 53.7 million in
1995 to 68.8 million in 1996, due to the addition of a large customer in the
second quarter of 1995. Although clearinghouse volumes are expected to increase
in 1997, revenues are expected to remain at 1996 levels due to a fourth quarter
1996 price decrease.
Data base services revenues decreased, reflecting a reduction in Line
Information Data Base ("LIDB") product line revenues offset by an increase in
Calling Name Delivery ("CNAM") product line revenues. LIDB revenues decreased
$550,810, or 9%, in 1996, reflecting a 10% decrease in queries processed from
177.0 million in 1995 to 159.3 million in 1996. This was due to increased market
penetration by competing calling card service providers. CNAM revenues increased
$552,822, or 385%, in 1996, reflecting growing market acceptance of the service
introduced in 1995.
Network usage measurement revenues derived from the sale of ILLUMINET's SS7
network traffic tracking and measurement software products AMAT7 (RM) and CDR7
(RM) decreased in 1996 due to finalization of sales that began in late 1995. No
new sales were completed in 1996.
Other services revenues decreased primarily due to Personal Communications
Services ("PCS") revenues decreasing $332,567, or 67%, in 1996. This decrease is
due to a change in focus from PCS limited partnership sponsorship activities,
with the completion of the Federal Communications Commission ("FCC") C Block
broadband radio spectrum license auction, to new service offerings. As
anticipated, ILLUMINET's contract to provide voice messaging services for the
State of Washington was not renewed in September, 1996. Voice messaging
contributed revenues of $801,283 and $548,408 for the 1995 and 1996 periods,
respectively. ILLUMINET's independent customer survey program which generated
revenues of $146,031 in the 1995 period was discontinued in late 1995, as its
market cycle ended.
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Intelligent network services revenues for 1996 increased primarily as a result
of a $1,405,785, or 42%, increase in trunk signaling and related service
revenues, reflecting new customer growth. 800 switch and transport revenues
increased $333,260, or 8%, in 1996, reflecting volume growth from a large
customer. Network connectivity product line revenues increased $728,925, or 10%,
from growth in chargeable customer links. Offsetting the revenue growth in these
product lines, LIDB switch and transport revenues decreased $1,255,979, or 24%,
in 1996 due to reduced prices brought on by competition.
Wireless services revenue increased primarily due to a $1,689,348, or 101%,
increase in 1996 in cellular switch and transport revenues. The increase
reflects customer growth and increased utilization of the network with message
volumes increasing 211% from 403.5 million for the 1995 period to 1,253.9
million for the comparable 1996 period. The growth was offset by an approximate
60% decrease in price due to competition. Other new services delivered to
wireless service providers beginning in 1995 and 1996 contributed an increase in
revenues of $478,000 over 1995 levels with increases in volumes processed.
EXPENSES. ILLUMINET's primary costs are related to network expenses, followed by
personnel costs, depreciation and amortization of hardware, software and
facilities assets, and software maintenance expenses. Expenses increased
$14,827,070, or 77%, from $19,157,731 to $33,984,801 for the years ended
December 31, 1995 and 1996, respectively. The increase reflects ten months of
combined expenses resulting from the Merger. On a pro forma basis, expenses
decreased $2,212,779, or 6%, from $39,908,494 for the 1995 period to $37,695,715
for the comparable 1996 period.
Pro forma operating expenses decreased $1,594,048, or 13%, from $11,864,041 for
the 1995 period to $10,269,993 for the comparable 1996 period. This decrease is
caused primarily by reduced PCS-related business development costs, software
maintenance savings related to cost reduction projects completed in 1995, and
reduced personnel costs. The decrease in PCS business development costs results
from a change in focus from PCS limited partnership sponsorship activities, with
the completion of the FCC C Block broadband radio spectrum license auction, to
new service offerings requiring a lower level of resources. Operating expense
savings were offset by increased operating costs related to the AMAT7 and CDR7
computer software products. Illuminet completed development and market
introduction of AMAT7 and CDR7 in mid-1995 and the end of 1995, respectively.
Pro forma selling, general and administrative expenses decreased $1,490,336, or
14%, from $10,976,647 to $9,486,311 for the 1995 and 1996 periods, respectively,
due to a reduction in personnel costs as well as expenses related to litigation
settled in 1995 to protect ILLUMINET's patent on a common channel signaling
usage measurement system. Selling, general and administrative expense savings
are offset by one-time implementation costs that resulted from the Merger,
including legal fees and new marketing material printing costs. Network
operating expenses increased $1,433,735, or 15%, from $9,629,291 to $11,063,026
for the 1995 and 1996 periods, respectively, due to increased leased network
connectivity, link, and LATA access charges incurred to establish and maintain
customer connectivity to the SS7 network.
On a pro forma basis, depreciation and amortization expenses increased $791,171,
or 15%, from $5,384,339 to $6,175,510 for the 1995 and 1996 periods,
respectively, primarily due to depreciation and amortization of capitalized
computer software costs associated with the AMAT7 and CDR7 products, and to
operating hardware and software placed into production in the second half of
1995 and 1996. Corporate realignment expenses, comprised primarily of
Merger-related severance expenses, decreased $1,353,301, or 66%, from $2,054,176
to $700,875 for the 1995 and 1996 periods, respectively, primarily due to the
completion of Merger activities in the first quarter of 1996.
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INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $204,099, or 75%,
from $271,026 for the year ended December 31, 1995, to $475,125 for the
comparable 1996 period. This increase resulted primarily from an increase in
available cash balances over the two periods resulting from the Merger.
On a pro forma basis, interest income decreased by $3,388, or 1%, from $495,918
for the 1995 period to $492,530 for the 1996 period.
Interest expense increased $873,674, or 199%, from $439,625 for the 1995 period
to $1,313,299 for the 1996 period. The increase reflects ten months of combined
interest expense resulting from the Merger, a higher aggregate outstanding debt
balance resulting from two additional twenty-year mortgage loans for a total of
approximately $2.7 million obtained from Rural Telephone Finance Cooperative
("RTFC") in March, 1995, and a loan obtained from RTFC in October, 1995, for
approximately $1.1 million.
On a pro forma basis, interest expense decreased $93,706, or 6%, from $1,621,437
for the 1995 period to $1,527,731 for the comparable 1996 period.
INCOME TAXES. ILLUMINET has Federal income tax net operating loss carryforwards
available to offset future taxable income for Federal income tax purposes
totaling $20,964,492. These carryforwards expire in various amounts from 2006
through 2011. ILLUMINET's ability to utilize such net operating loss
carryforwards is dependent on ILLUMINET's ability to generate sufficient taxable
income from its operations. The current 1997 tax provision is comprised of
Federal alternative minimum taxes which cannot be completely offset by tax loss
carryforwards.
EARNINGS
ILLUMINET's net income increased $4,468,441 from a net loss of $(1,515,459) for
the year ended December 31, 1995, to net income of $2,952,982 for the comparable
1996 period. This increase primarily reflects an increase in clearinghouse
revenues, cellular switch and transport revenues, a decrease in PCS business
development costs, and the impact of the Merger on reducing costs as a
percentage of revenues.
On a pro forma basis, ILLUMINET's net income increased $4,108,233 from a net
loss of $(1,253,965) to net income of $2,854,268 for the years ended December
31, 1995 and 1996, respectively, primarily resulting from positive revenue
trends offset by one-time Merger costs incurred in 1996.
ILLUMINET believes that it will achieve higher earnings in the future through
new product and customer diversification and expansion into related
telecommunications markets. ILLUMINET anticipates that increased expenditures in
the development of services and products will continue over the next several
years. While it is anticipated that the existing primary services and products
will continue to be profitable, overall profitability in the immediate future
could be negatively impacted by delays in obtaining new product revenues coupled
with related increases in new product start-up costs. A general downward
pressure on price caused by increased competition may also negatively impact
profitability.
LIQUIDITY AND CAPITAL RESOURCES
U.S. Intelco and ITN individually relied on a combination of cash generated from
operations, debt and equity to fund their service development and expansion
activities. Currently, ILLUMINET's operating activities are generating positive
cash flows. However, as ILLUMINET broadens its services and products to those
requiring larger investments coupled with longer periods before subsequent
revenues are generated, ILLUMINET believes there may be increased pressure on
cash generated from operations. ILLUMINET anticipates
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continued high levels of investment in the development of new services and
products over the next several years as ILLUMINET processes increased volumes
relating to its network, data base, and billing-and-collection services, and
broadens its product base to keep pace with changing markets and customer needs.
ILLUMINET's working capital (current assets minus current liabilities) was
$6,458,504 as of December 31, 1996. ILLUMINET's cash and cash equivalent
balances include $7,709,000 required as working capital to service ILLUMINET's
clearinghouse customers. Such funds are received and disbursed on a monthly
basis. The increase in working capital of $2,362,670 from $4,095,834 at December
31, 1995, reflects the increase in cash balances from operating activities
offset by an increase in liabilities assumed in the Merger including accruals
for network expenses and the current portion of long-term debt financing.
ILLUMINET believes that its existing cash balances, funds generated from its
operations and borrowings available under its existing credit agreements will be
sufficient to meet existing capital expenditure and working capital needs for
the immediate future.
ILLUMINET's expenditures for property and equipment were $5,463,559 for the year
ended December 31, 1996. Expenditures for property and equipment were primarily
for network equipment.
At December 31, 1996, ILLUMINET has a secured line of credit expiring August,
2001, with RTFC that permits ILLUMINET to borrow up to $7,300,000, not to exceed
80% of accounts receivable. There were no borrowings against the line of credit
at December 31, 1996. In December, 1996, ILLUMINET drew against one of its
existing mortgage notes totaling $2,680,765 to finance the expansion of the
network with the purchase of additional switching equipment. Additionally at
December 31, 1996, ILLUMINET has $5,188,007 of unused loan facilities
established or committed with RTFC, maturing in the years 2000 and 2001.
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ITEM 7: FINANCIAL STATEMENTS
USTN HOLDINGS, INC.
Consolidated Balance Sheets
December 31,
----------------------
ASSETS 1996 1995
------ ----------------------
Current assets:
Cash and cash equivalents $12,514,507 $ 6,992,206
Accounts receivable, less
allowance for doubtful accounts
of $438,000 ($169,000 in 1995) 21,580,485 14,947,575
Prepaid expenses and other 365,735 421,465
----------- ----------
Total current assets 34,460,727 22,361,246
----------- ----------
Property and equipment:
Land 911,765 911,765
Building and leasehold improvements 6,907,061 6,285,855
Equipment and furniture 2,472,543 1,712,803
Network assets 23,476,705 -
Capitalized network costs 8,160,839 -
Computer hardware and software 16,008,791 13,299,250
---------- ----------
57,937,704 22,209,673
Less: Accumulated depreciation
and amortization 26,560,848 9,415,471
---------- ----------
Total property and equipment 31,376,856 12,794,202
---------- ----------
Computer software product costs,
less accumulated amortization of
$662,000 ($101,000 in 1995) 2,196,782 2,757,882
Other assets, net of accumulated
amortization of $86,000
(none in 1995) 2,787,968 1,400,621
--------- ---------
Total assets $70,822,333 $39,313,951
========== ==========
See accompanying notes to consolidated financial statements.
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USTN HOLDINGS, INC.
Consolidated Balance Sheets, Continued
December 31,
---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---------------------
Current liabilities:
Trade accounts payable $ 4,347,084 $ 957,113
Accrued expenses 2,243,468 1,490,518
Due to customers 19,236,821 15,385,847
Current portion of long-term debt 2,174,850 431,934
---------- ----------
Total current liabilities 28,002,223 18,265,412
---------- ----------
Deferred income taxes - 991,644
Long-term debt, less current portion 21,060,061 7,637,521
---------- ----------
Total non-current liabilities 21,060,061 8,629,165
---------- ----------
Shareholders' equity:
*USTN Holdings, Inc. Series A
Convertible Preferred Stock, par value $.01 per share, authorized 4,416
shares, issued and outstanding 2,637
(none in 1995) 26 -
*USTN Holdings, Inc. Preferred
Stock, par value $.01 per share,
authorized 95,584 shares, none
issued or outstanding - -
*U.S. Intelco Holdings, Inc. Class A
voting common stock, par value $50 per
share, none issued or outstanding
(466 shares in 1995) - 23,300
*U.S. Intelco Holdings, Inc. Class B
non-voting common stock, par value $.02
per share, none issued or outstanding
(1,208,696 shares in 1995) - 24,174
*USTN Holdings, Inc. Common Stock,
par value $.01 per share, authorized
12,000,000 shares, issued and outstanding
5,262,354 (none in 1995) 52,624 -
Additional paid-in capital 10,701,247 4,136,159
Retained earnings 11,006,152 8,235,741
---------- ----------
Total shareholders' equity 21,760,049 12,419,374
---------- ----------
Total liabilities and shareholders' equity $70,822,333 $39,313,951
========== ==========
See accompanying notes to consolidated financial statements.
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USTN HOLDINGS, INC.
Consolidated Statements of Operations
Years Ended December 31,
--------------------------
1996 1995
---- ----
Revenues $37,887,878 $17,104,421
---------- ----------
Expenses:
Operating 9,914,192 9,547,692
Selling, general and administrative 8,648,618 5,685,634
Depreciation and amortization 5,714,269 2,846,815
Network operating 9,357,655 -
Corporate realignment 350,067 1,077,590
--------- ----------
Total expenses 33,984,801 19,157,731
---------- ----------
Operating income (loss) 3,903,077 (2,053,310)
Interest income 475,125 271,026
Interest expense (1,313,299) (439,625)
----------- ----------
Income (loss) before income taxes 3,064,903 (2,221,909)
Income tax provision (benefit) 111,921 (706,450)
---------- ----------
Net income (loss) $ 2,952,982 $(1,515,459)
========== ==========
Weighted average common shares 4,995,092 3,729,015
========== ==========
Primary earnings (loss) per share $ 0.59 $ (0.41)
========== ==========
Fully diluted earnings (loss) per share $ 0.57 $ (0.41)
========== ==========
See accompanying notes to consolidated financial statements.
-13-
<PAGE>
USTN Holdings, Inc.
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
U.S. Intelco Holdings, Inc.
-------------------------------
Common Stock USTN Holdings, Inc.
------------------------------- ---------------------------
Class A Class B Common Series A Preferred Additional
------------- ------------ --------- ---------------- Paid-In Retained Total
Shares $ Shares $ Shares $ Shares $ Capital Earnings Equity
------ ---- -------- ---- ------ --- ------ --- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 468 $23,400 1,208,696 $24,174 - $ - - $ - $ 4,136,159 $9,771,011 $13,954,744
Stock repurchase (2) (100) - - - - - - - (19,811) (19,911)
Net loss - - - - - - - - - (1,515,459) (1,515,459)
---- ------ ------- ------ ------- ---- ----- --- ---------- ---------- ----------
Balance at December 31, 1995 466 23,300 1,208,696 24,174 - - - - 4,136,159 8,235,741 12,419,374
Merger dissenting shares
repurchased (6) (300) (17,917) (358) - - - - - (182,571) (183,229)
---- ------ ------- ------ ------ ---- ----- -- ---------- ---------- ----------
Total before merger on
February 23, 1996 460 23,000 1,190,779 23,816 - - - - 4,136,159 8,053,170 12,236,145
Conversion to USTN
Holdings, Inc. stock (460) (23,000)(1,190,779)(23,816) 3,673,871 36,739 - - 10,077 - -
Purchase of Independent
Telecommunications
Network, Inc. - - - - 1,566,988 15,670 2,675 27 6,354,252 - 6,369,949
USTN Common Stock issued
under former stock
incentive plan - - - - 7,539 75 - - 81,772 - 81,847
Conversion of USTN Series A
Preferred Stock - - - - 3,235 33 (38) (1) (32) - -
Conversion of convertible
redeemable subordinated
debentures - - - - 10,721 107 - - 119,019 - 119,126
Net income - - - - - - - - - 2,952,982 2,952,982
---- ------ ------- ------ --------- ----- ----- ----- ---------- ---------
Balance at
December 31, 1996 - $ - - $ - 5,262,354 $52,624 2,637 $26 $10,701,247 $11,006,152 $21,760,049
==== ==== ======= ==== ========= ====== ===== === ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE>
USTN HOLDINGS, INC.
Consolidated Statements of Cash Flows
Years Ended December 31,
------------------------
1996 1995
<PAGE>
------------------------
Cash flows from operating activities:
Cash received from customers $155,132,157 $118,491,711
Interest received 470,997 260,986
Cash paid to customers,
suppliers and employees (143,562,818) (115,996,915)
Income tax refund 173,795 -
Interest paid (1,463,940) (458,058)
------------ ------------
Net cash provided by operating activities 10,750,191 2,297,724
----------- -----------
Cash flows from investing activities:
Cash acquired in acquisition of Independent
Telecommunications Network, Inc. 613,086 -
Cash payments in connection with
acquisition of Independent
Telecommunications Network, Inc. (738,634) -
Investment in affiliate (650,000) -
Capital expenditures and software development (5,463,559) (2,387,988)
----------- -----------
Net cash used by investing activities (6,239,107) (2,387,988)
----------- -----------
Cash flows from financing activities:
Purchase of subordinated capital
certificates related to notes payable (134,038) (319,787)
Redemption of subordinated capital
certificates related to notes payable - 31,163
Proceeds from issuance of notes payable 2,680,765 3,724,187
Principal payments on notes payable (1,352,281) (459,341)
Acquisition of common stock - (19,911)
Payments to dissenting shareholders (183,229) -
----------- ----------
Net cash provided by financing activities 1,011,217 2,956,311
----------- ---------
Net increase in cash and cash equivalents 5,522,301 2,866,047
Cash and cash equivalents at:
Beginning of year 6,992,206 4,126,159
----------- ---------
End of year $ 12,514,507 $ 6,992,206
=========== ==========
See accompanying notes to consolidated financial statements.
-15-
<PAGE>
USTN HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 1996
Note 1: Summary of Significant Accounting Policies
- ---------------------------------------------------
Description of Business and Basis of Presentation
- -------------------------------------------------
USTN Holdings, Inc., and its wholly-owned subsidiary Illuminet, Inc.,
(collectively referred to as "ILLUMINET") were incorporated in the State of
Delaware on August 2, 1995, to effect the merger of U.S. Intelco Holdings,
Inc. ("U.S. Intelco") and Independent Telecommunications Network, Inc.
("ITN"). In accordance with terms of the merger, U.S. Intelco and ITN merged
with and into USTN Services, Inc. ("USTN Services") on February 23, 1996 (the
"Merger"). USTN Services subsequently changed its name to Illuminet, Inc.
The Merger was accounted for as a purchase combination with U.S. Intelco
designated as the acquiring company. Accordingly, references to USTN
Holdings, Inc. and ILLUMINET in the accompanying financial statements and
related notes for the periods prior to the Merger represent U.S. Intelco,
while references to USTN Holdings, Inc. and ILLUMINET for the periods after
the Merger represent the consolidated entity including the net assets and
operations of ITN (see Note 2).
ILLUMINET is engaged in the business of developing, managing and marketing a
Signaling System 7 ("SS7") network and related products and services based on
SS7 technology to the entire telecommunications marketplace, including network
services and other products and services to the cellular market. SS7 is a
telecommunications industry-standard system of protocols and procedures that is
used to control telephone communications and provide routing information in
association with vertical calling features, such as card validation, Advanced
Intelligent Network ("AIN") services, cellular services, 800 Number Portability,
and Calling Name Delivery. Additionally, ILLUMINET provides advanced data base
services, billing-and-collection services, and calling card services to a range
of telephone companies as well as interexchange carriers ("Carriers"), operator
service providers ("OSPs") and other telecommunications companies and providers
of telecommunications services. ILLUMINET primarily provides services to
companies in the telecommunications industry that are located throughout the
United States and considers all of its operations as one segment.
ILLUMINET has its corporate headquarters and a portion of its operations located
in Lacey, Washington, a network control center and related operations located in
Overland Park, Kansas, and additional SS7 Signal Transfer Points located in Rock
Hill, South Carolina, and Mattoon, Illinois. A new SS7 Signal Transfer Point
will be located in Las Vegas, Nevada and become operational in 1997.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the financial statements of USTN
Holdings, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
-16-
<PAGE>
Cash Equivalents
- ----------------
ILLUMINET considers all highly liquid investments with original maturities of
three months or less at purchase to be cash equivalents. Cash equivalents
consist of money market funds that are stated at cost which approximates market
value. At December 31, 1996 and 1995, such investments include $9,538,536 and
$5,039,027, respectively, invested in a money market fund consisting of direct
obligations of the U.S. Treasury and repurchase agreements collateralized by
such obligations of the U.S. Treasury.
Accounts Receivable
- -------------------
One of ILLUMINET's services involves providing a clearinghouse function for toll
collected by telephone companies on behalf of other telecommunications service
providers. At December 31, 1996 and 1995, accounts receivable included
$11,964,000 and $9,779,000, respectively, of such toll amounts due from
telephone companies, and due to customers included $16,917,000 and $12,676,000,
respectively, owed to such service providers. Accounts receivable from these
companies are uncollateralized; however, uncollected amounts may be offset
against amounts otherwise due to service providers.
Concentration of credit risk with respect to trade receivables is limited due to
the diversity of the customer base and geographic dispersion and is evidenced by
a history of minimal customer account write-offs.
Property and Equipment and Capitalized Software
- -----------------------------------------------
Property and equipment and capitalized software are stated at cost. Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives for property and equipment
are as follows:
Corporate headquarters building 31.5 years Capitalized network costs 10
years Office equipment and systems 5 to 20 years Furniture and fixtures
5 to 15 years Computer equipment and software 3 to 5 years Leasehold
improvements 5 years
Computer software product costs represent costs incurred for software
development related to ILLUMINET's software products, which became available for
sale in 1995. Costs incurred after the technological feasibility of the
product was established have been capitalized. Costs incurred prior to that date
were expensed. For the years ended December 31, 1996 and 1995, ILLUMINET
recognized $561,000 and $101,000, respectively, of amortization expense for
computer software product costs. Capitalized computer software product costs are
amortized on a product-by-product basis. The annual amortization is equal to the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product, or (b) the straight-line method over the remaining estimated
economic life of the product. Amortization starts when the product is available
for general release to customers.
-17-
<PAGE>
ILLUMINET evaluates the net realizable value of capitalized software based on
estimated future revenue and costs associated with the service for which the
software is utilized.
Revenue Recognition
- -------------------
ILLUMINET's revenues are recognized when earned. Computer software product
revenues are recognized when all contractual obligations have been fulfilled.
Revenues are recorded net of amounts passed through to service providers.
Income Taxes
- ------------
ILLUMINET provides for income taxes under the liability method, whereby deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share is computed using the weighted average number of
common shares and dilutive common share equivalents outstanding during each
period. Other potentially dilutive securities include USTN Holdings, Inc. Series
A Preferred Stock ("USTN Series A Preferred Stock") and convertible redeemable
subordinated debentures, which if dilutive, are included in the calculation of
fully diluted earnings (loss) per share.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Reclassifications
- -----------------
Certain reclassifications to the 1995 financial statements have been made to
conform to the 1996 presentation.
Note 2: Acquisition and Corporate Realignment
- ----------------------------------------------
In exchange for the net assets of ITN, excluding U.S. Intelco's 36% ownership of
ITN on the date of the Merger, USTN Holdings, Inc. issued the following
consideration and incurred the following costs:
Fair value of USTN Common Stock issued $5,561,778 Fair value of USTN Series
A Preferred Stock issued 808,171 Direct and incremental merger costs 678,076
---------
Aggregate purchase price $7,048,025
=========
-18-
<PAGE>
As consideration for the sale, non-dissenting ITN shareholders received
1,566,988 shares of USTN Holdings, Inc. Common Stock ("USTN Common Stock") and
2,675 shares of USTN Series A Preferred Stock. ITN Debentures were converted to
USTN convertible redeemable subordinated debentures ("USTN Debentures") having
the same amount of outstanding principal and interest under the terms and
conditions set forth in the Merger. Payments made to ITN dissenters totaled
$738,634 during the year ended December 31, 1996.
The aggregate purchase price exceeded the fair value of the assets acquired by
$2,506,548, and accordingly, has been recorded as a reduction in the long-lived
assets. The purchase price has been allocated to the acquired net assets of ITN
as of February 23, 1996, as follows:
Cash $ 613,086
Accounts receivable 5,880,200
Other current assets 282,267
Deferred tax assets 991,644
Network assets 12,178,239
Capitalized network costs 4,049,463
Other property and equipment 1,290,293
Other assets 1,093,701
Trade accounts payable and other
current liabilities (5,560,523)
Amounts due dissenting shareholders (738,634)
Long-term debt (13,031,711)
----------
$ 7,048,025
==========
In 1996, ILLUMINET paid dissenting U.S. Intelco shareholders a total of $183,229
in exchange for U.S. Intelco stock held by such dissenters on the merger date.
The payments were recorded as a stock repurchase and retirement transaction.
Assuming that this acquisition had taken place on January 1, 1995, unaudited pro
forma results of operations would have been as follows:
Year Ended December 31,
----------------------
1996 1995
----------------------
Revenues $41,697,105 $39,084,816
========== ==========
Net income (loss) $ 2,854,268 $(1,253,965)
========== ==========
Earnings (loss) per common share $ 0.54 $ (0.24)
========== ==========
The pro forma results do not necessarily represent results which would have
occurred if the acquisition had taken place on the dates indicated, nor are such
results necessarily indicative of the results of future operations.
In connection with the acquisition, U.S. Intelco was substantially reorganized,
resulting in corporate realignment expenses totaling $350,067 and $1,077,590 for
the years ended December 31, 1996 and 1995, respectively, comprised mainly of
severance costs.
-19-
<PAGE>
Note 3: Long-Term Debt
- -----------------------
Long-term debt at December 31 consists of the following:
1996 1995
---- ----
Various secured notes payable to Rural
Telephone Finance Cooperative ("RTFC")
with variable interest rates ranging
from 6.30% to 6.55% at December 31,
1996 (6.35% to 6.60% at December 31,
1995) payable in quarterly
installments, including interest,
each maturing at various dates ranging
from August, 2000, to March, 2015. $13,328,043 $8,069,455
Convertible redeemable subordinated
debentures ("USTN Debentures")
bearing interest at 7.5%, maturing
August, 2001 (net of original issue
discount of $220,377). 8,248,342 -
Convertible redeemable subordinated
debenture deferred interest payable 1,658,526 -
---------- ----------
23,234,911 8,069,455
Less: current portion (2,174,850) (431,934)
---------- ----------
Total long-term debt $21,060,061 $7,637,521
========== ==========
Additional borrowings available under the various note agreements with RTFC
aggregate $5,188,007 at December 31, 1996. All of the RTFC notes have variable
interest rates that are based on RTFCs short-term funding costs. In accordance
with the terms of the loan agreements, ILLUMINET purchased lender-issued,
non-interest-bearing subordinated capital certificates based on a percentage of
the gross loan amount. Such certificates are amortized against the loan
principal balance over the terms of the respective loans. Certificates
purchased, net of amortization, totaled $1,142,012 and $777,561 at December 31,
1996 and 1995, respectively, are carried at cost, and are included in other
long-term assets. The loan agreements contain certain covenants, the most
restrictive of which requires ILLUMINET to maintain certain cash flow-to-debt
service ratios.
All RTFC loans are currently secured by a first priority lien on substantially
all of ILLUMINET's assets, revenues and property, excluding cash collected and
held on behalf of others in the normal course of providing ILLUMINET's services.
Cash and cash equivalents not subject to the mortgage lien were $7,709,000 at
December 31, 1996.
In August, 1996, ILLUMINET entered into a secured line of credit agreement with
RTFC that permits ILLUMINET to borrow up to $7,300,000, not to exceed 80% of
accounts receivable for a term of five years. The line of credit bears interest
at the lesser of the prime rate plus 1.5% or RTFC's monthly line of credit rate,
and contains certain covenants, the most restrictive of which requires ILLUMINET
to maintain a zero balance in the line at least five consecutive business days
every 360 days after the initial advance. There were no borrowings outstanding
against the line of credit at December 31, 1996.
-20-
<PAGE>
The USTN Debentures, formerly ITN Debentures converted in the Merger, bear
interest at 7.5% and are due August 15, 2001. Interest on the debentures is
payable in quarterly installments, in arrears. Interest accrued for the period
prior to December 31, 1995, was deferred and will be paid ratably on each
interest payment date over the remaining term of the debentures. The USTN
Debentures are convertible into the number of shares of USTN Common Stock equal
to the principal amount of the USTN Debenture at the time of conversion divided
by the market price of USTN Common Stock at the time of conversion (as defined
in the Indenture), or if no market price exists, on the basis of 90 shares of
USTN Common Stock for each $1,000 in principal amount. USTN Debentures are
subordinated to all senior debt. USTN Debentures are directly associated with
USTN Series A Preferred Stock in that these securities were issued as a unit.
Maturities of the long-term debt for the years ending December 31 are scheduled
as follows:
1997 $2,174,850
1998 2,287,031
1999 2,415,667
2000 1,582,534
2001 9,422,129
2002-2006 2,257,174
2007-2011 2,420,414
2012-2015 675,112
----------
$23,234,911
==========
Note 4: Shareholders' Equity
- -----------------------------
At December 31, 1996, USTN Holdings, Inc. is authorized to issue up to
12,100,000 shares of capital stock consisting of (i) 12,000,000 shares of USTN
Common Stock, par value $.01 per share, and (ii) 100,000 shares of USTN
Preferred Stock, par value $.01 per share. Each share of USTN Common Stock and
USTN Series A Preferred Stock is entitled to one vote and 100 votes,
respectively.
Each share of USTN Series A Preferred Stock will be convertible into 85.12
shares of USTN Common Stock ("Conversion Amount"), at the option of the holder
thereof at any time that the holder elects to convert a USTN Debenture issued as
a unit with such a share. Each share of USTN Series A Preferred Stock will be
convertible, at the option of USTN Holdings, Inc., into USTN Common Stock based
on the Conversion Amount, at such time that the USTN Debenture issued as a unit
with such share is converted into shares of USTN Common Stock. If the USTN
Debentures and accrued interest thereon, and USTN Series A Preferred Stock had
been converted at December 31, 1996, 1,150,204 shares of USTN Common Stock would
have been issued. In the event of liquidation, USTN Series A Preferred Stock
will be entitled to $1,000 per share out of the assets of ILLUMINET available
for distribution to its shareholders, but before any payment or distribution is
made to holders of USTN Common Stock or any other series of preferred stock of
USTN Holdings, Inc.
Payments of dividends are restricted under ILLUMINET's long-term debt
arrangements, as follows: (1) approval of RTFC is required unless ILLUMINET's
ratio of equity to total assets exceeds 40% and (2) dividends are restricted to
75% of net income as defined in the indenture relating to the USTN Debentures.
Dividends are not payable to USTN Series A Preferred Stock unless dividends are
declared, set aside or paid simultaneously to holders of USTN Common Stock.
-21-
<PAGE>
Note 5: Income Taxes
- ---------------------
Components of the income tax provision (benefit) for the years ended December 31
are summarized as follows:
1996 1995
---- ----
Current $111,921 $(144,951)
Deferred - (561,499)
------- -------
Total income tax provision (benefit) $111,921 $(706,450)
======= =======
ILLUMINET provides for deferred taxes based on the differences between the bases
of assets and liabilities for financial reporting purposes and income tax
purposes, calculated using enacted tax rates as of the balance sheet date. At
December 31, 1996 and 1995, such differences primarily related to the use of
accelerated depreciation and amortization for tax purposes, accruals for certain
expenses that are not currently deductible for tax purposes until paid, the tax
basis of certain investments that have been written-off for financial statement
purposes, and software development costs that were capitalized for financial
statement purposes. ILLUMINET has established a valuation reserve related to tax
benefits associated with capital losses recorded for financial statement
purposes but not yet realized for tax purposes, unused net operating loss
carryforwards, and other net deferred tax assets due to the uncertainty of
ILLUMINET's future taxable income.
The reconciliations of the income tax provision (benefit) calculated using the
U.S. federal statutory rates to the recorded income tax provision (benefit) for
the years ended December 31 are summarized as follows:
1996 1995
---- ----
Tax at U.S. federal statutory rate $1,042,067 $(755,449)
Utilization of net operating loss
carryforward (1,042,067) -
Alternative minimum tax 111,921 -
Other - 48,999
--------- -------
Income tax provision (benefit) $ 111,921 $(706,450)
========= =======
-22-
<PAGE>
The components of the deferred tax assets (liability) as of December 31 are
summarized as follows:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $7,547,217 $1,758,938
Tax credit carryforwards 142,379 30,458
Allowance for doubtful accounts 157,680 57,518
Other non-deductible accruals 593,807 399,611
Valuation reserve (3,288,585) (252,366)
--------- ---------
Net deferred tax assets 5,152,498 1,994,159
--------- ---------
Deferred tax liabilities:
Excess tax over book depreciation
and amortization (5,137,987) (2,984,434)
Other (14,511) (1,369)
--------- ---------
Total deferred tax liabilities (5,152,498) (2,985,803)
--------- ---------
Deferred tax liability, net $ - $ (991,644)
========= =========
At December 31, 1996, ILLUMINET has Federal income tax net operating loss
carryforwards available to offset future taxable income for federal income tax
purposes totaling $20,964,492 that expire in various amounts in 2006 through
2011. These loss carryforwards may be limited under certain provisions of the
Internal Revenue Code of 1986.
Note 6: Statement of Cash Flows
- --------------------------------
Reconciliations of net income (loss) to net cash provided by operating
activities for the years ended December 31 are summarized as follows:
1996 1995
---- ----
Net income (loss) $ 2,952,982 $(1,515,459)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 5,714,269 2,846,479
Deferred income taxes - (561,499)
Stock offering cost write-off - 397,737
Change in:
Accounts receivable (1,958,928) (900,280)
Other assets 296,698 (580,855)
Trade accounts payable 1,016,866 (20,902)
Accrued expenses (1,094,088) 343,622
Due to customers 3,850,974 2,288,881
Other liabilities (28,582) -
---------- ----------
Net cash provided by
operating activities $10,750,191 $2,297,724
========== =========
-23-
<PAGE>
During the years ended December 31, 1996 and 1995, ILLUMINET redeemed $23,248
and $84,765 respectively, of lender-issued, non-interest-bearing subordinated
capital certificates, which were deducted from the mortgage loan principal
balance.
Note 7: Employee Benefit Plans
- -------------------------------
ILLUMINET has qualified profit sharing/401(k) retirement plans covering all
employees subject to certain eligibility requirements. ILLUMINET provides
matching contributions to the plans' trusts on a portion of employee
contributions to the plans, and also may, at the discretion of the board of
directors, provide a discretionary contribution. For 1996 and 1995, contribution
expense was approximately $788,000 and $336,000, respectively, reflecting the
increase in employees covered by the plans as a result of the Merger.
Note 8: Commitments and Contingencies
- --------------------------------------
ILLUMINET assumed non-cancelable operating leases entered into by ITN for its
Rock Hill, Mattoon and Overland Park operating facilities. The Mattoon
facilities are leased from one of ILLUMINET's corporate shareholders, formerly
an ITN shareholder, for a total of $38,000 for the period February 23, 1996, the
Merger date, to December 31, 1996. The initial leases for the Mattoon and Rock
Hill facilities expired during 1996 and were renewed for the first of three
five-year optional renewal periods. The lease for the Overland Park facility
expires August, 1998. During the period February 23, 1996, the Merger date, to
December 31, 1996, ILLUMINET incurred rental costs of $321,000 on the leases.
Future minimum lease payments under the non-cancelable leases for the years
ending December 31 are as follows:
1997 $385,200
1998 269,800
1999 77,500
2000 77,500
2001 37,300
-------
$847,300
=======
ILLUMINET is party to a contract with the subsidiary of one of its corporate
shareholders, formerly an ITN shareholder, which supplies ILLUMINET with
transmission facilities in the form of private leased lines. Such lines are
leased from the corporate shareholder only if the arrangement is determined to
be the lowest cost after completion of a formal bidding process. Payments
pursuant to this contract totaled $1,101,000 for the period February 23, 1996,
the Merger date, to December 31, 1996.
On February 6, 1996, one ITN shareholder filed a lawsuit in Delaware Chancery
Court against ITN and its board of directors alleging breaches of fiduciary duty
on the part of the ITN board of directors related to their approval of the
Merger into ILLUMINET. In February, 1997, this suit was voluntarily dismissed
without prejudice by the plaintiff.
-24-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
USTN Holdings, Inc.
We have audited the accompanying consolidated balance sheets of USTN Holdings,
Inc. ("USTN") as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of USTN's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of USTN as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
Seattle, Washington
February 14, 1997
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective September 12, 1995, U.S. Intelco engaged, upon approval of its
Board of Directors, Ernst & Young LLP to perform an audit of, and issue its
report with respect to U.S. Intelco's December 31, 1994 financial statements in
response to Coopers & Lybrand L.L.P. ("Coopers & Lybrand") confirmation, by
letter dated September 5, 1995, to U.S. Intelco that it would not consent to the
inclusion in the Merger related Proxy Statement/Prospectus of its report on the
U.S. Intelco Financial Statements for the years ended December 31, 1994 and 1993
(which report appeared in U.S. Intelco's Special Financial Report filed with the
Securities and Exchange Commission pursuant to Rule 15d-2 under the Securities
Exchange Act of 1934). Such report of Coopers & Lybrand did not contain any
adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty,
audit scope or accounting principles. Since January 1, 1993, there have been no
disagreements between U.S. Intelco and Coopers & Lybrand on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. A letter from Coopers & Lybrand stating that it agrees with
the statements made by USTN Holdings, Inc.
in this paragraph is included as an exhibit hereto.
-26-
<PAGE>
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors
The persons currently serving as directors of USTN Holdings, Inc. and
their ages are set forth below.
Name Age
---- ---
Theodore D. Berns 47
Eugene L. Cole 61
Aubrey E. Judy 59
Kenneth L. Lein 64
Richard A. Lumpkin 62
James S. Quarforth 42
G. I. Ross 63
David C. Southwick 66
James W. Strand 50
Gregory J. Wilkinson 46
Currently, non-employee Directors receive a monthly fee of $300 except for
the Chairman of the Board of Directors who receives $500 per month. Non-employee
Directors are also paid $300 per meeting per day for attendance at board or
committee meetings not to exceed a total of $600 per day and are reimbursed for
their expenses incurred in attending their meetings.
Mr. Berns has been a director of USTN Holdings, Inc. since August 1995.
Prior to that, Mr. Berns served as a director of ITN from October 1991 to
February 1996. Mr. Berns currently serves as Chief Executive Officer of OGI
Telecomm. From 1993 to October 1995, Mr. Berns served as Director, President
and Chief Executive Officer of AdVal Communications, Inc. located in
Vancouver, Washington. During 1993, Mr. Berns served as President and Chief
Executive Officer of TRT Communications, Inc. From 1986 through 1992, Mr.
Berns was employed by Pacific Telecom, Inc. ("Pacific Telecom"), located in
Vancouver, Washington. Mr. Berns served as President and Chief Operating
Officer of Pacific Telecom. Mr. Berns also served as Manager of Legal Affairs
and Vice President and Corporation Secretary. From 1984 to 1985, Mr. Berns
served as Vice President of Multivisions, Ltd., located in Anchorage, Alaska.
In addition, Mr. Berns is a former director of United States Telephone
Association ("USTA").
Mr. Cole has been a director of USTN Holdings, Inc. since February 1996.
Prior to that, he was a Director of U.S. Intelco from June 1994 to February
1996. He was a founder of U.S. Intelco Networks, Inc., and served as a
Director from its formation in 1981 to June 1994, and served as Chairman of
Intelco Network's Board of Directors from 1985 until January 1990. Prior to
that time, Mr. Cole had served as U.S. Intelco Networks, Inc.'s Vice Chairman
of the Board of Directors beginning in August 1984, and as Vice President of
U.S. Intelco Networks, Inc. from March 1981 until August 1984. Mr. Cole
worked at Canby Telephone Association, Canby, Oregon where in 1968, he was named
General Manager and in 1986 became President of the Canby Telephone Association
("Canby"). Mr. Cole also served as President of CTA Service Corp. ("CTA"), and
North Willamette Telecom ("NWT") from 1986 until March 1994. He retired
from Canby, CTA and NWT on May 1, 1995. Mr. Cole returned from retirement
and currently serves as President of Canby, President of CTA and President of
NWT. He served as a Director of Western Rural Telephone Association from 1976 to
1983 and served as President of that organization from 1977 to 1978. Since
1970, Mr. Cole has served as Director of the Oregon Independent Telephone
Association, of which he was the President from 1980 to 1981. From 1982 until
1995, he served as a Trustee of the NTCA Pension Trust. Mr. Cole served as
director of the Board of Rural Telephone Finance Cooperative from 1990 to
February 1993. From November 1994 until February 1996, Mr. Cole had been a
Director of ITN.
-27-
Mr. Judy has been a Director of USTN Holdings, Inc. since February 1996.
Prior to that, Mr. Judy served as a director of U.S. Intelco from June 1994
to February 1996. He was a Director of U.S. Intelco Networks, Inc. from April
1982 to June 1994. Mr. Judy was employed with Farmers Telephone Cooperative,
Inc. in Kingstree, South Carolina, since 1964 and served as
its Executive Vice President from 1981 until his retirement in December 1993.
He served as a Director of Rural Telephone Finance Cooperative from 1987 to
1994, the South Carolina Telephone Association from 1984 to 1994, Williamsburg
First National Bank from 1984 to present, PalmettoNet, Inc. from 1985 to 1994,
and South Carolina Net, Inc. from 1992 to 1994. Mr. Judy served on the
National Telcom Corporation Board from 1985 to 1992, and served on the NTCA
Board of Directors from 1976 to 1982, holding the offices of Secretary, Vice
President and President.
Mr. Lein has been a Director of USTN Holdings, Inc. since February 1996.
Prior to that, Mr. Lein served as a Director of U.S. Intelco from June 1994 to
February 1996. He was a Director of U.S. Intelco Networks, Inc. from 1987 to
June 1994. He served as Secretary of U.S. Intelco from August 1994 to
February 1996 and served as Secretary of U.S. Intelco Networks, Inc. from May
1993 to June 1994. Since 1974, Mr. Lein has been Manager of Winnebago
Cooperative Telephone Association ("Winnebago"), a local exchange telephone
company located in Lake Mills, Iowa. Mr. Lein was a Director of ITN from
1990 until the merger of ITN and U.S. Intelco in 1996. He is past President of
the Organization for the Protection and Advancement of Small Telephone
Companies ("OPASTCO"). He is a past member of the USTA Board of Directors and
has served as Secretary of the USTA Board and is a past Chairman of the USTA
Small Company Committee. Mr. Lein is a co-founder of and past Director of
Iowa Network Services. He presently serves on the Board of MEANS Telcom, an
independent telco owned Minnesota-based centralized equal access and long
distance company.
Mr. Lumpkin has been a director of USTN Holdings, Inc. since February,
1996 and currently serves as Chairman of the Board and Chairman of the
Executive Committee. Prior to that, Mr. Lumpkin served as a director of
Independent Telecommunications Network, Inc. ("ITN") from January 1989 to
February 1996 and Chairman of the Board from February 1989 to February 1996.
Since 1957, Mr. Lumpkin has been employed by Consolidated Communications Inc.
("CCI") and its affiliates. He is currently serving as a director, Chairman
of the Board and Chief Executive Officer of CCI and as a director, Chairman of
the Board and Chief Executive Officer of CCI's seven affiliates. Mr. Lumpkin is
currently a director of First Mid-Illinois Bancshares and First Mid-Illinois
Bank and Trust in Mattoon, Illinois, and CIPSCO, Inc. and Central Illinois
Public Service Co., Springfield, Illinois. Since 1975, Mr. Lumpkin has been
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<PAGE>
affiliated with USTA. He is a past President of that organization and is
currently serving as Assistant Treasurer. Mr. Lumpkin is also a past
President of the Illinois Telephone Association.
Mr. Quarforth has been a Director of USTN Holdings, Inc. since February
1996. Prior to that, Mr. Quarforth served as a Director of ITN from January
1989 to February 1996. Mr. Quarforth currently serves as President and Chief
Executive Officer of CFW Communications Company, Inc. ("CFW") and Chairman and
Chief Executive Officer of its affiliates, which include CFW Telephone
Company, CFW Network, Inc., CFW Cellular, Inc., CFW Communications Services,
Inc., CFW Information Services, Inc., CFW Cable, Inc., and CFW PCS, Inc. Mr.
Quarforth is also a Director of American Telecasting, Inc. and Virginia
Financial Corporation. Mr. Quarforth is a past Director and President of the
Virginia Telecommunications Industry Association. Mr. Quarforth is also
Chairman of the Virginia PCS Alliance, L.C.
Mr. Ross has been a Director of USTN Holdings, Inc. since February 1996.
Prior to that, Mr. Ross was a Director of ITN from January 1989 to February
1996 and served as its Treasurer from 1990 to 1996. Since 1970, Mr. Ross has
been President, Chief Executive Officer and a director of Lufkin-Conroe
Communications Company ("LCC"), and Chairman & CEO of its operating companies,
located in Texas. Mr. Ross has served on the Boards of the Texas Association
of Business since 1980 and First Bank of Conroe, Texas, since 1983. In 1972,
Mr. Ross became a director and member of the Executive Committee of the Texas
Telephone Association and in 1975 its Chairman. Mr. Ross has served as
Chairman of the Board of TECA since 1988. Mr. Ross has been a member of the
Electronic Engineering Technical Advisory Committee at Texas A&M University
since 1974 and holds an MBA in Finance.
Mr. Southwick has been a Director of USTN Holdings, Inc. since February
1996. Prior to that, Mr. Southwick served as a Director of U.S. Intelco from
June 1994 to February 1996. He served as a Director of U.S. Intelco Networks,
Inc. from 1987 to June 1994. From 1965 until his retirement in June 1996, he
has served as President of Champlain Telephone Company ("Champlain"), an
Independent in Champlain, New York. Mr. Southwick received his B.S. in
Business from Syracuse University. Mr. Southwick is a past Director and
President of New York State Telephone Association and a past Director of
OPASTCO.
Mr. Strand has been a Director of USTN Holdings, Inc. since February
1996. Prior to that, Mr. Strand served as a member of the Board of Directors
of ITN from May 1992 to February 1996. Since 1990, Mr. Strand has been
President of Diversified Operations and a director of Aliant Communications,
Inc. ("Aliant," formerly Lincoln Telecommunications Company) located in
Lincoln, Nebraska. Mr. Strand has served on the Board of the Cellular
Telecommunications Industry Association (CTIA) and was elected to the Executive
Committee in 1993. He also serves as subcommittee chairman for operations in the
small operators caucus, Vice Chairman of the CTIA Foundation and is a member of
the CTIA Technology Operations Policy Council (TOPS) of the Board of Directors.
Mr. Wilkinson has been a Director of USTN Holdings, Inc. since August
1995 and currently serves as Vice Chairman of the Board and Chairman of the
Audit/Finance Committee. Prior to that, Mr. Wilkinson served as a director of
U.S. Intelco Holdings, Inc. from June 1994 to February 1996. He was a
Director of U.S. Intelco Networks, Inc. from February 1986 to June 1994. He
served as Treasurer of U.S. Intelco from August 1994 to February 1996 and was
Treasurer of U.S. Intelco Networks, Inc. from January 1987 to June 1994.
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<PAGE>
Mr. Wilkinson has been associated with Telephone & Data Systems, Inc. ("TDS"),
a communications holding company with headquarters in Madison, Wisconsin, in
various capacities since 1972. Since January 1992, he has held the position
of Vice President and Controller with that company and was its Corporate
Controller prior thereto. He also serves as an officer and director of
various subsidiaries of TDS and serves on various telephone industry-related
committees. Mr. Wilkinson holds B.S., M.B.A. and J.D. degrees from the
University of Wisconsin. He is licensed to practice law in the Wisconsin
state and federal courts.
EXECUTIVE OFFICERS
The persons currently serving as executive officers of USTN Holdings, Inc.
or its wholly-owned subsidiary Illuminet, Inc., their ages, and their positions
are set forth below:
Name Age Position
---- --- --------
Roger H. Moore 55 President and Chief
Executive Officer - USTN
Holdings, Inc.
President and Chief Executive
Officer - Illuminet, Inc.
Daniel E. Weiss 49 Vice President,
Secretary/Treasurer - USTN
Holdings, Inc.
Vice President - Illuminet, Inc.
Raymond E. Donnelly 63 Vice President -
USTN Holdings, Inc.
Vice President - Illuminet, Inc.
Bruce E. Johnson 48 Vice President - Illuminet, Inc.
David Nicol 51 Vice President - Illuminet, Inc.
The following is a summary of the experience of each of the executive
officers:
Mr. Moore has been President and Chief Executive Officer of USTN
Holdings, Inc. and Illuminet, Inc. since January 1996. Prior to that, Mr.
Moore served as Vice President of Major Accounts of Northern Telecom from 1994
to December 1995. He was President of Northern Telecom Japan from 1991 to
1994 and from 1989 to 1991 he was Vice President of Northern Telecom's Western
Region. Mr. Moore has held other senior positions with Northern Telecom since
joining the company in 1985. Prior to joining Northern Telecom, Mr. Moore was,
from 1982-1985, the President of AT&T Canada. Mr. Moore has over 30 years of
experience in the telecommunications and business systems industry. Mr. Moore
received a Bachelor of Science degree in general science from Virginia
Polytechnic Institute.
Mr. Weiss has been USTN Holdings, Inc. Vice President-Finance since
February, 1996 and the Company's Secretary and Treasurer since April 1996.
Mr. Weiss also serves as the Vice President-Finance for Illuminet, Inc. as
well as its Secretary and Treasurer. Prior to that, Mr. Weiss served as U.S.
Intelco's Vice President-Finance from May 1994 to February 1996 and as its
Assistant Treasurer from May 1994 to February 1996. He has served as Vice
President-Finance and Assistant Treasurer of U.S. Intelco Networks, Inc. from
1986 to 1994. Mr. Weiss also served as a director and Treasurer of U.S.
Intelco Networks, Inc. He served as Business and Financial Manager of U.S.
Intelco Networks, Inc. from 1985 to 1986 and was Allied Data's Vice
President-Administration from 1981 to 1985 and Business Manager from 1979 to
-30-
<PAGE>
1981. From 1988 to 1990, he served ITN in various capacities including Director
and Secretary/Treasurer. Mr. Weiss served in various capacities for Evergreen
State College, Olympia, Washington, from 1971 to 1979, including Accounting
Manager, Assistant Director of Facilities and Academic Operations Officer. Mr.
Weiss graduated from Western Washington University with a Bachelor of Science
degree in Accounting and is a member of the American Institute of Certified
Public Accountants and the Washington Society of Certified Public Accountants.
Mr. Donnelly has been USTN Holdings, Inc. Vice President-Marketing and
Sales since February 1996. He also serves Illuminet, Inc. as Vice
President-Marketing and Sales. Prior to that, Mr. Donnelly was ITN's Vice
President of Marketing and Sales from November 1989 to February 1996. Prior
to joining ITN, Mr. Donnelly was employed by Timeplex, Inc. of Woodcliff Lake,
New Jersey, for two years, where he served as Assistant Vice President in
charge of marketing and business planning. From April 1974 to January 1987,
Mr. Donnelly was employed as a division manager, in various product line
management and development positions, with AT&T Information Systems and AT&T
Marketing in Morristown, New Jersey. Mr. Donnelly has over 30 years of
experience in the telecommunications industry. Mr. Donnelly earned an
undergraduate degree from the University of California, Berkeley, and a Masters
of Business Administration (MBA) from Farleigh Dickinson University.
Mr. Johnson has been Illuminet, Inc.'s Vice President-Operations and
Engineering since February 1996. Prior to that, he served as ITN's Vice
President-Operations and Engineering from July 1992 to February 1996. Prior to
joining ITN, Mr. Johnson was employed by NYNEX Telecommunications for eight
years, where he served as Staff Director responsible for planning, deployment
and compliance testing of NYNEX's SS7 network. From 1970 to 1984, Mr. Johnson
worked for New England Telephone in various engineering and operations
assignments. Mr. Johnson earned an undergraduate degree in computer science and
mathematics from Worcester State College and an MBA from the University of
Kansas. Mr. Johnson has over 27 years of experience in the telecommunications
industry.
Mr. Nicol has been Illuminet, Inc.'s Vice President-Product Management and
Development since February 1996. Prior to that, he served as ITN's Vice
President Planning and Administration from February 1994 to February 1996. Prior
to ITN, Mr. Nicol was Chief Operating Officer of a privately-held computer
network integrator on the West Coast, where he was instrumental in its
acquisition by a NYSE company. Earlier in a similar capacity, he had likewise
engineered the acquisition of a leading LAN/WAN systems integrator in the
Midwest. From 1987 to 1990, he was Vice President Corporate Planning for United
Telecom (now Sprint), having served since 1984 as its Vice President Planning -
Telephone Group. Prior to Sprint, Mr. Nicol was a consultant to a wide variety
of Fortune 500 and other companies. Mr. Nicol's undergraduate degree in
Aeronautical Engineering is from Ohio State University. He holds a masters in
Business Economics from Case Institute of Technology, and a doctorate in
Industrial Economics and Finance from Case Western Reserve University. All of
his thirty year career has been in technology industry sectors, the last fifteen
directly in telecommunications.
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<PAGE>
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth for each of the last three completed fiscal
years the compensation received by USTN Holdings, Inc.'s Chief Executive Officer
and four other most highly compensated executive officers based on salary and
bonus for the last completed fiscal year.
Summary Compensation Table
Long-Term Compensation
-------------------------
Annual Compensation Awards Payouts
------------------------- ------ ---------
Name and Principal
Position Year Salary ($) Bonus ($) LTIP All Other
Compensation ($)
- ----------------- ---- ---------- --------- ----- ----------------
Roger H. Moore, 1996(1) 245,565 100,000 --(4) 5,600(5)(6)
President and
Chief Executive
Officer
Daniel E. Weiss, 1996 110,863 --(3) --(4) 4,479(5)(7)
Vice President 1995 106,074 14,500 -- 9,220(8)
1994 102,341 11,573 -- 9,540(9)
Raymond E. 1996(2) 122,062 --(3) --(4) 5,841(5)(10)
Donnelly,
Vice President
Bruce E. Johnson, 1996(2) 105,676 --(3) --(4) 5,057(5)(11)
Vice President
David Nicol, 1996(2) 103,292 --3 --(4) 4,925(5)(12)
Vice President
- ------------------------
(1) Mr. Moore was hired effective January 1, 1996.
(2) Messrs. Donnelly, Johnson and Nicol were deemed hired effective February
23, 1996, the effective date of the Merger.
(3) Bonus amounts for this executive for the year 1996 have not yet been
determined.
(4) Long-term cash incentive awards for the year 1996 that will be due and
payable on December 31, 1998 if executive is still employed by ILLUMINET,
or has not been terminated for cause through December 31, 1998, have not
yet been determined.
(5) Retirement trust profit sharing contributions for the year 1996 have not
yet been determined and are therefore not included in this amount.
(6) Represents $5,600 in ILLUMINET 401(k) matching contributions.
(7) Represents $4,479 in ILLUMINET 401(k) matching contributions.
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<PAGE>
(8) Includes $3,182 in U.S. Intelco 401(k) matching contributions and $6,038
in U.S. Intelco retirement trust profit sharing contributions.
(9) Includes $3,067 in U.S. Intelco 401(k) matching contributions and $6,473
in U.S. Intelco retirement trust profit sharing contributions.
(10) Represents $5,841 in ILLUMINET 401(k) matching contributions.
(11) Represents $5,057 in ILLUMINET 401(k) matching contributions.
(12) Represents $4,925 in ILLUMINET 401(k) matching contributions.
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<PAGE>
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1996 the beneficial
ownership of each class of USTN Holdings, Inc.'s capital stock held by (i)
owners of five percent (5%) or more of any class, (ii) each director of USTN
Holdings, Inc., (iii) each executive officer named in the Summary Compensation
Table, and (iv) all directors and executive officers of Illuminet as a group.
<TABLE>
<CAPTION>
Fully
Shares of Shares of Diluted
USTN USTN Shares of Percent
Common Percent Series A Percent USTN Percent of
Stock of Preferred of Common of Total Total
Name Class Stock Class Stock (1) Class Votes (2) Votes
- ----------------------------- --------- --------- ---------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C>
Aliant Communications, Inc. 136,954 2.60 156 5.92 204,741 3.19 152,554 2.76
(formerly Lincoln
Telecommunications Co.)
P.O. Box 81309
1440 M Street
Lincoln, NE 68508
CFW Communications Company, Inc. 104,000 1.98 172 6.52 180,263 2.82 121,200 2.19
401 Spring Lane
Suite 300
P.O. Box 1990
Waynesboro, VA 22980-1990
Consolidated Communications, Inc. 51,029 * 523 19.83 271,566 4.23 103,329 1.87
121 S. 17th Street
Mattoon, IL 61938
Pacific Telecom, Inc. 142,115 2.70 172 6.52 217,983 3.40 159,315 2.88
P.O. Box 9901
805 Broadway
Vancouver, WA 98668-8701
Rock Hill 25,000 * 303 11.49 150,558 2.35 55,300 1.00
Telephone Co.
P.O. Box 470
330 E. Black St.
Rock Hill, SC 29731
Shenandoah 61,592 1.17 136 5.16 119,131 1.86 75,192 1.36
Telephone Company
P.O. Box 459
Edinburg, VA 22824
Telephone 621,556 11.81 -- -- 621,556 9.69 621,556 11.25
& Data Systems, Inc.
Suite 4000
30 N. LaSalle St.
Chicago, IL 60602
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of Diluted
USTN USTN Shares of Percent
Common Percent Series A Percent USTN Percent of
Stock of Preferred of Common of Total Total
Name Class Stock Class Stock (1) Class Votes (2) Votes
- -------------------------------- --------- -------- ----------- ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Theodore D. Berns 1,078 * -- -- 1,078 * 1,078 *
Eugene L. Cole(3) 20,131 * -- -- 20,131 * 20,131 *
Aubrey E. Judy -- -- -- -- -- -- -- --
Kenneth L. Lein(4) 18,818 * 9 * 22,536 * 19,718 *
Richard A. Lumpkin(5) 52,051 * 523 19.83 272,588 4.25 104,351 1.89
James S. Quarforth(6) 104,967 1.99 176 6.67 183,290 2.86 122,567 2.22
G. I. Ross(7) 210,063 3.99 105 3.98 254,571 3.97 220,563 3.99
David C. Southwick -- -- -- -- -- -- -- --
James W. Strand(8) 137,838 2.62 156 5.92 205,625 3.21 153,438 2.78
Gregory J. Wilkinson(9) 621,556 11.81 -- -- 621,556 9.69 621,556 11.25
Roger H. Moore -- -- -- -- -- -- -- --
Daniel E. Weiss -- -- -- -- -- -- -- --
Raymond E. Donnelly 5,739 * 20 * 13,953 * 7,739 *
David Nicol 971 * -- -- 971 * 971 *
Bruce E. Johnson 2,381 * 7 * 5,328 * 3,081 *
---------- ------- ----- ------- ---------- -------- ------- -------
Executive Officers and
Directors as a Group 1,175,593 22.349 996 37.77 1,601,627 24.98 1,275,193 23.08
========= ======= ==== ====== ========= ======= ========= ======
</TABLE>
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<PAGE>
* Less than 1%
(1) Assumes conversion into shares of USTN Common Stock of all shares of each
series of USTN Preferred Stock, and the USTN Debentures and accrued
interest thereon as of December 31, 1996 (assuming such interest is deemed
principal by the holders of such USTN Debentures).
(2) Represents total number of votes and percentage of votes held. Holders of
USTN Series A Preferred Stock are entitled to 100 votes per share.
(3) As an executive officer of Canby, Mr. Cole may be deemed the beneficial
owner of the 20,131 shares of USTN Common Stock owned by Canby.
(4) As an executive officer of Winnebago, Mr. Lien may be deemed the beneficial
owner of the 18,818 shares of USTN Common Stock and 1 share of USTN Series
A Preferred Stock owned by Winnebago.
(5) As a director and executive officer of CCI, Mr. Lumpkin may be deemed the
beneficial owner of the 52,029 shares of USTN Common Stock and 523 shares
of USTN Series A Preferred Stock owned by CCI.
(6) As an executive officer of CFW, Mr. Quarforth may be deemed the beneficial
owner of the 104,000 shares of USTN Common Stock and 172 share of USTN
Series A Preferred Stock owned by CFW.
(7) As a director and executive officer of LCC, Mr. Ross may be deemed the
beneficial owner of the 208,930 shares of USTN Common Stock and 105 shares
of USTN Series A Preferred Stock owned by LCC.
(8) As a director and executive officer of Aliant, Mr. Strand may be deemed the
beneficial owner of the 136,954 shares of USTN Common Stock and 156 shares
of USTN Series A Preferred Stock owned by Aliant.
(9) As an executive officer of TDS, Mr. Wilkinson may be deemed the beneficial
owner of 621,556 shares of USTN Common Stock beneficially owned by TDS.
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<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ILLUMINET provides certain services to companies who have an officer or
director on the board of directors of USTN Holdings, Inc., or to companies who
own five percent (5%) or more of any class of USTN Holdings, Inc. stock. The
services provided and the rates charged are the same as those provided to other
customers. For the period February 23, 1996, the Merger date, to December 31,
1996, ILLUMINET received (1) $578,000 from CCI or its affiliates, of which Mr.
Lumpkin is a director and executive officer; (2) $619,000 from Aliant or its
affiliates, of which Mr. Strand is a director and executive officer; (3)
$279,000 from LCC, of which Mr. Ross is a director and executive officer; (4)
$147,000 from CFW or its affiliates, of which Mr. Quarforth is an executive
officer; (5) $96,000 from TDS, of which Mr. Wilkinson is an executive officer,
and (6) $194,000 from Rock Hill Telephone Company.
For participation in certain data base services provided by ILLUMINET for the
period February 23, 1996, the Merger date, to December 31,1996, ILLUMINET paid
at rates that are the same as paid to other participants (1) $64,000 to Aliant
or its affiliates, of which Mr. Strand is a director and executive officer and
(2) $129,000 to Pacific Telcom, Inc. Under the same participation arrangements,
ILLUMINET paid TDS, of which Mr. Wilkinson is an executive officer, $72,000 and
$71,000 for the years ended December 31, 1996 and 1995, respectively.
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<PAGE>
ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-B
EXHIBIT 3.1 Certificate of Incorporation of U.S Telnet
Holdings, Inc.
EXHIBIT 3.2 Certificate of Amendment of Certificate of
Incorporation of U.S. Telnet Holdings, Inc. dated
September 21, 1995.
EXHIBIT 3.3 Certificate of Amendment of Certificate of
Incorporation of USTN Holdings, Inc. dated January 23,
1996.
EXHIBIT 3.4 Bylaws of USTN Holdings, Inc. (Incorporated
by reference to Exhibit 3.2 to USTN Holdings,
Inc.'s Registration Statement on Form S-4, No.
33-97876.)
EXHIBIT 4.1 Specimen Common Stock Certificate of USTN
Holdings, Inc.(Incorporated by reference to Exhibit
4.1 to USTN Holdings, Inc.'s Registration Statement
on Form S-4, No. 33-97876.)
EXHIBIT 4.2 Specimen Common Stock Certificate (Incorporated
by reference to Exhibit 4.2 to USTN Holdings,
Inc.'s Registration Statement on Form S-4,
No.33-97876.)
EXHIBIT 4.3 Indenture, dated August 15, 1991 between Independent
Telecommunications Network, Inc. and United Missouri
Bank, N.A., as trustee and form of 7.5% Convertible
Redeemable Subordinated Debentures due August 15,
2001 (Incorporated by reference to Exhibit 4.3 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
EXHIBIT 4.3 First Supplement to Indenture between Independent
Telecommunications Network, Inc. and USTN Holdings,
Inc. and USTN Services, Inc. and UMB Bank, N.A.,
Trustee, dated February 12, 1996. Supplemental to
Indenture dated August 15, 1991.
EXHIBIT 4.4 Second Supplement to Indenture between USTN Holdings,
Inc. and USTN Services, Inc. and UMB Bank, N.A. ,
Trustee, dated June 24, 1996. Supplemental to
Indenture dated August 15, 1991.
EXHIBIT 4.5 Certificate of Designation of USTN Holdings, Inc.
Series A Convertible Preferred Stock.
EXHIBIT 10.1 Office Building Lease dated June 25, 1993 by
and between The Travelers Insurance Company and
Independent Telecommunications Network, Inc.
(Incorporated by reference to Exhibit 10.1 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
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<PAGE>
EXHIBIT 10.2 ILLUMINET 1996 Executive Long-Term Bonus Plan
EXHIBIT 10.3 ILLUMINET 1996 Executive Short-Term Bonus Plan
EXHIBIT 10.4 Employment Agreement by and between Independent
Telecommunications, Inc. and Bruce Johnson
(Incorporated by reference to Exhibit 10.5 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
EXHIBIT 10.5 Employment Agreement by and between Independent
Telecommunications, Inc. and David J. Nicol
(Incorporated by reference to Exhibit 10.7 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
EXHIBIT 10.6 Employment Agreement by and between Independent
Telecommunications, Inc. and Raymond E. Donnelly
(Incorporated by reference to Exhibit 10.8 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
EXHIBIT 10.7 Employment Agreement by and between U.S. Intelco
Networks, Inc. and Kingsley W. Hill (Incorporated by
reference to Exhibit 10.10 to USTN Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-97876.)
EXHIBIT 10.8 Independent Telecommunications Network, Inc. 1995
Long-Term Bonus Plan (Incorporated by reference to
Exhibit 10.13 to USTN Holdings, Inc.'s Registration
Statement on Form S-4, No. 33-97876.)
EXHIBIT 10.9 Independent Telecommunications Network, Inc. 1995
Short-Term Bonus Plan (Incorporated by reference to
Exhibit 10.14 to USTN Holdings, Inc.'s Registration
Statement on Form S-4, No. 33-97876.)
EXHIBIT 10.10 Form of Severance Agreement and General Release by and
between U.S. Intelco Holdings, Inc. and Robert D. Cook
(Incorporated by reference to Exhibit 10.15 to USTN
Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-97876.)
-39-
<PAGE>
EXHIBIT 10.11 Form of Letter Agreement of Employment by and among
Independent Telecommunications Network, Inc., U.S.
Intelco Holdings, Inc. and Roger H. Moore regarding
Mr. Moore's employment as President and Chief
Executive Officer of USTN Holdings, Inc. (Incorporated
by reference to Exhibit 10.16 to USTN Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-97876.)
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 16 LETTER ON CHANGE OF CERTIFYING ACCOUNTANT
EXHIBIT 21 LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1996
EXHIBIT 27 FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K..................................NONE
-40-
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
USTN HOLDINGS, INC.
By: /s/ Roger H. Moore
------------------------------
Roger H. Moore
President and Chief Executive
Officer
Date: March 26, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE/TITLE DATE
By: /s/ Roger H. Moore
- --------------------------- March 26, 1997
Roger H. Moore,
President and Chief
Executive Officer
(Principal Executive
Officer)
By: /s/ Daniel E. Weiss
- --------------------------- March 14, 1997
Daniel E. Weiss,
Vice President - Finance
(Principal Financial Officer
and Accounting Officer)
By: /s/ Richard A. Lumpkin
- --------------------------- March 20, 1997
Richard A. Lumpkin,
Chairman of the Board
By: /s/ Gregory J. Wilkinson
- ----------------------------- March 17, 1997
Gregory J. Wilkinson,
Vice Chairman of the Board
By: /s/ Theodore D. Berns
- ---------------------------- March 20, 1997
Theodore D. Berns,
Director
By:
- ---------------------------- March ___, 1997
Eugene L. Cole,
Director
By: /s/ Aubrey E. Judy
- --------------------------- March 17, 1997
Aubrey E. Judy,
Director
By: /s/ Kenneth L. Lein
- --------------------------- March 19, 1997
Kenneth L. Lein,
Director
By: /s/ James S. Quarforth
- --------------------------- March 17, 1997
James S. Quarforth,
Director
-41-
<PAGE>
By:
- --------------------------- March ___, 1997
G. I. Ross,
Director
By: /s/ James W. Strand
- --------------------------- March 17, 1997
James W. Strand,
Director
By: /s/ David C. Southwick
- --------------------------- March 18, 1997
David C. Southwick,
Director
-42-
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:00 PM 08/02/1995
950174119 - 2530006
CERTIFICATE OF INCORPORATION
OF
U.S. TELNET HOLDINGS, INC.
U.S. TELNET HOLDINGS, INC., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is U.S. TELNET HOLDINGS, INC.
SECOND: The address of the registered office of the corporation (the
"Corporation") in the State of Delaware is 32 Loockerman Square, Suite L100,
Dover, County of Kent, Delaware 19904. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Forty-Five Million (45,000,000) shares of stock, of
which Fifteen Million (15,000,000) shares shall be Preferred Stock, par value
$.01 per share ("Preferred Stock"), and Thirty Million (30,000,000) shares shall
be Common Stock, par value $.01 per share ("Common Stock").
No holder of stock of the Corporation shall be entitled as such to any
preemptive right to subscribe for, purchase or receive (i) any shares of stock
of the Corporation at any time held in its treasury, or (ii) unissued shares of
stock of the Corporation, whether authorized at present or hereafter authorized,
or (iii) any issue of notes, bonds or debentures, whether or not, convertible
into any class of stock of the Corporation, or (iv) any issue of warrants,
options or rights to subscribe for shares of any class of stock of the
Corporation.
The powers, designations, preferences, qualifications, limitations, and
relative rights of the shares of each class are as follows:
Subdivision A. Preferred Stock.
The Preferred Stock shall be issued from time to time in one or more series
with such distinctive serial designations and (a) may have such voting powers,
full or limited, or may be without voting powers, (b) may be subject to
redemption at such time or times and at such prices, (c) may be entitled to
receive dividends (which may be cumulative or noncumulative) at such rate or
rates, on such conditions, and at such times and payable in preference to, or in
such relation to, the dividends payable on any other class or classes of
series of stock, (d) may have such rights upon the dissolution of, or upon any
of the assets of, the Corporation, (e) may be made convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation, at such
price or prices or at such rates of exchange, and with such adjustments, and (f)
shall have such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions, all as shall hereafter be stated
and expressed in the resolution or resolutions providing for the issue of such
Preferred Stock from time to time adopted by the Board of Directors of the
Corporation pursuant to authority to do so which is hereby vested in the Board.
<PAGE>
Subdivision B. Common Stock.
1. Dividends and Liquidation. Subject to those rights expressly granted to
the holders of Preferred Stock, the holders of Common Stock shall have (a) the
right to receive dividends, when and as declared by the Board of Directors of
the Corporation out of the assets of the Corporation available for the payment
of dividends under the laws of the State of Delaware, and (b) upon any
liquidation (complete or partial), dissolution or winding up of the Corporation,
whether voluntary or involuntary, the right to receive ratably all assets of the
Corporation remaining after the payment to the holders of Preferred Stock of any
amount which such holders are entitled to receive in preference to the holders
of Common Stock upon such liquidation, dissolution or winding up of the
Corporation, as provided in any Certificate of Designations, Powers, Preferences
and Rights of the Preferred Stock adopted by the Board of Directors, and subject
to any right the Preferred Stock may have to participate in the distribution of
such assets as provided in any Certificate of Designations, Powers, Preferences
and Rights of the Preferred Stock.
2. Voting. Each share of Common Stock shall entitle the holder thereof
to one vote, in person or by proxy, at any and all meetings of the
stockholders of the Corporation, on all propositions before such meetings.
FIFTH: The name and address of the Incorporator is as follows:
Name Address
--------------- ---------------------
Michael B. Fischer Rudnick & Wolfe
203 N. LaSalle St., Suite 1800
Chicago, Illinois 60601
SIXTH: The number of directors of the Corporation which shall constitute
the entire Board shall initially be sixteen (16), but such number may be changed
from time to time to a number not less than five (5) nor more than sixteen (16)
by resolution adopted by a majority of the entire Board; provided, however, that
the number of directors constituting the entire Board shall not be decreased by
the Board of Directors below the number then in office unless such decrease
shall become effective at any annual meeting of stockholders to the extent terms
of office are then expiring. As used in this Article SIXTH, "entire Board" means
the total number of directors which the Corporation would have if there were no
vacancies. Any director or directors may be removed from office only for cause
and only by the vote of eighty percent(80%) of the voting power of all the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class. Any vacancy on the
Board of Directors that
<PAGE>
results for any reason, including an increase in the number of directors, may be
filled by the affirmative vote of a majority of the directors then in office.
SEVENTH: Any of the following actions must be approved by the holders of
two-thirds of the outstanding shares of stock entitled to vote thereon:
(a) a plan of merger in which the Corporation merges into another
corporation or in which one or more corporations (other than solvent
corporations at least 90% of the outstanding share of each class of which
are owned by the Corporation) merge into the Corporation, or a plan of
consolidation with one or more corporations or a plan of mandatory share
exchange with another corporation;
(b) a sale, lease, exchange or other disposition of all, or
substantially all, of the Corporation's property and assets, with or
without goodwill, if not made in the usual and regular course of the
Corporation's business; and
(c) the voluntary dissolution of the Corporation.
EIGHTH: The following provisions are inserted for management of the
business and conduct of the affairs of the Corporation and to define and
regulate the powers of the Corporation, the directors and the stockholders:
(a) Election of directors need not be by written ballot unless the
by-laws so provide.
(b) The Board of Directors of the Corporation shall have power without
the assent or vote of the stockholders to make, alter, amend, change, add
to or repeal the by-laws of the corporation; to fix and vary the amount of
capital stock or cash to be reserved for any proper purpose; to authorize
and cause to be executed mortgages and liens upon all or any part of the
property of the Corporation; to determine the use and disposition of any
surplus or net profits; and to fix the times for
the declaration and payment of dividends.
<PAGE>
(c) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering
any such act or contract, and any contract or act that shall be approved or
be ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote there at (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding
upon the Corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(d) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation; subject, nevertheless, to the
provisions of the statutes of Delaware, of this Certificate and to any
by-laws from time to time made by the stockholders; provided however, that
no by-laws so made shall invalidate any prior act of the directors which
would have been valid if such by-law had not been made.
<PAGE>
NINTH: The Corporation shall to the full extent provided by Section 145 of
the Delaware General Corporation Law, as amended from time to time, indemnify
all persons whom it may indemnify pursuant thereto.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the Provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
<PAGE>
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any of the provisions contained in its certificate of incorporation in
the manner now or hereafter prescribed by statute, and all rights conferred on
officers, directors and stockholders herein are granted subject to this
reservation; provided, that the affirmative vote of the holders of record of
outstanding shares representing at least two-thirds (2/3rds) of the voting power
of all of the shares of capital stock of the Corporation then entitled to vote
generally, voting together as a single class, shall be required to amend, alter,
change or repeal any provision of, or to adopt any provision or provisions
inconsistent with Articles SIXTH and SEVENTH of this Certificate of
Incorporation.
TWELFTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article
TWELFTH shall not eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derives an improper personal
benefit. No amendment to or repeal of this Article TWELFTH shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director and
occurring prior to such amendment or repeal. If the Delaware General
Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law, as
so amended.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
DATED: August 2, 1995.
/s/ Michael B. Fischer
<PAGE>
EXHIBIT 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/29/1996
960026950 - 2530006
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
U.S. TELNET HOLDINGS, INC.
Pursuant to Section 241 of the General
Corporation Law of the State of Delaware
THE UNDERSIGNED, being the Chairman of the Board of Directors of U.S.
TELNET HOLDINGS, INC., A Delaware corporation, does hereby certify as follows:
FIRST: That the Certificate of Incorporation has been amended by
striking out Article FIRST as it now exists and inserting in lieu thereof the
following:
FIRST: The name of the corporation is USTN HOLDINGS, INC.
SECOND: That the corporation has not received any payment for any of its
stock and that this amendment has been duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware by resolutions of the board of directors.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of
September, 1995.
/s/ Michael B. Fischer
----------------------------------------
Assistant Secretary
<PAGE>
EXHIBIT 3.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/29/1996
960026950 - 2530006
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
USTN HOLDINGS, INC.
Pursuant to Section 241 of the General
Corporation Law of the State of Delaware
THE UNDERSIGNED, being the Chairman of the Board of Directors of USTN
HOLDINGS, INC., a Delaware corporation, does hereby certify as follows:
FIRST: That the Certificate of Incorporation has been amended by
striking out the first paragraph of Article FOURTH as it now exists and
inserting in lieu thereof the following:
The total number of shares of stock which the Corporation shall have
authority to issue is Twelve Million One Hundred Thousand (12,100,000)
shares of stock, of which One Hundred Thousand (100,000) shares shall
be Preferred Stock, par value $.01 per share ("Preferred Stock"), and
Twelve Million (12,000,000) shares shall be Common Stock, par value
$.01 per share ("Common Stock").
SECOND: That the corporation has not received any payment for any of its
stock and that this amendment has been duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware by resolutions of the board of directors.
IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of January,
1996.
/s/ Greg Wilkinson
------------------------------------------
Greg Wilkinson, Chairman of the Board
<PAGE>
EXHIBIT 4.3
==============================================================================
----------------------
FIRST SUPPLEMENTAL INDENTURE
----------------------
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
AND
USTN HOLDINGS, INC.
AND
USTN SERVICES, INC.
AND
UMB BANK, N.A., TRUSTEE
Dated as of February 12, 1996
--------------------------
SUPPLEMENTAL TO INDENTURE
DATED AUGUST 15, 1991
==============================================================================
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of February 12, 1996 (the
"Supplemental Indenture"), between INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.,
a Delaware corporation (the "Company"), USTN HOLDINGS, INC. (f/k/a U.S. TelNet
Holdings, Inc.), a Delaware corporation ("Holdings"), USTN SERVICES, INC. (f/k/a
U.S. TelNet Services, Inc.), a Delaware corporation ("Services"), and UMB BANK,
N.A. (f/k/a United Missouri Bank, N.A.), as Trustee (the "Trustee"), to an
Indenture dated as of August 15, 1991 (the "Indenture"), between the Company and
the Trustee.
WHEREAS, the Company has heretofore executed and delivered the Indenture to
the Trustee for the authentication, delivery and administration of the Company's
$13,248,000 principal amount 7.5% convertible redeemable subordinated debentures
due August 15, 2001 (the "Securities") issued pursuant to the Indenture; and
WHEREAS, Section 5.1 of the Indenture provides in part that the corporation
surviving any merger to which the Company is a party (if such surviving
corporation is not the Company) shall enter into a supplemental indenture
assuming the obligations of the Company under the Indenture (except for
obligations as to conversion of the Securities if a supplemental indenture is
entered into pursuant to Section 10.9 of the Indenture); and
WHEREAS, Section 10.9 of the Indenture provides, among other things, that
if the Company is a party to a merger which reclassifies or changes its
outstanding common stock, upon consummation of the transaction the Securities
shall automatically become convertible into the kind and amount of securities,
cash or other assets which the Holder (as defined in the Indenture) of a
Security would have owned immediately after the merger if the Holder had
converted the Security immediately before the effective date of the merger; and
WHEREAS, Section 10.9 of the Indenture also provides that concurrently with
the consummation of the merger, the person obligated to issue securities or
deliver cash or other assets upon conversion of the Securities shall enter into
a supplemental indenture so providing and further providing for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in Article 10 of the Indenture; and
<PAGE>
WHEREAS, the Company, on August 3, 1995, entered into an Agreement and
Plan of Merger (the "Merger Agreement") by and among the Company, U.S. Intelco
Holdings, Inc., a Washington corporation ("USIH"), Holdings and Services, under
which the Company and USIH shall be merged with and into Services (the
"Merger"); and
WHEREAS, the Company, the Trustee, Holdings and Services desire to execute
this Supplemental Indenture for the purpose of complying with the provisions of
Sections 5.1 and 10.9 of the Indenture and the Company has requested and does
hereby request the Trustee to join with the Company, Holdings and Services in
the execution and delivery of this Supplemental Indenture; and
WHEREAS, all acts and things necessary to make this Supplemental Indenture,
when duly executed and delivered, a valid, binding and legal instrument in
accordance with its terms and for the purposes herein expressed, have been done
and performed by the parties hereto; and the execution and delivery of this
Supplemental Indenture have been in all respects duly authorized by said
parties;
NOW, THEREFORE, in consideration of the premises and other consideration,
the receipt of which is hereby acknowledged, the Company, the Trustee, Holdings
and Services mutually covenant and agree, for the equal and proportionate
benefit of the respective Holders from time to time of the Securities, as
follows:
ARTICLE I
DEFINITIONS
The use of the terms and expressions herein is in accordance with the
definitions, uses and constructions contained in the Indenture and the
Securities.
ARTICLE II
ASSUMPTION OF RIGHTS AND OBLIGATIONS
At the Effective Time of the Merger (as defined in the Merger Agreement)
and pursuant to this Supplemental Indenture and the Merger Agreement: (a)
Services shall assume the rights and obligations of the Company as set forth in
the Indenture except for obligations of the Company as to conversion of the
Securities and (b) Holdings shall assume the rights and obligations of the
Company as to conversion of the Securities. From and after the Effective Time,
all references in the Indenture to (i) "Securities" shall mean Holdings
Securities (as defined below), (ii) the "Company" shall mean Services, (iii)
"Common Stock" shall mean Holdings Common Stock (as defined below) and (iv)
"Series A Convertible Preferred Stock" shall mean Holdings Series A Preferred
Stock as it exists as of the Effective Time or as it may be constituted from
time to time.
ARTICLE III
CONVERSION
Pursuant to the terms and conditions of the Merger Agreement, each Security
outstanding as of the Effective Time that is not converted into Holdings Common
Stock at the election of the Holder thereof will be automatically converted into
a 7.5% convertible redeemable subordinated debenture due August 15, 2001 of
Holdings (a "Holdings Security") with the same rights and obligations as set
forth for Securities in the Indenture, except that Section 10.1 of the Indenture
is amended and restated in its entirety as follows:
SECTION 10.1 CONVERSION PRIVILEGE. A Holdings Security may be
converted by the Holder thereof into ninety (90) shares of Holdings Common Stock
for each One Thousand Dollars ($1,000) in principal amount of such Holdings
Security at any time during the period set forth in paragraph 8 of the Holdings
Securities.
"HOLDINGS COMMON STOCK" means Common Stock of Holdings as it exists as
of the Effective Time or as it may be constituted from time to time.
ARTICLE IV
THE TRUSTEE
The Trustee shall not be responsible in any manner whatsoever for, or in
respect of, the validity or sufficiency of this Supplemental Indenture or the
due execution hereof by the Company and Holdings, or for, or in respect of, the
recitals and statements contained herein, all of which recitals and statements
are made solely by the Company and Holdings.
No duties, responsibilities or liabilities are assumed, or shall be
construed to be assumed, by the Trustee by reason of this Supplemental Indenture
other than as set forth in the Indenture; and this Supplemental Indenture is
executed and accepted on behalf of the Trustee, subject to all the terms and
conditions set forth in the Indenture, as fully to all intents as if this
Supplemental Indenture were a part of and set forth in the Indenture.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 EXECUTION OF SUPPLEMENTAL INDENTURE. Except insofar as
herein expressly provided, all the provisions, definitions, terms and conditions
of the Indenture, as supplemented and amended, shall be deemed to be
incorporated in, and made a part of, this Supplemental Indenture; and the
Indenture as supplemented and amended by this Supplemental Indenture is in all
respects ratified and confirmed; and the Indenture, as supplemented and amended
by this Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 5.2 CONFLICT WITH TRUST INDENTURE ACT. If any provision of
this Supplemental Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Supplemental Indenture by any
of the provisions of the Trust Indenture Act, as amended from time to time, the
required provision shall control.
SECTION 5.3 BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this
Supplemental Indenture is intended, or shall be construed, to give to any person
or corporation, other than the parties hereto and the Securityholders, any legal
or equitable right, remedy or claim under or in respect of this Supplemental
Indenture, or under any covenant, condition or provision herein contained, all
the covenants, conditions and provisions of this Supplemental Indenture being
intended to be, and being, for the sole and exclusive benefit of the parties
hereto and of the Securityholders.
<PAGE>
SECTION 5.4 SUCCESSORS AND ASSIGNS. All covenants, stipulations and
agreements in this Supplemental Indenture contained by or on behalf of Holdings
shall bind and (subject to the provisions of the Indenture, as supplemented and
amended from time to time) inure to the benefit of its successors and assigns,
whether so expressed or not.
SECTION 5.5 SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture or in the Holdings Securities shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 5.6 EFFECT OF HEADINGS. The headings of the several Articles
of this Supplemental Indenture and the Sections thereof are inserted for
convenience of reference, and shall not be deemed to be a part hereof.
SECTION 5.7 EXECUTION AND COUNTERPARTS. This Supplemental Indenture
may be executed in any number of counterparts, and each of such counterparts
when so executed shall be deemed to be an original; but all such counterparts
shall together constitute but one and the same instrument.
SECTION 5.8 GOVERNING LAW. The internal laws of the state of Missouri
shall govern this Supplemental Indenture and the Holdings Securities.
IN WITNESS WHEREOF, the Company and Holdings have each caused this
Supplemental Indenture to be executed by its Chairman of the Board or its
President or one of its Vice Presidents and its corporate seal to be hereunto
affixed, duly attested by its Secretary or one of its Assistant Secretaries, and
UMB Bank, N.A., as Trustee as aforesaid, has caused the same to be executed by
its President or one of its Vice Presidents and its corporate seal to be
hereunto affixed, duly attested by its Secretary or one of its Assistant
Secretaries, as of the day and year first above written.
<PAGE>
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
(Corporate Seal)
/s/ Richard A. Lumpkin
By: _______________________________________
Name: Richard A. Lumpkin
Title: Chairman
ATTEST:
/s/ Richard D. Ares
- --------------------------
Name: Richard D. Ares
Title: Secretary
USTN HOLDINGS, INC.
(Corporate Seal)
/s/ Gregory J. Wilkinson
By: _____________________________________
Name: Gregory J. Wilkinson
Title: Treasurer
ATTEST:
/s/ Theodore D. Berns
- -----------------------
Name: Theodore D. Berns
Title: Secretary
USTN SERVICES, INC.
(Corporate Seal)
/s/ Gregory J. Wilkinson
By: _____________________________________
Name: Gregory J. Wilkinson
Title: Treasurer
ATTEST:
/s/ Theodore D. Berns
- -------------------------
Name: Theodore D. Berns
Title: Secretary
<PAGE>
UMB BANK, N.A., as Trustee
(Corporate Seal)
/s/ Frank Bramwell
By:___________________________________
Name: Frank Bramwell
Title: Vice President
ATTEST:
/s/ R. William Bloemicer
- -------------------------
Name: William Bloemicer
Title: Assistant Secretary
STATE OF WASHINGTON )
) ss.
COUNTY OF THURSTON )
On this 12th day of February, 1996, before me appeared Richard A. Lumpkin,
to me personally known, who, being by me duly sworn, did say that he is Chairman
of Independent Telecommunications Network, Inc., a corporation described in and
which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors, and said Richard A. Lumpkin acknowledged said instrument
to be the free act and deed of said corporation.
/s/ Cathy A. Mack
(Notarial Seal) ____________________________________
Notary Public
My Commission Expires:
04/10/96
- --------------------------
STATE OF KANSAS )
) ss.
COUNTY OF COOK )
On this 12th day of February, 1996, before me appeared Gregory J.
Wilkinson, to me personally known, who, being by me duly sworn, did say that he
is Treasurer of USTN Holdings, Inc., a corporation described in and which
executed the foregoing instrument, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed on behalf of said corporation by authority of its board of
directors, and said Gregory J. Wilkinson acknowledged said instrument to be the
free act and deed of said corporation.
/s/ Lisa Allers
(Notarial Seal) _____________________________________
Notary Public
My Commission Expires:
09/29/97
- ------------------------
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF COOK )
On this 12th day of February, 1996, before me appeared Gregory J.
Wilkinson, to me personally known, who, being by me duly sworn,
did say that he is Treasurer of USTN Services, Inc., a corporation described in
and which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors, and said Gregory J. Wilkinson acknowledged said
instrument to be the free act and deed of said corporation.
/s/ Lisa Allers
(Notarial Seal) _______________________________________
Notary Public
My Commission Expires:
09/29/97
- ------------------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
On this 12th day of February, 1996, before me appeared Frank Bramwell, to
me personally known, who, being by me duly sworn, did say that he is Vice
President of UMB Bank, N.A., a national banking association described in and
which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the association seal of said national banking
association, and that said instrument was signed and sealed on behalf of said
UMB, N.A. by authority of its board of directors, and said Frank C.Bramwell
acknowledged said instrument to be the free act and deed of said Frank C.
Bramwell.
/s/ Linda Wilson
(Notarial Seal) _______________________________________
Notary Public
My Commission Expires:
07/12/96
- --------------------------
<PAGE>
EXHIBIT 4.4
==============================================================================
---------------------
SECOND SUPPLEMENTAL INDENTURE
---------------------
USTN HOLDINGS, INC.
AND
USTN SERVICES, INC.
AND
UMB BANK, N.A., TRUSTEE
Dated as of June 24, 1996
-----------------------
SUPPLEMENTAL TO INDENTURE
DATED AUGUST 15, 1991
=============================================================================
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of June 24, 1996 (the "Supplemental
Indenture"), between USTN HOLDINGS, INC., a Delaware corporation ("Holdings"),
USTN SERVICES, INC., a Delaware corporation ("Services"), and UMB BANK, N.A.
(f/k/a United Missouri Bank, N.A.), as Trustee (the "Trustee"), to an Indenture
dated as of August 15, 1991, between Independent Telecommunications Network,
Inc. and the Trustee.
WHEREAS, Section 2.6 of the Indenture provides that the Securities may only
be sold or otherwise transferred together with the shares of Series A
Convertible Preferred Stock (the "Series A Stock") issued as a unit with the
Securities; and
WHEREAS, the Trustee, Holdings and Services desire to permit holders of the
Securities to transfer the Securities without the Series A Stock issued as a
unit with such Securities when the separation of the Securities from the Series
A Stock resulted from an involuntary event; and
WHEREAS, Section 2.6 of the Indenture does not adequately address the
situation when the occurrence of an involuntary event results in the separation
of the Securities from the Series A Stock; and
WHEREAS, Section 9.1 of the Indenture permits an amendment of the Indenture
without the consent of any Securityholder to cure any ambiguity, defect or
inconsistency in the Indenture; and
WHEREAS, all acts and things necessary to make this Supplemental Indenture,
when duly executed and delivered, a valid, binding and legal instrument in
accordance with its terms and for the purposes herein expressed, have been done
and performed by the parties hereto; and the execution and delivery of this
Supplemental Indenture have been in all respects duly
authorized by said parties;
NOW, THEREFORE, in consideration of the premises and other consideration,
the receipt of which is hereby acknowledged, the Trustee, Holdings and Services
mutually covenant and agree, for the equal and proportionate benefit of the
respective Holders from time to time of the Securities, as follows:
ARTICLE I
DEFINITIONS
The third paragraph of Section 2.6 of the Indenture is hereby deleted and
replaced in its entirety with the following language:
<PAGE>
"The Securities may only be sold or otherwise transferred as a unit with
the Series A Stock issued as a unit with the Securities; PROVIDED, HOWEVER,
that, if Securities held by a Securityholder are separated from the Series A
Stock due to the redemption of the Series A Stock by the Company, the
cancellation of Series A Stock by operation of law or the occurrence of any
event that is involuntary on the part of the Securityholder (as determined by
Holdings and Services in their discretion), then such Securityholder (and any
transferee of the Securities) shall be permitted to transfer such Securities
without the Series A Stock issued as a unit with such Securities upon written
notice to the Trustee, Holdings and Services." Prior to the authentication of
any Security, the Company and Holdings shall provide the Trustee with written
certification of the transferability of such Security pursuant to this Section.
ARTICLE II
THE TRUSTEE
The Trustee shall not be responsible in any manner whatsoever for, or in
respect of, the validity or sufficiency of this Supplemental Indenture or the
due execution hereof by Holdings or Services, or for, or in respect of, the
recitals and statements contained herein, all of which recitals and statements
are made solely by Holdings and Services.
No duties, responsibilities or liabilities are assumed, or shall be
construed to be assumed, by the Trustee by reason of this Supplemental Indenture
other than as set forth in the Indenture; and this Supplemental Indenture is
executed and accepted on behalf of the Trustee, subject to all the terms and
conditions set forth in the Indenture, as fully to all intents as if this
Supplemental Indenture were a part of and set forth in the Indenture.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 EXECUTION OF SUPPLEMENTAL INDENTURE. Except insofar as
herein expressly provided, all the provisions, definitions, terms and
conditions of the Indenture, as supplemented and amended, shall be deemed to
be incorporated in, and made a part of, this Supplemental Indenture; and the
Indenture as supplemented and amended by this Supplemental Indenture is in all
respects ratified and confirmed; and the Indenture, as supplemented and amended
by this Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 3.2 CONFLICT WITH TRUST INDENTURE ACT. If any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
which is required to be included in this Supplemental Indenture by any of the
provisions of the Trust Indenture Act, as amended from time to time, the
required provision shall control.
-2-
<PAGE>
SECTION 3.3 BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this
Supplemental Indenture is intended, or shall be construed, to give to any person
or corporation, other than the parties hereto and the Securityholders, any legal
or equitable right, remedy or claim under or in respect of this Supplemental
Indenture, or under any covenant, condition or provision herein contained, all
the covenants, conditions and provisions of this Supplemental Indenture being
intended to be, and being, for the sole and exclusive benefit of the parties
hereto and of the Securityholders.
SECTION 3.4 SUCCESSORS AND ASSIGNS. All covenants, stipulations and
agreements in this Supplemental Indenture contained by or on behalf of Holdings
or Services shall bind and (subject to the provisions of the Indenture, as
supplemented and amended from time to time) inure to the benefit of its
successors and assigns, whether so expressed or not.
SECTION 3.5 SEPARABILITY CLAUSE. In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 3.6 EFFECT OF HEADINGS. The headings of the several Articles of
this Supplemental Indenture and the Sections thereof are inserted for
convenience of reference, and shall not be deemed to be a part hereof.
SECTION 3.7 EXECUTION AND COUNTERPARTS. This Supplemental Indenture may be
executed in any number of counterparts, and each of such counterparts when so
executed shall be deemed to be an original; but all such counterparts shall
together constitute but one and the same instrument.
SECTION 3.8 GOVERNING LAW. The internal laws of the state of Missouri
shall govern this Supplemental Indenture.
IN WITNESS WHEREOF, Holdings and Services have each caused this
Supplemental Indenture to be executed by its Chairman of the Board or its
President or one of its Vice Presidents and its corporate seal to be hereunto
affixed, duly attested by its Secretary or one of its Assistant Secretaries, and
UMB Bank, N.A., as Trustee as aforesaid, has caused the same to be executed by
its President or one of its Vice Presidents and its corporate seal to be
hereunto affixed, duly attested by its Secretary or one of its Assistant
Secretaries, as of the day and year first above written.
-3-
<PAGE>
USTN HOLDINGS, INC.
(Corporate Seal)
/s/ Daniel E. Weiss
By:_________________________________
Name: Daniel E. Weiss
Title: Vice President - Finance and
Secretary/Treasurer
ATTEST:
/s/ Cathy Mack
- -------------------
Name: Cathy Mack
Title: Assistant Secretary
USTN SERVICES, INC.
(Corporate Seal)
/s/ Daniel E. Weiss
By:__________________________________
Name: Daniel E. Weiss
Title: Vice President - Finance and
Secretary/Treasurer
ATTEST:
/s/ Cathy Mack
- -------------------------
Name: Cathy Mack
Title: Assistant Secretary
UMB BANK, N.A., as Trustee
(Corporate Seal)
/s/ Frank C. Bramwell
By:___________________________________
Name: Frank C. Bramwell
Title: Vice President
ATTEST:
/s/ R. William Bloemicer
- --------------------------
Name: R. William Bloemicer
Title: Assistant Secretary
-4-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF THURSTON )
On this 24th day of June, 1996, before me appeared Daniel E. Weiss, to me
personally known, who, being by me duly sworn, did say that he is Vice President
- - Finance of USTN Holdings, Inc., a corporation described in and which executed
the foregoing instrument, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument was signed
and sealed on behalf of said corporation by authority of its board of directors,
and said Daniel E. Weiss acknowledged said instrument to be the free act and
deed of said corporation.
/s/ Cathy A. Mack
(Notarial Seal) _____________________________________
Notary Public
My Commission Expires:
04/10/00
- -------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF THURSTON )
On this 24th day of June, 1996, before me appeared Daniel E. Weiss, to me
personally known, who, being by me duly sworn, did say that he is Vice President
- - Finance of USTN Services, Inc., a corporation described in and which executed
the foregoing instrument, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument was signed
and sealed on behalf of said corporation by authority of its board of directors,
and said Daniel E. Weiss acknowledged said instrument to be the free act and
deed of said corporation.
/s/ Cathy A. Mack
(Notarial Seal) _____________________________________
Notary Public
My Commission Expires:
04/10/00
- -------------------------
-5-
<PAGE>
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
On this 19th day of June, 1996, before me appeared Frank C. Bramwell, to me
personally known, who, being by me duly sworn, did say that he is Vice-President
of UMB Bank, N.A., a National Banking Association described in and which
executed the foregoing instrument, and that the seal affixed to the foregoing
instrument is the association seal of said national banking association, and
that said instrument was signed and sealed on behalf of said UMB Bank, N.A. by
authority of its board of directors, and said Frank C. Bramwell acknowledged
said instrument to be the free act and deed of said UMB Bank, N.A.
/s/ Linda Wilson
(Notarial Seal) ____________________________________
Notary Public
My Commission Expires:
07/12/00
- -----------------------
-6-
<PAGE>
EXHIBIT 4.5
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/06/1995
950231014 - 2530006
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
($.01 PAR VALUE)
OF
USTN HOLDINGS, INC.
Pursuant to Section 151 of the Delaware General Corporation Law
1. DESIGNATION
The designation of the series of Preferred Stock created by this Resolution
shall be the Series A Convertible Preferred Stock (hereinafter called this
"Series") and the number of shares constituting this Series is Four
Thousand Four Hundred and Sixteen (4,416).
2. DIVIDENDS
Dividends shall be declared, set aside and paid on this Series only upon
resolution of the Board of Directors of the Corporation; provided that no
dividends may be declared, set aside or paid on this Series unless
dividends are declared, set aside or paid simultaneously to holders of the
common stock of the Corporation.
3. LIQUIDATION PREFERENCE
In the event of voluntary or involuntary liquidation, dissolution, or
winding-up of the affairs of the Corporation, whether complete or partial,
the holders of the shares of this Series shall be entitled to and shall
receive total cash payments equal to One Thousand Dollars ($1,000.00) per
share (the "Liquidation Preference Amount") out of the assets of the
Corporation available for distribution to its stockholders, but before any
payment or distribution is made to holders of the shares of the common
stock or of any other series of preferred stock of the Corporation. If upon
the occurrence of such event the assets and property to be distributed
among the holders of this Series, shall be insufficient to permit the
payment to such holders of this Series of the full Liquidation Preference
Amount, then the entire remaining assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of this Series.
4. VOTING RIGHTS
The holders of shares of this Series shall be entitled to one hundred (100)
votes per share with respect to all matters submitted to the Corporation's
shareholders for decision and will be entitled to vote separately as a
Series with respect to the approval of the sale, lease, exchange or other
disposition of all or substantially all of the Corporation's property and
assets, or the merger or consolidation of the Corporation with or into any
other corporation or entity, if such approval is required by law.
5. CONVERSION
(a) Each share of this Series shall be convertible into 85.12 shares of the
common stock, $.01 par value, of the Corporation (the "Conversion
Amount"), at the option of the holder thereof at any time that the
holder elects to convert the Corporation's 7.5% Convertible
Subordinated Debenture due August 15, 2001 (the "Debenture") issued
as a unit with such share.
(b) Each share of this Series shall be convertible, at the option of the
Corporation, into the Conversion Amount, at any time that the Debenture
issued as a unit with such share is converted into shares of common
stock, $.01 par value, of the Corporation.
(c) In the event the corporation shall at any time subdivide the
outstanding shares of common stock, or shall issue a stock dividend on
its outstanding common stock, the Conversion Amount shall be
proportionately increased, and in case the Corporation shall at any
time combine the outstanding shares of common stock, the Conversion
<PAGE>
Amount in effect immediately prior to such combination shall be
proportionately decreased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may be.
In the event the Corporation merges or otherwise reorganizes or
consolidates with any other corporation or corporations, the holder of
any share of this Series shall have the right to receive from any
surviving corporation preferred stock with the same or substantially
identical rights, privileges and preferences as the shares of this
Series; provided, however, that an aggregate of two-thirds of the
holders of this Series may elect not to receive such preferred stock
from the surviving corporation, in which case no holders of this Series
shall be entitled to receive such preferred stock.
(d) The holder of any share of this Series may exercise the conversion
rights as to such share by delivering to the Corporation during
regular business hours, at the principal office of the Corporation,
the certificate or certificates for the shares to be converted, duly
endorsed for transfer to the Corporation (if required by the
Corporation), and accompanied by written notice stating that the
holder elects to convert such shares. Conversion shall be deemed to
have been effective on the date when such delivery is made, and
such date is referred to herein as the Conversion Date. As promptly
as practicable thereafter, the Corporation shall issue and deliver to
or upon the written order of such holder, at such office, a
certificate or certificates for the number of shares of common stock
to which such holder is entitled. The holder shall be deemed to have
become a shareholder of common stock of record on the applicable
Conversion bate unless the transfer books of the Corporation are
closed on that date, in which event such holder shall be deemed to
have become a shareholder of common stock of record on the next
succeeding date on which the transfer books are open.
(e) In the event the Corporation elects to exercise its right to convert
any shares of this Series pursuant to paragraph (b) above, the
Corporation shall notify the holder of such shares of the
Corporation's election to convert and the number of shares to be
converted. Upon receipt of such notice the holder shall deliver to
the Corporation during regular business hours, at the principal
office of the Corporation, their certificate or certificates for the
shares to be converted, duly endorsed for transfer to the Corporation
(if required by the Corporation). As promptly as practicable
thereafter, the Corporation shall issue and deliver to such holder a
certificate or certificates for the number of shares of common stock
to which such holder is entitled. The shares of this Series shall he
deemed converted as of the mailing of the notice of conversion,
however, such holder shall not be deemed to have become a shareholder
of common stock of record until his certificate or certificates for
the shares to be converted have been delivered to the Corporation.
The holder shall be deemed to have become a shareholder of common
stock of record on such delivery date unless the transfer books of
the Corporation are closed on that date; in which event such holder
shall be deemed to have become a shareholder of common stock of
record on the next succeeding date on which the transfer books are
open.
(f) The Corporation shall at all times reserve and keep available, out of
its authorized but unissued common stock, solely for the purpose of
effecting the conversion of the shares of this Series, the full number
of shares of common stock deliverable upon the conversion of all shares
of this series from time to time outstanding.
(g) All shares of common stock which may be issued upon conversion of the
shares of this Series will upon issuance by the Corporation be validly
issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
6. TRANSFER
A holder may transfer shares of the Series only as a unit with the
Debentures issued in connection with such shares.
IN WITNESS WHEREOF, USTN Holdings, Inc. has caused this Certificate to be
signed this 9th day of October, 1995.
USTN HOLDINGS, INC.
By: /s/ Michael B. Fischer
------------------------------------
Its: Asst. Secretary
<PAGE>
EXHIBIT 10.2
USTN HOLDINGS, INC.
ILLUMINET
1996 EXECUTIVE LONG-TERM BONUS PLAN
Preamble
This Illuminet, Inc. Executive Long-Term Bonus Plan (the "Plan") is an
unfunded bonus and deferred compensation arrangement for a select group of
management or highly compensated personnel.
ARTICLE I
DEFINITIONS
"Eligible Comp" means the base salary for the Participant as of the first
day of the Performance Measurement Period.
"Beneficiary" means the person or entity designated by a Participant on the
most recently dated Beneficiary Designation Form signed by such Participant and
delivered to the Committee.
"Beneficiary Designation Form" means the form designated by the Committee
from time to time as the document to be used by Participants to select a person
or entity to receive any payments due such Participant in the event of such
Participant's death prior to the date of such payment.
"Board" means the Board of Directors of the Company.
"Bonus" means the bonus calculated for a Participant in accordance with
Article II and paid in accordance with Article III.
"Committee" means the Personnel Committee of the Board.
"Company" means Illuminet, Inc., a Delaware corporation.
"Disability" means mental or physical disability (i) of at least six months
which, in the determination of a physician selected by the Company, prevents a
Participant from engaging in the principal duties of his employment or (ii) has
qualified the individual for coverage under the Company's long-term disability
insurance plan.
"Fiscal year" or "year" (unless otherwise specified) means the fiscal year
of the Company as now constituted or as it may be changed hereafter from time to
time.
"Participant" means an employee of the Company, or of a Subsidiary,
designated by the Committee for participation in the benefits of the Plan, or a
person who was such at the time of his/her retirement, death, disability or
resignation and who retains, or whose Beneficiaries retain benefits under the
Plan in accordance with its terms.
"Performance Measurement Period" shall mean the fiscal year of the company
as now constituted, beginning January 1 of each calendar year.
"Performance Measurement Area" means the performance criteria by which
Bonuses shall be determined.
"Plan" means this Executive Long-Term Bonus Plan as it may be amended from
time to time.
"Retirement" means retirement at or after attaining age 60 or such earlier
age as may be approved for a Participant by the Committee.
"Stretch Point" means the maximum achievable value for which a Participant
will be given credit for any quantifiable Performance Measurement Area.
"Subsidiary" means an entity of which the Company owns, directly or
indirectly, at least a majority of the voting securities or interests.
"Target Point" means the projected achievable value for which a Participant
will be given credit for any quantifiable Performance Measurement Area.
ARTICLE II
DESIGNATION OF PARTICIPANTS AND
CALCULATION OF BONUS AMOUNTS
Section 2.01 Committee Designations.
(a) The Committee shall meet before the beginning of each Performance
Measurement Period and designate:
(1) The name of each Participant.
(2) The Performance Measurement Areas either for the Plan as a whole or an
individual Participant, in each case for the purpose of determining
the amount of each Participant's Bonus for that Performance
Measurement Period;
(3) The percentage of Base Salary to which the Stretch Point and the
Target Point shall be applied for each Participant for that
Performance Measurement Period;
(4) The Stretch Point and Target Point for the Plan as a whole or for an
individual Participant for that Performance Measurement Period; and
(5) The formula by which a Participant's Performance Measurement Areas
shall be evaluated in determining what the total Bonus for each
Participant shall be.
Section 2.02 Calculation of Bonus. The Committee shall determine which
established performance criteria have been achieved by each Participant, whether
a Participant has achieved the Stretch Point or Target Point for any criteria,
and the calculation of the Bonus pursuant to the formula designated for each
Participant. This will occur 90 days after the close of the Performance
Measurement Period (fiscal year).
In no event will any bonus be earned or payable under this Plan unless the
Company's earnings before interest, taxes, depreciation, and amortization
(EBITDA) equals at least 80% of the Company's budgeted EBITDA for the
Performance Measurement Period.
Section 2.03 Election. Each participant may make an irrevocable election for
his/her Bonus for any Performance Measurement Period to be paid in Cash or
Shares.
An annual valuation of the Company's shares will be conducted by the committee
and all Plan Participants will be notified in writing of such valuation.
Participant's payment election will be required within 10 business days of
receipt of the valuation notice.
If a Participant elects to have the Bonus paid in Shares, the number of Shares
credited to a Participant's account pursuant to Article 111 shall be the amount
of the Bonus divided by (i) the closing sale price of the Company's common stock
on the first trading day of that Performance Measurement Period as reported by
the NASDAQ Stock Market or, if the common stock is traded on a national
securities exchange then as reported by that exchange or (ii) if the Shares are
not publicly traded, the value per Share as determined by a market
price valuation as of the beginning of the Performance Measurement Period
performed by an independent third party approved by the Board or if no such
valuation has been performed within the preceding 15-month period, then the
value per Share shall be determined by the Board as of the beginning of the
Performance Measurement Period. If no election is made, the Bonus will be paid
in cash.
Section 2.04 Mid-Period Termination. In the event a Participant's employment
terminates prior to the end of a Performance Measurement Period, other than in a
manner resulting in a forfeiture under Section 3.06, such Participant's Bonus
shall be calculated based on the results of the Bonus calculation for that
Participant through such date of termination, extrapolated to a full Performance
Measurement Period basis, and then prorated for the portion of the Performance
Measurement Period prior to termination. Such prorated Bonus shall be paid in
accordance with the terms of Section 3.01.
ARTICLE III
PAYMENT OF BONUS AND FORFEITURES
Section 3.01 Payment Terms. At the end of each Performance Measurement Period,
Bonuses shall be calculated and credited to a Participant's account, as
described in Section 3.02. Bonuses will be paid no later than the 90th day after
the date on which the Participant becomes vested under Section 3.05. Interest
will begin to accrue from the close of the Performance Measurement Period of the
Long Term Plan, at the actual rate, if any, earned on the company's cash account
at it's primary financial institution.
Section 3.02 Participant Account. The Committee shall cause an account to be
kept in the name of each Participant and each Beneficiary which shall reflect
the dollar value of any Bonus payable to such Participant or Beneficiary under
the Plan.
Section 3.03 Contingent Interest. Until and except to the extent that deferred
benefits hereunder are distributed to or vested in the Participants or
Beneficiaries from time to time in accordance with this Plan or orders of the
Committee, the interest of each Participant and Beneficiary therein is
contingent only and is subject to forfeiture as provided in Section 3.05. Title
to and beneficial ownership of any assets, whether cash or investments, which
the Company may set aside or earmark to meet its contingent or vested deferred
obligations hereunder, shall at all times remain in the Company; no Participant
or Beneficiary shall under any circumstances acquire any property interest in
any specific assets of the Company; and no assets shall secure the Company's
obligations hereunder.
Section 3.04 Beneficiaries. Each Participant shall have the right to designate
Beneficiaries who are to succeed to his or her contingent right to receive
future payments hereunder in the event of his or her death by delivery to the
Committee of a Beneficiary Designation Form. In case of a failure of designation
or the death of a designated Beneficiary without a designated successor,
distribution shall be made to the Participant's estate.
Section 3.05 Cliff Vesting; Forfeiture.
(a) A Participant shall vest in his or her Bonus payment two years after
the end of the Performance Period.
(b) The contingent right of a Participant or Beneficiary to receive future
unvested payments hereunder shall be forfeited upon the occurrence of
any one or more of the following events:
(1) if the Participant is discharged for Cause (as defined in
Section 3.05(e)) from employment by the Company or a Subsidiary;
or
(2) if the Participant shall voluntarily terminate employment with
the Company.
(c) Upon death, disability or termination from employment without Cause,
all amounts in a Participant's account shall immediately vest and be
non-forfeitable, and shall be paid within 90 days after such death,
disability, or termination without cause.
(d) The Committee may at any time and from time to time order all or any
part of the value of the contingent right of a Participant or
Beneficiary to receive future payments to be vested and no longer
subject to forfeiture, and may order payment of the amounts so vested
on dates specified in such orders, if it finds such action appropriate
under the circumstances.
(e) "Cause" means any one of the following:
(1) Indictment or conviction of a crime which in the sole and
absolute discretion of the Board reflects adversely on the
Company's public image; or
(2) Failure to perform in a manner satisfactory to the Board the
duties and responsibilities of the Participant's position; or
(3) Any breach of the Participant's fiduciary duty to the Company
deemed significant by the Board in its sole and absolute
discretion; or
(4) The Board determines that a material breach by the Participant of
any written employment agreement he may have with the Company or
a Subsidiary has occurred.
Section 3.06 Change in Control. No forfeiture under Section 3.05(b)(2) shall
occur in the event a Participant voluntarily terminates employment between the
time that a Change in Control occurs and the end of the fiscal year within which
such Change in Control occurs. A Change in Control shall mean (i) the
acquisition by a third party not currently a shareholder of the Company of 30%
or more of the voting power of the Company; (ii) the merger or consolidation of
the Company with another entity and the Company is not the surviving entity;
(iii) the sale of substantially all of the assets of the Company, or (iv) any
other event which the Board determines constitutes a change in control of the
Company.
ARTICLE IV
ADMINISTRATION
Section 4.01 Books and Records; Expenses. The books and records to be maintained
for the purpose of the Plan shall be maintained by the officers and employees of
the Company at its expense and subject to the supervision and control of the
Committee. All expenses of administering the Plan shall be paid by the Company
from the general funds of the Company and shall not be charged against any
Participant account.
Section 4.02 Attachment. To the extent permitted by law, the right of any
Participant or any Beneficiary in any benefit or to any payment hereunder shall
not be subject in any manner to attachment or other legal process for the debts
of such Participant or Beneficiary; and any such benefit or payment shall not be
subject to anticipation, alienation, sale, transfer, assignment or encumbrance.
Section 4.03 No Fiduciary Relationship. Nothing contained herein shall be deemed
to create a trust of any kind or create any fiduciary relationship. Funds
invested hereunder shall continue for all purposes to be a part of the general
funds of the Company, and no person other than the Company shall, by virtue of
the provisions of this Plan, have any interest in such funds. To the extent that
any person acquires a right to receive payments from the Company under this
Plan, such right shall be no greater than the right of any unsecured general
creditor of the Company.
Section 4.04 No Liability. No member of the Board or of the Committee and no
officer or employee of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of this Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the Company.
ARTICLE V
AMENDMENT OF PLAN: MISCELLANEOUS
Section 5.01 Amendment. The Plan may be amended in whole or in part from time to
time by the Board of Directors of the Company. In the event the Plan is
terminated or amended in such a way as to eliminate a Bonus for any particular
Participant during the course of a Performance Measurement Period, all Bonuses,
if any, for such Participants shall nevertheless be determined at the end of the
Performance Measurement Period, but shall be prorated for the period of time
prior to such amendment or termination, and shall be paid in accordance with the
terms of this Plan.
Section 5.02 Notice. Each Participant shall be given a copy of this Plan and
notice and a copy of every amendment shall be given in writing to each
Participant.
Section 5.03 No Guarantee of Employment. Nothing contained in this Plan shall
be deemed to give any Participant the right to be retained in the service of
the Company or to interfere with the right of the Company to discharge any
Participant, for or without Cause, at any time, regardless of the effect which
such discharge shall have upon such individual as a Participant in the Plan.
Section 5.04 Governing Law. This plan shall be construed in accordance with
the laws of the State of Washington.
Section 5.05 Interpretation of Plan. The Committee shall have sole and absolute
discretion and authority to interpret all provisions of this Plan and to resolve
all questions arising under this Plan; including, but not limited to,
determining whether any person is eligible under this Plan, whether any person
shall receive any payments pursuant to this Plan, and the amount of any payments
to be made pursuant to this Plan. Any interpretation, resolution or
determination of the Committee shall be final and binding upon all concerned and
shall not be subject to review.
Section 5.06 Rights Non-transferable. Any right to receive a Bonus pursuant to
this Plan shall not be transferable by the Participant other than pursuant to a
Beneficiary Designation Form.
Section 5.07 Section 16 Compliance. With respect to persons subject to Section
16 of the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
Section 5.08 Taxes: Withholding,. In the event a Participant receives a
distribution of Shares as payment of a Bonus which is taxable to the
Participant, the taxable amount will be based on the fair value of the Shares at
the time of payment. In order to pay any applicable federal, local or state
income taxes on such distribution, the Participant may request the Company (i)
to convert a portion of the Shares then being distributed to cash, at the
valuation of those Shares as determined by the Board as of the date of such
conversion; or (ii) to withhold a specified amount from other cash compensation
which the Participant may receive.
<PAGE>
EXHIBIT 10.3
USTN HOLDINGS, INC.
ILLUMINET
1996 SHORT-TERM BONUS PLAN
Preamble
This Illuminet, Inc., Bonus Plan (the "Plan") is an unfunded bonus
compensation arrangement for a select group of management or highly compensated
personnel.
ARTICLE I
DEFINITIONS
"Eligible Compensation" means the base salary for the Participant as of the
first day of the Performance Measurement Period.
"Beneficiary" means the person or entity designated by a Participant on the
most recently dated Beneficiary Designation Form signed by such Participant and
delivered to the Committee.
"Beneficiary Designation Form" means the form designated by the Committee
from time to time as the document to be used by Participants to select a person
or entity to receive any payments due such Participant in the event of such
Participant's death prior to the date of such payment.
"Board" means the Board of Directors of the Company.
"Bonus" means the annual bonus paid to a Participant in accordance with
Article II.
"Committee" means the Personnel Committee of the Board.
"Company" means Illuminet, Inc., a Delaware corporation and its corporate
successors.
"Disability" means mental or physical disability (i) of at least six months
which in the determination of a physician selected by the Company, prevents a
Participant from engaging in the principal duties of his employment or (ii) that
has qualified the individual for coverage under the Company's long-term
disability insurance plan.
"Fiscal year" or "year" (unless otherwise specified) means the fiscal year
of the Company as now constituted or as it may be changed hereafter from time to
time.
"Participant" means an employee of the Company, or of a Subsidiary,
designated by the Committee for participation in the benefits of the Plan, or a
person who was such at the time of his/her retirement, death, disability or
resignation and who retains, or whose Beneficiaries retain benefits under the
Plan in accordance with its terms.
"Performance Measurement Period" shall mean the fiscal year of the company
as now constituted, beginning January 1 of each calendar year.
<PAGE>
"Performance Measurement Area" means the performance criteria by which
Bonuses shall be determined.
"Plan" means this Short-Term Bonus Plan as it may be amended from time to
time.
"Retirement" means retirement at or after attaining age 60 or such earlier
age as may be approved for a Participant by the Committee.
"Stretch Point" means the maximum achievable value for which a Participant
will be given credit for any quantifiable performance criteria.
"Subsidiary" means an entity of which the Company owns, directly or
indirectly, at least a majority of the voting securities or interests.
"Target Point" means the projected achievable value for which a Participant
will be given credit for any quantifiable performance measurement area.
ARTICLE II
DESIGNATION OF PARTICIPANTS AND
CALCULATION OF BONUS AMOUNTS
Section 2.01 Committee Designations. The Committee shall meet before the
beginning of each fiscal year and specify:
(a) The name of each Participant for that fiscal year;
(b) The performance criteria for determining the amount of each
Participant's Bonus for that fiscal year;
(c) The percentage of Base Salary to which the Stretch Point and the Target
Point shall be applied for each Participant for that fiscal
year;
(d) The Stretch Point and Target Point for each Participant; and
(e) The formula by which a Participant's performance criteria shall be
evaluated in determining what the total Bonus for each Participant
shall be.
Section 2.02 Calculation of Bonus. The Committee shall determine which
established performance criteria have been achieved by each Participant, whether
a Participant has achieved the Stretch Point or Target Point for any criteria,
and the calculation of the Bonus pursuant to the formula designated for each
Participant. This will occur 90 days after the close of the Performance
Measurement Period (fiscal year).
In no event will any bonus be earned or payable under this Plan unless the
Company's earnings before interest, taxes, depreciation, and amortization
(EBITDA) equals at least 80% of the Company's budgeted EBITDA for the fiscal
year ending December 31, 1996.
Section 2.03 Mid-Period Termination. In the event a Participant's employment
terminates prior to the end of a Performance Measurement Period, other than in a
manner resulting in a forfeiture under Section 3.06, such Participant's Bonus
shall be calculated based on the results of the Bonus calculation for
that Participant through such date of termination, extrapolated to a full
Performance Measurement Period basis, and then prorated for the portion of the
Performance Measurement Period prior to termination. Such prorated Bonus shall
be paid in accordance with the terms of Section 3.01.
ARTICLE III
PAYMENT OF BONUS AND FORFEITURES
Section 3.01 Payment Terms. If a Participant continues to meet the provisions of
Section 3.04, Bonuses will be paid in cash no later than 90 days after the end
of the fiscal year. If, for whatever reason, the bonus payment is not made
within this 90 day time period, the cash shall earn interest beginning on the
91st day at the actual rate, if any, earned on the Company's cash account at
it's primary financial institution. Upon death, disability, or termination of
employment by the Company without Cause (as defined in Section 3.04(d)), Bonus
shall be paid within 90 days of the end of the fiscal year, after calculation of
all amounts under Article II, prorated for the portion of the fiscal year prior
to the death, disability or termination of the Participant. Upon death of a
Participant, an estate can elect early payment of a Bonus based upon projections
approved by the Committee for a full fiscal year calculation of the Bonus.
Section 3.02 Contingent Interest. Until and except to the extent that deferred
benefits hereunder are distributed to or vested in the Participants or
Beneficiaries from time to time in accordance with this Plan or orders of the
Committee, the interest of each Participant and Beneficiary therein is
contingent only and is subject to forfeiture as provided in Section 3.04. Title
to and beneficial ownership of any assets, whether cash or investments, which
the Company may set aside or earmark to meet its contingent or vested
obligations hereunder, shall at all times remain in the Company; no Participant
or Beneficiary shall under any circumstances acquire any property interest in
any specific assets of the Company; and no assets shall secure the Company's
obligations hereunder.
Section 3.03 Beneficiaries. Each Participant shall have the right to designate
Beneficiaries who are to succeed to his/her contingent right to receive future
payments hereunder in the event of his/her death by delivery to the Committee of
a Beneficiary Designation Form. In case of a failure of designation or the death
of a designated Beneficiary without a designated successor, distribution shall
be made to the Participant's estate.
Section 3.04 Forfeiture.
(a) The contingent right of a Participant or Beneficiary to receive
payments hereunder shall be forfeited upon the occurrence of any one
or more of the following events:
(1) if the Participant is discharged for Cause (as defined in
Section 3.04(d)) from employment by the Company or a
Subsidiary;
(2) if the Participant shall voluntarily terminate employment with
the Company.
<PAGE>
(b) The Committee may at any time and from time to time order all or any
part of the value of the contingent right of a Participant or
Beneficiary to receive a Bonus to be vested and no longer subject to
forfeiture, and may order payment of the amounts so vested on dates
specified in such orders, if it finds such action appropriate in the
circumstances.
(c) Upon death, disability or termination from employment without Cause,
all Bonus amounts due to a Participant for the portion of the fiscal
year prior to such event shall immediately vest and be on-forfeitable,
and shall be paid in accordance with Section 3.01.
(d) "Cause" means any one of the following:
(1) Indictment or conviction of a crime which in the sole and
absolute discretion of the Board reflects adversely on the
Company's public image; or
(2) Failure to perform in a manner satisfactory to the Board the
duties and responsibilities of the Participant
(3) Any breach of the Participant's fiduciary duty to the Company
deemed significant by the Board in its sole and absolute
discretion; or
(4) The Board determines that a material breach by the Participant
of any written employment agreement he may have with the Company
or a Subsidiary has occurred.
Section 3.05 No Fiduciary Relationship. Nothing contained herein shall be deemed
to create a trust of any kind or create any fiduciary relationship. To the
extent that any person acquires a right to receive payments from the Company
under this Plan, such right shall be no greater than the right of any unsecured
general creditor of the Company.
Section 3.06 Change in Control. In the event a Participant voluntarily
terminates employment between the time that a Change in Control occurs, such
Participant shall not be entitled to receive any Bonus under this Plan. A Change
in Control shall mean (i) the acquisition by a third party not currently a
shareholder of the Company of 30% or more of the voting power of the Company;
(ii) the merger or consolidation of the Company with another entity and the
Company is not the surviving entity; (iii) the sale of substantially all of the
assets of the Company, or (iv) any other event which the Board determines
constitutes a change in control of the Company.
<PAGE>
ARTICLE IV
ADMINISTRATION
Section 4.01 Books and Records; Expenses. The books and records to be maintained
for the purpose of the Plan shall be maintained by the officers and employees of
the Company at its expense and subject to the supervision and control of the
Committee. All expenses of administering the Plan shall be paid by the Company
from the general funds of the Company and shall not be charged against any
Participant account.
Section 4.02 Attachment. To the extent permitted by law, the right of any
Participant or any Beneficiary in any benefit or to any payment hereunder shall
not be subject in any manner to attachment or other legal process for the debts
of such Participant or Beneficiary; and any such benefit or payment shall not be
subject to anticipation, alienation, sale, transfer, assignment or encumbrance.
Section 4.03 No Liability. No member of the Board or of the Committee and no
officer or employee of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of this Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer of employee of the Company.
ARTICLE V
AMENDMENT OF PLAN; MISCELLANEOUS
Section 5.01 Amendment. The Plan may be amended in whole or in part from time to
time by the Board of Directors. In the event the Plan is terminated or amended
in such a way as to eliminate a Bonus for any Participant during the course of a
fiscal year, the Bonus, if any, for such Participant shall nevertheless be
determined at the end of the fiscal year, but shall be prorated for the period
of time prior to such amendment or termination, and shall be paid in accordance
with the terms of this Plan.
Section 5.02 Notice. Notice of every such amendment shall be given in writing
to each Participant.
Section 5.03 No Guarantee of Employment. Nothing contained in this Plan shall be
deemed to give any Participant the right to be retained in the service of the
Company or to interfere with the right of the Company to discharge any
Participant, for or without Cause, at any time, regardless of the effect which
such discharge shall have upon such individual as a Participant in the Plan.
Section 5.04 Governing Law. This Plan shall be construed in accordance with
the laws of the State of Kansas.
Section 5.05 Interpretation of Plan. The Committee shall have sole and absolute
discretion and authority to interpret all provisions of this Plan and to resolve
all questions arising under this Plan; including, but not limited to,
determining whether any person is eligible under this Plan, whether any person
shall receive any payments pursuant to this Plan, and the amount of any payments
to be made pursuant to this Plan. Any interpretation, resolution or
determination of the Committee shall be final and binding upon all concerned and
shall not be subject to review.
<PAGE>
EXHIBIT 11
USTN HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
Years Ended
December 31,
1996 1995
----------------------
Primary:
Average common shares
outstanding 4,995,092 3,729,015
========= =========
Net income (loss) $2,952,982 $(1,515,459)
========= =========
Per share amount $ 0.59 $ (0.41)
========= =========
Fully diluted:
Primary average common shares
outstanding 4,995,092 3,729,015
Assumed conversion of USTN Debentures 787,097 -
Assumed conversion of USTN
Series A Preferred Stock 190,095 -
--------- ---------
Totals 5,972,284 3,729,015
========= =========
Net income (loss) $2,952,982 (1,515,459)
Add USTN Debenture
interest, net of federal
income tax effect 446,958 -
--------- ----------
Totals $3,399,940 $(1,515,459)
========== ===========
Per share amount $ 0.57 $ (0.41)
======== ===========
<PAGE>
EXHIBIT 16
USTN HOLDINGS, INC.
LETTER ON CHANGE OF CERTIFYING ACCOUNTANT
March 18, 1997
Securities and Exchange Commission 450 5th Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by USTN Holdings, Inc. (copy attached), which
we understand will be filed with the Commission as part of the Form 10-KSB filed
by USTN Holdings, Inc. under the caption "CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE." We agree with the
statements concerning our Firm set forth in the attached copy.
Very truly yours,
/s/Coopers & Lybrand L.L.P.
Seattle, Washington
<PAGE>
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective September 12, 1995, U.S. Intelco engaged, upon approval of its Board
of Directors, Ernst & Young LLP to perform an audit of, and issue its report
with respect to U.S. Intelco's December 31, 1994 financial statements in
response to Coopers & Lybrand L.L.P. ("Coopers & Lybrand") confirmation, by
letter dated September 5, 1995, to U.S. Intelco that it would not consent to the
inclusion in the Merger related Proxy Statement/Prospectus of its report on the
U.S. Intelco Financial Statements for the years ended December 31, 1994 and 1993
(which report appeared in U.S. Intelco's Special Financial Report filed with the
Securities and Exchange Commission pursuant to Rule 15d- 2 under the Securities
Exchange Act of 1934). Such report of Coopers & Lybrand did not contain any
adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty,
audit scope or accounting principles. Since January 1, 1993, there have been no
disagreements between U.S. Intelco and Coopers & Lybrand on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. A letter from Coopers & Lybrand stating that it agrees with
the statements made by USTN Holding, Inc. in this paragraph is included as an
exhibit hereto.
<PAGE>
EXHIBIT 21
USTN HOLDINGS, INC.
LIST OF SUBSIDIARIES
AS OF DECEMBER 31, 1996
Illuminet, Inc.
U.S. Intelco Wireless Communications, Inc., a Washington corporation
U.S.I. Gateway, Inc., a Delaware corporation
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<LEGEND>
USTN HOLDINGS, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF USTN HOLDINGS, INC. AS OF DECEMBER 31,
1996, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001002119
<NAME> USTN Holdings, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,514,507
<SECURITIES> 0
<RECEIVABLES> 22,018,485
<ALLOWANCES> (438,000)
<INVENTORY> 0
<CURRENT-ASSETS> 34,460,727
<PP&E> 57,937,704
<DEPRECIATION> 26,560,848
<TOTAL-ASSETS> 70,822,333
<CURRENT-LIABILITIES> 28,002,223
<BONDS> 21,060,061
0
26
<COMMON> 52,624
<OTHER-SE> 21,707,399
<TOTAL-LIABILITY-AND-EQUITY> 70,822,333
<SALES> 0
<TOTAL-REVENUES> 37,887,878
<CGS> 0
<TOTAL-COSTS> 33,365,734
<OTHER-EXPENSES> 350,067
<LOSS-PROVISION> 269,000
<INTEREST-EXPENSE> 838,174
<INCOME-PRETAX> 3,064,903
<INCOME-TAX> 111,921
<INCOME-CONTINUING> 2,952,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,952,982
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.57
</TABLE>
