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, 1997
/ / 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
ILLUMINET 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. $54,308,057
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Voting stock held by non-affiliates has no currently quoted market value. No
voting stock held by non-affiliates has been the subject of bid or ask prices in
the past 60 days.
At December 31, 1997, 5,347,081 shares of common stock, $0.01 per share par
value were outstanding.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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ILLUMINET HOLDINGS, INC.
INDEX TO 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
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 6
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 6
ITEM 7: FINANCIAL STATEMENTS
Illuminet Holdings, Inc. Consolidated Balance Sheets -
December 31, 1997 and 1996 12
Illuminet Holdings, Inc. Consolidated Statements of Income -
Years ended December 31, 1997 and 1996 14
Illuminet Holdings, Inc. Consolidated Statements of Shareholders'
Equity - Years ended December 31, 1997 and 1996 15
Illuminet Holdings, Inc. Consolidated Statements of Cash Flows -
Years ended December 31, 1997 and 1996 16
Notes to Consolidated Financial Statements - December 31, 1997 17
Report of Ernst & Young LLP, Independent Auditors 28
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 28
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 29
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ITEM 10: EXECUTIVE COMPENSATION 34
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 39
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 43
ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K 44
SIGNATURES 47
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
Illuminet Holdings, Inc. (formerly USTN Holdings, Inc.), and its wholly-owned
subsidiary Illuminet, Inc. (formerly USTN Services, 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 Illuminet, Inc. on
February 23, 1996 (the "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 income and
cash flows for the year ended December 31, 1996 presented in this Form 10-KSB
include the results of ITN's operations 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, 1996.
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, Local Number Portability, cellular
services, 800 Number Portability, and Calling Name Delivery. Additionally,
ILLUMINET provides advanced data base services, billing-and-collection services,
calling card services, and network traffic tracking and measurement software
products 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.
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;
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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. The focus of ILLUMINET's network offerings is on carrier to
carrier services and excludes any service to the public. As such, this
neutrality allows carrier customers the incentive to provide viewpoints on
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 provision of facilities and 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, a regional Bell operating company
("RBOC") 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, the most significant of which is ILLUMINET's patent on network usage
measurement. Such protections, however, may not be adequate to prevent
misappropriation of such rights and may not preclude competitors from
independently developing services similar to 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 a third-party 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 the third-party does not include any right of third-party
in or to any particular technology of ILLUMINET which embodies the patent, such
as ILLUMINET's INMART or AMAT7(R) 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.
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Employees
As of December 31, 1997, ILLUMINET had 233 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.
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. ILLUMINET has entered into a separate five-year
lease with another party beginning August 16, 1998, with the option to renew the
lease for an additional five year period, for a 23,000 square foot facility that
is being currently constructed in Overland Park, Kansas, to suit ILLUMINET's
specifications.
ILLUMINET's network operations include redundant Signal Transfer Points
("STPs") facilities located in Mattoon, Illinois, and Rock Hill, South Carolina.
Additional STP facilities are located in Lacey, Washington, Las Vegas, Nevada,
Akron, Pennsylvania and Waynesboro, Virginia. 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. In July 1997,
IILLUMIENT entered into separate lease agreements for its STP facilities at
Waynesboro, Virginia and Akron, Pennsylvania. These five-year leases are each
with IILLUMINET shareholders, and are for 54 square feet each expiring June 2002
with no options for renewal.
ITEM 3: LEGAL PROCEEDINGS
None.
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 1997.
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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 Illuminet
Holdings, Inc. Common Stock ("Illuminet Common Stock") or Illuminet Holdings,
Inc. Series A Convertible Preferred Stock ("Illuminet Series A Preferred").
At December 31, 1997, Illuminet Holdings, Inc. had 265 holders of Illuminet
Common Stock (40 of which also hold Illuminet Series A Preferred Stock), and 83
holders of Illuminet Series A Preferred Stock (40 of which also hold Illuminet
Common Stock).
When authorized by the Illuminet 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 Illuminet
Debentures. Dividends are not payable to Illuminet Series A Preferred Stock
unless dividends are declared, set aside or paid simultaneously to holders of
Illuminet Common Stock. To date, no dividends have been declared.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
BASIS OF PRESENTATION
Illuminet 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, references to Illuminet 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
Illuminet Holdings, Inc. and ILLUMINET for the periods after the Merger
represent the consolidated entity including the net assets and operations of
ITN. 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, 1996.
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<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
REVENUES. The following table summarizes ILLUMINET's services and the effect of the
Merger on ILLUMINET's revenues:
Change
1997 1996 $ %
<S> <C> <C> <C> <C>
---- ---- --- ---
Billing-and-collection
services $ 6,723,305 $ 7,895,674 $(1,172,369) (15%)
Data base services 8,960,491 7,427,696 1,532,795 21%
Network usage measurement
software 3,468,212 557,932 2,910,280 522%
Other services 59,600 742,998 (683,398) (92%)
---------- ---------- ----------
19,211,608 16,624,300 2,587,308 16%
---------- ---------- ----------
Services acquired by Merger:
- ---------------------------
Intelligent network
services 29,477,657 21,408,804 8,068,853 38%
Wireless services 5,618,792 3,664,001 1,954,791 53%
---------- ---------- ----------
35,096,449 25,072,805 10,023,644 40%
---------- ---------- ----------
Pro forma revenue 54,308,057 41,697,105 12,610,952 30%
Financial statement
reporting adjustment
for operations prior
to the Merger - (3,809,227) 3,809,227 100%
---------- ---------- ----------
Revenues per statements
of income $54,308,057 $37,887,878 $16,420,179 43%
========== ========== ==========
</TABLE>
Billing-and-collection services revenues for 1997 were lower primarily as a
result of a $1,271,684, or 20%, decrease in clearinghouse product line revenues.
This decrease reflects a fourth quarter 1996 price reduction offset by a 4%
growth in messages processed from 68.8 million in 1996 to 71.3 million in 1997,
due to the addition of a large customer in the second quarter of 1996.
Data base services revenues growth is attributable to an increase in Calling
Name Delivery ("CNAM") product line revenues of $1,205,753, or 173%, in 1997.
This increase reflects growing market acceptance of the service introduced in
1995. CNAM queries increased 134% from 125.3 million in 1996 to 293.5 million in
1997.
Network usage measurement software revenues derived from the sale of ILLUMINET's
Signaling System 7 ("SS7") network traffic tracking and measurement software
products AMAT7(R) and CDR7(R) increased in 1997 as ILLUMINET penetrated a
greater portion of the market. Network usage measurement software product sales
have a long sales cycle with each individual sale normally contributing
significant revenue to the product line.
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Other services revenues were lower primarily due to the termination of
ILLUMINET's contract to provide voice messaging services for the State of
Washington in September, 1996. Voice messaging contributed revenues of $548,408
in 1996.
Intelligent network services revenues for 1997 grew primarily as a result of a
$4,436,389, or 93%, increase in trunk signaling and related service product line
revenues, reflecting new customer growth. Network connectivity product line
revenues increased $3,939,483, or 50%, from growth in chargeable customer links.
Offsetting the revenue growth in these product lines, Line Information Data Base
("LIDB") switch and transport revenues decreased $675,911, or 17%, in 1997 due
to lower query volumes and reduced prices brought on by competition.
Wireless services revenue grew primarily due to a $1,270,010, or 38%, increase
in 1997 in cellular switch and transport product line revenues. The increase
reflects additional customers and increased utilization of the network with
message volumes increasing 82% from 1,253.9 million messages in 1996 to 2,288.2
million messages in 1997. The difference between the revenue and volume
increases reflects the impact of volume discount pricing arrangements.
EXPENSES. The following table summarizes ILLUMINET's expenses and the effect of
the Merger on ILLUMINET's expenses:
<TABLE>
<CAPTION>
Change
1997 1996 $ %
<S> <C> <C> <C> <C>
---- ---- --- ---
Operating $13,947,243 $10,269,993 $ 3,677,250 36%
Selling, general
and administrative 9,905,522 9,486,311 419,211 4%
Depreciation and
amortization 7,353,526 6,175,510 1,178,016 19%
Network operating 15,313,206 11,063,026 4,250,180 38%
Merger expenses - 700,875 (700,875) (100%)
---------- ---------- ----------
Pro forma expenses 46,519,497 37,695,715 8,823,782 23%
Financial statement
reporting adjustment
for operations prior
to the Merger - (3,710,914) 3,710,914 100%
---------- ---------- ----------
Expenses per statements
of income $46,519,497 $33,984,801 $12,534,696 37%
=========== ========== ==========
</TABLE>
ILLUMINET's primary costs are network operating expenses, which are comprised of
leased network connectivity charges incurred to establish and maintain customer
connectivity to the company's SS7 network, followed by personnel costs,
depreciation and amortization of hardware, software and facilities assets, and
software maintenance expenses.
Operating expenses grew in 1997 primarily to support the increased use and
expansion of ILLUMINET's SS7 network and related products. The growth was
comprised mainly of higher personnel expenses related to an expansion in the
customer support, operations and engineering functions, increased maintenance
costs for new network
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and systems hardware and software, and establishing bad debt reserves in
proportion to the growth in revenues and clients.
Selling, general and administrative expenses grew from 1996 levels due to higher
personnel expenses related to an expansion in the sales and marketing and
product management functions, increased travel expenses and new marketing
material costs related to increased sales and marketing efforts.
Depreciation and amortization expenses increased in 1997 due to placing into
service new network equipment, and a carrying value for certain assets in
connection with ILLUMINET's long-lived assets impairment policy.
Network operating expenses increased due to the growth in leased network
connectivity, link and Local Access Transport Area ("LATA") access charges
incurred to support increased customer use of the SS7 network.
Merger expenses were comprised primarily of non-recurring severance expenses
incurred in the first quarter of 1996.
INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $256,899, or 54%,
from $475,125 in 1996 to $732,024 in 1997. This growth resulted primarily from
an increase in available cash balances provided by operations over the two
years. On a pro forma basis, interest income increased by $239,494, or 49%, from
$492,530 in 1996 to $732,024 in 1997.
Interest expense increased $226,658, or 17%, from $1,313,299 in 1996 to
$1,539,957 for in 1997. The increase reflects the exclusion of two months of
pre-Merger interest expense incurred by ITN in 1996. On a pro forma basis,
interest expense was comparable in 1996 and 1997.
INCOME TAXES. ILLUMINET has federal income tax net operating loss carryforwards
available to offset future taxable income for federal income tax purposes
totaling $12,291,927 that expire in various amounts from 2008 through 2011, and
tax credit carryforwards of $335,332. ILLUMINET's ability to utilize such net
operating loss carryforwards and tax credit carryforwards is dependent on
ILLUMINET's ability to generate sufficient taxable income from its future
operations. The 1997 tax accounts and provision reflect a benefit of $3,108,315
attributable to the reversal of substantially all of the previously recorded
deferred tax valuation allowance due to improved recent and anticipated
operating results. The 1997 tax accounts and provision also reflect federal
alternative minimum taxes which cannot be completely offset by tax loss
carryforwards.
EARNINGS
ILLUMINET's net income grew $4,704,452, or 159%, from $2,952,982 in 1996, to
$7,657,434 in 1997. This growth primarily reflects an increase in network
services and network usage measurement software product revenues, the effect of
non-recurring Merger costs incurred in 1996, and the impact of the post-Merger
operational efficiencies that have reduced costs as a percentage of revenues.
ILLUMINET believes that it will continue to have positive earnings in the near
future through new product and customer diversification and expansion into
related
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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
ILLUMINET relies on a combination of cash generated from operations, debt and
equity to fund 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 continued high levels of investment in
the development of new services and products over the next several years to
manage increased volumes relating to its network, data base, and
billing-and-collection services, to broaden its product base to keep pace with
changing markets and customer needs, and to enhance customer support systems.
ILLUMINET's working capital (current assets in excess of current liabilities)
was $11,996,282 as of December 31, 1997. ILLUMINET's cash and cash equivalent
balances included $3,763,000 required as working capital to service ILLUMINET's
clearinghouse customers. Such funds are received and disbursed on a monthly
basis. The growth in working capital of $5,537,778 from $6,458,504 at December
31, 1996, reflects the increase in accounts receivable attributable to increased
revenue, decreased payables related to ILLUMINET's clearinghouse program, and
the recognition of a deferred tax asset for net operating loss carryforwards as
described in "INCOME TAXES". Cash received from customers and paid to customers,
suppliers and employees includes toll clearing and other pass-through activities
associated with ILLUMINET's services. The increase of $20,286,162, or 13% from
$155,132,157 in 1996 to $175,418,319 in 1997 in cash received from customers,
and the increase of $18,533,199, or 13%, from $143,562,818 in 1996 to
$162,096,017 in 1997 in cash paid to customers, suppliers and employees reflects
the increase in clearinghouse product volumes and the additional two months of
cash transactions included in 1997 for merged ITN activity when compared to
1996.
ILLUMINET's expenditures for property and equipment were $11,254,272 for the
year ended December 31, 1997. Expenditures for property and equipment were
primarily for network equipment to expand capacity and enhance reliability.
At December 31, 1997, ILLUMINET had a secured line of credit expiring August,
2001, with Rural Telephone Finance Cooperative ("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, 1997. Additionally, at
December 31, 1997, ILLUMINET had $5,188,007 of unused loan facilities
established or committed with RTFC, maturing in the years 2000 and 2001. In
December, 1996, ILLUMINET drew against one of its existing mortgage notes
totaling $2,680,765 to finance the expansion of the network with additional
switching equipment. Currently, ILLUMINET has obtained vendor financing
commitments and is finalizing
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documentation for capital leases related to a purchase of $6.0 million of new
network equipment to enhance monitoring and troubleshooting capabilities.
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.
IMPACT OF YEAR 2000
ILLUMINET has begun to assess its systems with respect to the Year 2000 Issue
and has preliminarily concluded that it will be required to modify or replace
portions of its software so that its computer and network systems will function
properly with respect to dates in the year 2000 and thereafter. ILLUMINET has
not made a full determination of the extent of necessary modifications and
replacements, but estimates that the cost will range between $2.0 million and
$5.0 million. This range of cost is based on ILLUMINET's best estimate based on
currently available information; however, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated as further work on the issue is performed. ILLUMINET has also
identified the need to initiate formal communications with all of its
significant suppliers and large customers to determine the extent to which
ILLUMINET's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. There can be no guarantee that the systems
of other companies on which ILLUMINET's systems rely will be converted timely
and would not have an adverse effect on ILLUMINET's systems.
ILLUMINET believes that with modifications to existing systems and conversion to
new systems, which are expected to occur through the end of 1999, the Year 2000
Issue will not pose significant operational problems for its computer and
network systems. However, if such modifications and conversions are not made, or
are not completed timely, the Year 2000 Issue could have a material adverse
impact on ILLUMINET's results from operations.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR
CAUTIONARY STATEMENT
This Management's Discussion and Analysis or Plan of Operations and other
sections of this Annual Report on FORM 10-KSB contain "forward-looking"
statements, as defined in the Private Securities Litigation Reform Act of 1995
("Act"), that are based on current expectations, estimates and projections. Such
statements are made pursuant to the safe harbor provisions of the Act.
Statements that are not historical facts, including statements about ILLUMINET's
beliefs and expectations are forward-looking statements. These statements
contain potential risks and uncertainties. There are certain important factors
that could cause actual results to differ materially from those anticipated by
the forward-looking statements. ILLUMINET undertakes no obligation to update
publicly any forward-looking statements whether as a result of new information,
future events or otherwise.
Important factors that may affect these projections or expectations include, but
are not limited to: changes in the overall economy; competition in markets in
which ILLUMINET operates from larger and better financed companies; cost or
failure to defend the validity of ILLUMINET's patents; telecommunications
industry consolidation; changes in the telecommunications regulatory environment
that may impact ILLUMINET's regulated customers; future litigation; availability
of future
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financing; and market acceptance of new products. Readers should evaluate any
statements in light of these important factors.
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ITEM 7: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ILLUMINET HOLDINGS, INC.
Consolidated Balance Sheets
December 31,
---------------------
ASSETS 1997 1996
<S> <C> <C>
------ ---- ----
Current assets:
Cash and cash equivalents $ 11,167,152 $ 12,514,507
Accounts receivable, less allowance
for doubtful accounts of $1,282,000
($438,000 in 1996) 23,818,209 21,580,485
Deferred income taxes 3,644,805 -
Prepaid expenses and other 377,169 365,735
------------ ------------
Total current assets 39,007,335 34,460,727
------------ ------------
Property and equipment:
Land 911,765 911,765
Building and leasehold improvements 6,934,636 6,907,061
Equipment and furniture 2,904,756 2,472,543
Network assets 39,547,424 31,637,544
Computer hardware and software 18,231,476 16,008,791
------------ ------------
68,530,057 57,937,704
Less: Accumulated depreciation and amortization (33,815,369) (26,560,848)
------------ ------------
Total property and equipment 34,714,688 31,376,856
------------ ------------
See accompanying notes to consolidated financial statements
15
<PAGE>
Computer software product costs, less
accumulated amortization of $1,223,000
($662,000 in 1996) 1,635,686 2,196,782
Other assets, less accumulated
amortization of $102,000
($86,000 in 1996) 2,668,655 2,787,968
------------ ------------
Total assets $ 78,026,364 $ 70,822,333
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
ILLUMINET HOLDINGS, INC.
Consolidated Balance Sheets, Continued
December 31,
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------ ---- ----
<S> <C> <C>
------------ -----------
Current liabilities:
Trade accounts payable $ 4,553,725 $4,347,084
Accrued expenses 3,247,959 2,243,468
Due to customers 16,930,777 19,236,821
Current portion of long-term debt 2,278,592 2,174,850
------------ ------------
Total current liabilities 27,011,053 28,002,223
------------ ------------
Deferred income taxes 2,775,045 -
Long-term debt, less current portion 18,014,115 21,060,061
------------ ------------
Total non-current liabilities 20,789,160 21,060,061
------------ ------------
Shareholders' equity:
Illuminet Holdings, Inc. Preferred Stock, par value
$.01 per share, authorized 95,584 shares, none
issued or outstanding - -
Illuminet Holdings, Inc. Series A Convertible Preferred
Stock, par value $.01 per share, authorized 4,416
shares, issued and outstanding 2,451 (2,637 in 1996),
aggregate liquidation preference $2,451,000 25 26
Illuminet Holdings, Inc. Common Stock, par value
$.01 per share, authorized 12,000,000 shares,
issued and outstanding 5,347,081 (5,262,354 in 1996) 53,471 52,624
Additional paid-in capital 11,985,679 10,701,247
See accompanying notes to consolidated financial statements.
17
<PAGE>
Deferred stock compensation (340,454) -
Retained earnings 18,527,430 11,006,152
------------- -------
Total shareholders' equity 30,226,151 21,760,049
------------- -------
Total liabilities and shareholders' equity $78,026,364 $70,822,333
========== ==========
See accompanying notes to consolidated financial statements.
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUMINET HOLDINGS, INC.
Consolidated Statements of Income
Years Ended December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $54,308,057 $37,887,878
------------- -------
Expenses:
Operating 13,947,243 9,914,192
Selling, general and administrative 9,905,522 8,648,618
Depreciation and amortization 7,353,526 5,714,269
Network operating 15,313,206 9,357,655
Merger expenses - 350,067
------------- -------
Total expenses 46,519,497 33,984,801
------------- -------
Operating income 7,788,560 3,903,077
Interest income 732,024 475,125
Interest expense (1,539,957) (1,313,299)
------------- -------
Income before income taxes 6,980,627 3,064,903
Income tax provision (benefit) (676,807) 111,921
------------- -------
See accompanying notes to consolidated financial statements.
19
<PAGE>
Net income $ 7,657,434 $ 2,952,982
========== ==========
Basic earnings per share $ 1.45 $ 0.59
========== ==========
Diluted earnings per share $ 1.27 $ 0.57
========== ==========
Weighted-average common shares 5,295,509 4,995,092
========== ==========
Weighted-average common shares
and potential common shares 6,396,665 5,972,284
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
ILLUMINET Holdings, Inc.
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997 and 1996
U.S. Intelco Holdings, Inc.
-----------------------------------
Common Stock Illuminet Holdings, Inc.
----------------------------------- ---------------------------------
Class A Class B Common Series A Preferred
-------------- ------------------ ------------ -----------------
Shares $ Shares $ Shares $ Shares $
------ ------ ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 466 $ 23,300 1,208,696 $ 24,174 -- $ -- -- $--
Merger dissenting
shares repurchased (6) (300) (17,917) (358) -- -- -- --
---- -------- ---------- -------- ---------- -------- ------ ----
Total before merger
on February 23, 1996 460 23,000 1,190,779 23,816 -- -- -- --
Conversion to Illuminet
Holdings, Inc. stock (460) (23,000) (1,190,779) (23,816) 3,673,871 36,739 -- --
Purchase of Independent
Telecommunications
Network, Inc. -- -- -- -- 1,566,988 15,670 2,675 27
Illuminet Common Stock
issued under former
stock incentive plan -- -- -- -- 7,539 75 -- --
Conversion of Illuminet
Series A Preferred
Stock -- -- -- -- 3,235 33 (38) (1)
Conversion of convertible
redeemable subordinated
debentures -- -- -- -- 10,721 107 -- --
Net income -- -- -- -- -- -- -- --
------ -------- ---------- -------- ---------- -------- ------ ----
Balance at
December 31, 1996 -- -- -- -- 5,262,354 52,624 2,637 $26
Conversion of Illuminet
Series A Preferred
Stock -- -- -- -- 15,832 158 (186) (1)
Conversion of convertible
redeemable subordinated
debentures -- -- -- -- 66,194 662 -- --
Illuminet Common Stock
issued under former
stock incentive plan -- -- -- -- 14,240 142 -- --
Stock repurchases -- -- -- -- (11,539) (115) -- --
Deferred stock compensation -- -- -- -- -- -- -- --
Stock compensation expense -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
------ -------- ---------- -------- ---------- -------- ------ ----
Balance at
December 31, 1997 -- $ -- -- $ -- 5,347,081 $ 53,471 2,451 $ 25
====== ======== ========== ======== ========== ======== ====== ====
See accompanying notes to consolidated financial statements.
21
<PAGE>
Additional Deferred
Paid-In Stock Retained Total
Capital Compensation Earnings Equity
------- ------------- ------ ------
<S> <C> <C> <C> <C>
Balance at
January 1, 1996 $ 4,136,159 $ -- $ 8,235,741 $ 12,419,374
Merger dissenting
shares repurchased -- -- (182,571) (183,229)
------------ --------- ------------ ------------
Total before merger
on February 23, 1996 4,136,159 -- 8,053,170 12,236,145
Conversion to Illuminet
Holdings, Inc. stock 10,077 -- -- --
Purchase of Independent
Telecommunications
Network, Inc. 6,354,252 -- -- 6,369,949
Illuminet Common Stock
issued under former
stock incentive plan 81,772 -- -- 81,847
Conversion of Illuminet
Series A Preferred
Stock (32) -- -- --
Conversion of convertible
redeemable subordinated
debentures 119,019 -- -- 119,126
Net income -- -- 2,952,982 2,952,982
------------ --------- ------------ ------------
Balance at
December 31, 1996 10,701,247 -- 11,006,152 21,760,049
Conversion of Illuminet
Series A Preferred
Stock (157) -- -- --
Conversion of convertible
redeemable subordinated
debentures 734,839 -- -- 735,501
Illuminet Common Stock
issued under former
stock incentive plan 40,441 -- -- 40,583
Stock repurchases -- -- (136,156) (136,271)
Deferred stock compensation 509,309 (509,309) -- --
Stock compensation expense -- 168,855 -- 168,855
Net income -- -- 7,657,434 7,657,434
------------ --------- ------------ ------------
Balance at
December 31, 1997 $ 11,985,679 $(340,454) $ 18,527,430 $ 30,226,151
============ ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
ILLUMINET HOLDINGS, INC.
Consolidated Statements of Cash Flows
Years Ended
December 31,
------------------------
1997 1996
<S> <C> <C>
-------- -------
Cash flows from operating activities:
Cash received from customers $ 175,418,319 $ 155,132,157
Interest received 724,726 470,997
Cash paid to customers, suppliers and employees (162,096,017) (143,562,818)
Income taxes refunded (paid) (226,000) 173,795
Interest paid (1,943,564) (1,463,940)
------------- -------------
Net cash provided by operating activities 11,877,464 10,750,191
------------- -------------
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)
Capital expenditures and software development (11,254,272) (6,113,559)
------------- -------------
Net cash used by investing activities (11,254,272) (6,239,107)
------------- -------------
See accompanying notes to consolidated financial statements.
23
<PAGE>
Cash flows from financing activities:
Purchase of subordinated capital certificates
related to notes payable - (134,038)
Proceeds from issuance of notes payable - 2,680,765
Principal payments on notes payable (1,834,276) (1,352,281)
Acquisition of common stock (136,271) -
Payments to dissenting shareholders - (183,229)
------------- ---------
Net cash provided (used) by financing activities (1,970,547) 1,011,217
------------- ---------
Net increase (decrease) in cash and cash equivalents (1,347,355) 5,522,301
Cash and cash equivalents at:
Beginning of year 12,514,507 6,992,206
------------- ---------
End of year $ 11,167,152 $ 12,514,507
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
24
<PAGE>
ILLUMINET HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 1997
Note 1: Summary of Significant Accounting Policies
- ---------------------------------------------------
Description of Business and Basis of Presentation
- -------------------------------------------------
Illuminet Holdings, Inc. (formerly USTN Holdings, Inc.), and its wholly-owned
subsidiary Illuminet, Inc. (formerly USTN Services, 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 Illuminet, Inc.
on February 23, 1996 (the "Merger"). The Merger was accounted for as a purchase
business combination with U.S. Intelco designated as the acquiring company.
Accordingly, references to Illuminet 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 Illuminet 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. 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 services, Local Number Portability, cellular services, 800
Number Portability, and Calling Name Delivery. Additionally, ILLUMINET provides
advanced data base services, billing-and-collection services, calling card
services, and network traffic tracking and measurement software products to a
range of telephone companies as well as interexchange carriers, operator service
providers 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; Mattoon, Illinois; Las Vegas, Nevada; Akron, Pennsylvania
and Waynesboro, Virginia.
25
<PAGE>
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the financial statements of
Illuminet Holdings, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
26
<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, 1997 and 1996, such investments included $10,310,303 and
$9,538,536, 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, 1997 and 1996, accounts receivable included
$10,628,000 and $11,964,000, respectively, of such toll amounts due from
telephone companies, and due to customers included $14,142,000 and $16,917,000,
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.
Included in accounts receivable at December 31, 1997 is $629,100 due for
services and reimburseable expenses from a customer in which Illuminet has a
preferred stock equity investment currently representing 18% of the voting
rights of the customer. Revenues earned from the customer were $515,900 and
$69,400 for the years ended December 31, 1997 and 1996, respectively.
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
Network assets 5 to 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 capitalized costs incurred for
development of software products after the technological feasibility of the
product is established. Costs incurred prior to that date are expensed. The
annual amortization, which was $561,000 for each of the years ended December 31,
1997 and 1996, is determined on a product-by-product basis as 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 of five years. Amortization starts when the product is
available for general release to customers.
27
<PAGE>
Impairment of Long-Lived Assets
- -------------------------------
Long-lived assets consist of intangible assets and certain capital assets. The
carrying value of these assets is regularly reviewed to verify they are valued
properly. If the facts and circumstances suggest that the value has been
impaired, the carrying value of the assets will be reduced appropriately.
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.
Stock-Based Compensation
- ------------------------
ILLUMINET has elected to apply the disclosure-only provisions of the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Accordingly, ILLUMINET accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Compensation expense for
stock options is measured as the excess, if any, of the fair value of the
ILLUMINET common stock at the measurement date over the stock option exercise
price.
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 Per Share
- ------------------
In 1997, the FASB issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("Statement 128"). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options and convertible preferred stock. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All prior earnings per share amounts have been restated to
conform to the Statement 128 requirements.
28
<PAGE>
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 those estimates.
Reclassifications
- -----------------
Certain reclassifications to the 1996 financial statements have been made to
conform to the 1997 presentation.
29
<PAGE>
Note 2: Acquisition and Merger
- ----------------------------------------------
In exchange for the net assets of ITN, excluding U.S. Intelco's 36% ownership of
ITN on the date of the Merger, Illuminet Holdings, Inc. issued the following
consideration and incurred the following costs:
Fair value of Illuminet Common Stock issued $5,561,778
Fair value of Illuminet Series A Preferred Stock issued 808,171
Direct and incremental merger costs 678,076
---------
Aggregate purchase price $7,048,025
=========
As consideration for the sale, non-dissenting ITN shareholders received
1,566,988 shares of Illuminet Holdings, Inc. Common Stock ("Illuminet Common
Stock") and 2,675 shares of Illuminet Holdings, Inc. Series A Convertible
Preferred Stock ("Illuminet Series A Preferred Stock"). ITN Debentures were
converted to Illuminet convertible redeemable subordinated debentures
("Illuminet 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.
After elimination of U.S. Intelco's 36% ownership of ITN, the purchase price was
less than the fair value of the remaining assets by $2,506,548, and accordingly,
has been recorded as a reduction in the long-lived assets acquired. The purchase
price was 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 16,227,702
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, 1996, unaudited pro
forma results of operations for the year ended December 31, 1996 would have been
as follows:
30
<PAGE>
Revenues $41,697,105
==========
Net income $ 2,854,268
==========
Diluted earnings per share $ 0.52
==========
The pro forma results do not necessarily represent results which would have
occurred if the acquisition had taken place on the date 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 comprised mainly of severance costs,
totaling $350,067 for the year ended December 31, 1996.
Note 3: Long-Term Debt
- -----------------------
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
---- ----
Various secured notes payable to
Rural Telephone Finance Cooperative
("RTFC") with variable interest rates,
6.65% at December 31, 1997
(6.30% at December 31, 1996)
payable in quarterly installments,
including interest, each maturing
at various dates ranging from
August, 2000, to March, 2015. $11,459,411 $13,328,043
Convertible redeemable subordinated
debentures ("Illuminet Debentures")
bearing interest at 7.5%, maturing
August, 2001 (net of original
issue discount of $172,095). 7,561,124 8,248,342
Convertible redeemable subordinated
debenture deferred interest payable 1,272,172 1,658,526
--------- -----------
20,292,707 23,234,911
Less: Current portion (2,278,592) (2,174,850)
----------- -----------
Total long-term debt $18,014,115 $21,060,061
========== ===========
</TABLE>
Additional borrowings available under the various note agreements with RTFC
aggregated $5,188,007 at December 31, 1997. All of the RTFC notes have variable
interest rates that are based on RTFC's 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
31
<PAGE>
amortization, totaled $1,107,656 and $1,142,012 at December 31, 1997 and 1996,
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 lien were $3,763,000 at December
31, 1997.
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, 1997.
The Illuminet 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 Illuminet
Debentures are convertible into the number of shares of Illuminet Common Stock
equal to the principal amount of the Illuminet Debenture at the time of
conversion divided by the market price of Illuminet Common Stock at the time of
conversion (as defined in the Indenture), or if no market price exists, at
$11.11 per share. Illuminet Debentures are subordinated to all senior debt.
Illuminet Debentures are directly associated with Illuminet Series A Preferred
Stock in that these securities were issued as a unit.
The carrying value of ILLUMINET's long-term debt approximates fair value.
Maturities of the long-term debt for the years ending December 31 are scheduled
as follows:
1998 $2,278,592
1999 2,404,127
2000 1,570,996
2001 8,699,780
2002 371,843
2003-2007 2,463,255
2008-2012 2,046,404
2013-2015 457,710
----------
$20,292,707
==========
32
<PAGE>
Note 4: Shareholders' Equity
- -----------------------------
At December 31, 1997, Illuminet Holdings, Inc. is authorized to issue up to
12,100,000 shares of capital stock consisting of (i) 12,000,000 shares of
Illuminet Common Stock, par value $.01 per share, and (ii) 100,000 shares of
Illuminet Preferred Stock, par value $.01 per share. Each share of Illuminet
Common Stock and Illuminet Series A Preferred Stock is entitled to one vote and
100 votes, respectively.
Each share of Illuminet Series A Preferred Stock is convertible into 85.12
shares of Illuminet Common Stock ("Conversion Amount"), at the option of the
holder thereof at any time that the holder elects to convert an Illuminet
Debenture issued as a unit with such a share. Each share of Illuminet Series A
Preferred Stock will be convertible, at the option of Illuminet Holdings, Inc.,
into Illuminet Common Stock based on the Conversion Amount, at such time that
the Illuminet Debenture issued as a unit with such share is converted into
shares of Illuminet Common Stock. If the Illuminet Debentures and accrued
interest thereon, and Illuminet Series A Preferred Stock had been converted at
December 31, 1997, 1,101,156 shares of Illuminet Common Stock would have been
issued. In the event of liquidation, Illuminet 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 Illuminet Common Stock or any other series of preferred stock of
Illuminet 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 Illuminet
Debentures. Dividends are not payable to Illuminet Series A Preferred Stock
unless dividends are declared, set aside or paid simultaneously to holders of
Illuminet Common Stock.
Note 5: Stock Option Plans
- -----------------------------
ILLUMINET established the 1997 Equity Incentive Plan under which 1,000,000
shares were reserved for issuance pursuant to non-qualified and incentive stock
options, and stock appreciation rights that may be granted. Employee options are
generally exercisable ratably over four years and expire ten years from the date
of grant except that options expire one year after termination of employment, or
60 days after termination of employment if ILLUMINET's stock is publicly traded.
Outside Director non-qualified stock options are generally exercisable after one
year and expire ten years from the date of grant.
During 1997, 171,500 non-qualified stock options to purchase Illuminet Common
Stock were granted to key employees, and 60,004 non-qualified stock options were
granted to outside Directors. The non-qualified stock options were granted at
prices less than the then estimated fair value of the common stock as determined
by the Board of Directors. No options were exercised or expired in the year
ended December 31, 1997, and 70,004 were exercisable at December 31, 1997 with a
weighted-average remaining contractual life of 9.7 years. The weighted average
option price was $8.80 for options granted in 1997 and exercisable at December
33
<PAGE>
31, 1997. Deferred compensation expense for the stock options granted during
1997 was $509,309 of which $168,855 was recognized as stock compensation expense
for the year ended December 31, 1997.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if ILLUMINET had accounted for its
stock options under the fair value method of that Statement. The fair value of
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997: 5.92%
risk-free interest rate; zero percent dividend yield; zero percent volatility
factor of the expected market price of ILLUMINET's non-publicly traded common
stock; and an 8.54 year expected life. The weighted-average estimated value of
the options granted during 1997 was $5.59 per share.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period; accordingly, the 1997
pro forma impact of stock options granted may not be indicative of the pro forma
impact in future years. ILLUMINET's pro forma information for the year ended
December 31, 1997 follows:
Net income - as reported $7,657,434
=========
Net income - pro forma $7,485,015
=========
Diluted earnings per share - as reported $ 1.27
==========
Diluted earnings per share - pro forma $ 1.25
==========
Note 6: Income Taxes
- ---------------------
Components of the income tax provision (benefit) for the years ended December 31
are summarized as follows:
1997 1996
---- ----
Current $ 192,953 $111,921
Deferred (869,760) -
----------- --------
Total income tax provision (benefit) $(676,807) $111,921
=========== ========
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 that will be in effect when the
differences are expected to reverse. At December 31, 1997 and 1996, such
differences primarily related to net operating loss carryforwards, tax credit
34
<PAGE>
carryforwards, 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.
At December 31, 1997, ILLUMINET had a valuation allowance related to tax
benefits associated with capital losses recorded for financial statement
purposes but not yet realized for tax purposes. During the year ended December
31, 1997, the valuation allowance decreased $3,108,315 primarily through
utilization of net operating loss carryforwards in 1997 and the reversal of
substantially all of the previously recorded deferred tax valuation allowance
due to improved recent and anticipated operating results. At December 31, 1997,
ILLUMINET had federal income tax net operating loss carryforwards available to
offset future taxable income for federal income tax purposes totaling
$12,291,927 that expire in various amounts from 2008 through 2011, and tax
credit carryforwards of $335,332. These carryforwards may be limited under
certain provisions of the Internal Revenue Code.
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:
1997 1996
---- ----
Tax at U.S. federal statutory rate $2,373,413 $1,042,067
Utilization of net operating loss
carryforward (2,373,413) (1,042,067)
Alternative minimum tax 192,953 111,921
Reversal of valuation allowance (869,760) -
---------- --------
Income tax provision (benefit) $ (676,807) $ 111,921
========= =========
35
<PAGE>
The components of the deferred tax assets as of December 31 are summarized as
follows:
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards $4,425,094 $7,547,217
Tax credit carryforwards 335,332 142,379
Allowance for doubtful accounts 461,579 157,680
Other non-deductible accruals 1,430,291 593,807
Valuation allowance (180,270) (3,288,585)
---------- -----------
Net deferred tax assets 6,472,026 5,152,498
---------- -----------
Deferred tax liabilities:
Excess tax over book depreciation
and amortization (5,587,755) (5,137,987)
Other (14,511) (14,511)
---------- ----------
Total deferred tax liabilities (5,602,266) (5,152,498)
---------- ----------
Deferred tax asset, net $ 869,760 $ -
========== ===========
Note 7: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
1997 1996
---- ----
Numerator:
Numerator for basic earnings
per share - income available
to common shareholders $7,657,434 $2,952,982
Effect of dilutive securities -
Illuminet Debentures 497,411 446,958
---------- ----------
Numerator for diluted earnings
per share - income available
to common shareholders after
assumed conversions $8,154,845 $3,399,940
========== ==========
Denominator:
Denominator for basic earnings
per share - weighted-average shares 5,295,509 4,995,092
--------- ---------
Weighted-average effect of dilutive securities:
Illuminet Debentures 882,073 787,097
36
<PAGE>
Illuminet Series A Preferred Stock 219,083 190,095
------- -------
Dilutive potential common shares 1,101,156 977,192
--------- -------
Denominator for diluted earnings per
share -adjusted weighted-average
shares and assumed conversions 6,396,665 5,972,284
========= =========
Basic earnings per share $ 1.45 $ 0.59
========= =========
Diluted earnings per share $ 1.27 $ 0.57
========= =========
See notes 3, 4 and 5 for additional information regarding the Illuminet
Debentures, Illuminet Series A Preferred Stock and stock options.
Stock options to purchase 231,504 shares of common stock were outstanding
during 1997 but were not included in the computation of diluted earnings
per share because of their anti-dilutive effect.
Note 8: Statements of Cash Flows
- ---------------------------------
Reconciliations of net income to net cash provided by operating activities for
the years ended December 31 are summarized as follows:
1997 1996
---- ----
Net income $ 7,657,434 $ 2,952,982
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,353,526 5,714,269
Stock compensation 168,855-
Deferred income taxes (869,760)-
Change in:
Accounts receivable (2,237,724) (1,958,928)
Other assets 63,773 296,698
Trade accounts payable 1,380,984 1,016,866
Accrued expenses 1,004,491 (1,094,088)
Due to customers (2,306,044) 3,850,974
Other liabilities (338,071) (28,582)
---------- ----------
Net cash provided by
operating activities $11,877,464 $10,750,191
=========== ===========
37
<PAGE>
During the years ended December 31, 1997 and 1996, ILLUMINET redeemed $34,356
and $23,248, respectively, of lender-issued, non-interest-bearing subordinated
capital certificates, which were deducted from the mortgage loan principal
balance.
Note 9: Employee Benefit Plans
- -------------------------------
ILLUMINET has qualified profit sharing/401(k) trust 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 1997 and 1996, contribution
expense was approximately $1,177,000 and $788,000, respectively.
Note 10: Commitments and Contingencies
- ---------------------------------------
ILLUMINET has entered into non-cancelable operating leases for its various
facilities, excluding its Lacey headquarters site which is owned by ILLUMINET,
the most significant of which is the lease of its Overland Park facility. The
lease for the Overland Park facility expires August, 1998. ILLUMINET has entered
into a separate five-year lease with another party beginning August, 1998, with
the option to renew the lease for an additional five-year period, for a new
Overland Park facility that is currently being constructed to suit ILLUMINET's
specifications. During 1997 and 1996 rent expense was $409,000 and $321,000,
respectively.
Future minimum lease payments under the non-cancelable leases for the years
ending December 31 are as follows:
1998 $ 439,600
1999 468,400
2000 468,400
2001 428,100
2002 366,900
Thereafter 221,100
---------
$2,392,500
=========
ILLUMINET is party to a contract with the subsidiary of one of its corporate
shareholders which supplies ILLUMINET with transmission facilities in the form
of private leased lines. Such lines are leased from the corporate shareholder at
rates comparable to third-party service providers. Payments pursuant to this
contract totaled $1,101,000 for the period February 23, 1996, the Merger date,
to December 31, 1996, and $1,571,000 for the year ended December 31, 1997.
In December, 1997, ILLUMINET entered into a commitment to purchase $6.0 million
of network equipment and expects to finalize a related capital lease financing
arrangement in early 1998.
38
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Illuminet Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Illuminet
Holdings, Inc. ("ILLUMINET") as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of
ILLUMINET'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 ILLUMINET as of
December 31, 1997 and 1996, 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 13, 1998
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
39
<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 Illuminet Holdings,
Inc. and their ages are set forth below. All such individuals are
outside directors.
Name Age
---- ---
Theodore D. Berns 48
Eugene L. Cole 62
Aubrey E. Judy 60
Kenneth L. Lein 65
Richard A. Lumpkin 63
James S. Quarforth 43
G. I. Ross 64
James W. Strand 51
Gregory J. Wilkinson 47
Currently, outside directors receive a monthly fee of $300 except for
the Chairman of the Board of Directors who receives $500 per month, and each
outside director receives an annual fee of $7,000 worth of common stock options.
Additionally in 1997, each outside director received an award of 2,000 common
stock options. Outside 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.
Payment of monthly and meeting fees is made in the form of cash, stock or stock
options at the election of the outside director. All common stock options issued
to outside directors in 1997 became exercisable by December 31, 1997 at an
exercise price of $8.80 per share, and expire ten years after the date of grant.
Mr. Berns has been a director of Illuminet Holdings, Inc. and its
predecessor companies since October 1991. Mr. Berns currently serves as Chief
Executive Officer of OGI Telecom, a competitive local exchange carrier ("CLEC")
located in Portland, Oregon. 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
40
<PAGE>
as Vice President of Multivisions, Ltd., located in Anchorage, Alaska. In
addition, Mr. Berns is a former director of the United States Telephone
Association ("USTA").
Mr. Cole has been a director of Illuminet Holdings, Inc. and its
predecessor companies since its formation in 1981. Mr. Cole worked at Canby
Telephone Association, Canby, Oregon ("Canby") where in 1968, he was named
General Manager and in 1986 became President of the Canby Telephone Association.
Mr. Cole also served as President of CTA Service Corporation, and North
Willamette Telecom from 1986 until March 1994. He then retired on May 1, 1995.
Mr. Cole returned from retirement in 1995 and currently serves as President of
Canby Telephone Association and President of North Willamette Telecom, and until
June 1997 served as President of CTA Service Corporation. 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 N.T.C.A. Pension Trust. Mr. Cole served as director of the Board
of Rural Telephone Finance Cooperative 1990 to February 1993. From November 1994
until February 1996, Mr. Cole had been a Director of ITN.
Mr. Judy has been a Director of Illuminet Holdings, Inc. and its
predecessor companies since April 1982. Mr. Judy was employed with Farmers
Telephone Cooperative, Inc., an Independent 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 Illuminet Holdings, Inc. and its
predecessor companies since 1987. Mr. Lein managed Winnebago Cooperative
Telephone Association ("Winnebago"), a local exchange telephone company located
in Lake Mills, Iowa, from 1974 to February 1998. 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 Illuminet Holdings, Inc. and its
predecessor companies since January 1989 and currently serves as Chairman of the
Board and Chairman of the Executive Committee. Since 1957, Mr. Lumpkin has been
employed by Consolidated Communication Inc. ("CCI") and
41
<PAGE>
its affiliates. In September 1997, CCI was merged into McLeodUSA Incorporated
("McLeodUSA"). Mr. Lumpkin became Vice Chairman and a Director of McLeodUSA. He
remains Chairman and CEO of Illinois Consolidated Telephone Company. Mr. Lumpkin
is currently a director of First Mid-Illinois Bancshares and First Mid-Illinois
Bank and Trust in Mattoon, Illinois, Central Illinois Public Service Company in
Springfield, Illinois, and Ameren Corporation, a public utility headquartered in
St. Louis, Missouri. Mr. Lumpkin is also a former Director and past President of
the Illinois Telephone Association and USTA.
Mr. Quarforth has been a Director of Illuminet Holdings, Inc. and its
predecessor companies since January 1989. Mr. Quarforth currently serves as
President and Chief Executive Officer of CFW Communications Company ("CFWC") and
Chairman and Chief Executive Officer of its affiliates. 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. and West Virginia PCS Alliance L.C.
Mr. Ross has been a Director of Illuminet Holdings, Inc. and its
predecessor companies since January 1989. 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 Finance. Mr. Ross is a member of the USTA Board.
Mr. Strand has been a Director of Illuminet Holdings, Inc. and its
predecessor companies since May 1992. 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, 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 Illuminet Holdings, Inc. and its
predecessor companies since February 1986 and currently serves as Vice Chairman
of the Board and Chairman of the Audit/Finance Committee. 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
42
<PAGE>
director of various subsidiaries of TDS. 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.
43
<PAGE>
Executive Officers
The persons currently serving as executive officers of Illuminet
Holdings, Inc. or its wholly-owned subsidiary Illuminet, Inc., their ages, and
their positions are set forth below:
Name Age Position
---- --- --------
Roger H. Moore 56 President and Chief Executive
Officer - Illuminet Holdings, Inc.
President and Chief Executive
Officer - Illuminet, Inc.
Daniel E. Weiss 50 Vice President, Secretary/Treasurer
- Illuminet Holdings, Inc.
Vice President - Illuminet, Inc.
Bruce E. Johnson 49 Vice President - Illuminet, Inc.
David Nicol 52 Vice President - Illuminet, Inc.
F. Terry Kremian 50 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 Illuminet
Holdings, Inc. and Illuminet, Inc. since February 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. 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 Illuminet 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 Vice
President-Finance, Treasurer and Assistant Treasurer for Illuminet Holdings,
Inc.'s predecessor companies since 1979. 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. Johnson has been Illuminet, Inc.'s Vice President - Operations and
Engineering since February 1996. Prior to that he served as ITN's
44
<PAGE>
Vice President - Operations and Engineering from July 1992 to February 1996.
Prior to joining ITN, Mr. Johnson was responsible for implementing NYNEX
Corporation's SS7 network. This included strategic planning, network design and
SS7 service testing. While at NYNEX Mr. Johnson was responsible for deploying
one of the first Industry Intelligent Network services and played an active role
in providing SS7 performance data to the FCC for their 800 Data Base mandate.
From 1970 to 1983 Mr. Johnson served New England Telephone in various Outside
Plant Engineering and Operations assignments. Mr. Johnson has participated on
numerous industry standards and technical committees, including the American
National Standards Institute's T1 SS7 standards committee and was a member of
the original work group that issued the first SS7 TCAP standards for North
America. Mr. Johnson holds a BS in Computer Science and Mathematics from
Worcester State College and has been awarded an MBA from the University of
Kansas.
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. 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 and doctorate in Industrial Economics
and Corporate Finance from Case Western Reserve University. His entire
thirty-year career has been in technology industry sectors, the last fifteen
directly in telecommunications.
Mr. Kremian has been Illuminet, Inc's. Vice President - Marketing and
Sales since November 1997. Prior to that Mr. Kremian was with MCI where he
directed Carrier Sales, National Accounts and provided consultation to the
Canadian Provincial phone companies on competition in the marketplace through
the MCI Stentor Alliance. Mr. Kremian has more than 15 years of senior
experience in telecommunications, serving in a variety of management positions
that include sales, operations, legal and administration.
45
<PAGE>
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth for each of the last three completed
fiscal years the compensation received by Illuminet 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 (collectively
referred to herein as the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
--------------------- ----------------- ----------------
Securities All Other
Underlying LTIP Compensation ($)
Name and Principal Options/
Position Year Salary ($) Bonus ($) SARs (#)
- ------------------ ----- ---------- --------- ---------- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Moore, 1997 225,000 --(2) --(3) --(3) 8,000(4)(5)
President and 1996(1) 225,000 118,750 --(3) 5,600(6)
Chief Executive
Officer
Daniel E. Weiss, 1997 112,824 --(2) 20,000 -- 5,641(4)(7)
Vice President 1996 110,863 22,643 15,095(8) 14,430(9)
1995 106,074 14,500 -- 9,220(10)
Raymond E. 1997(11) 152,112 --(2) 10,000 -- 7,606(4)(12)
Donnelly, Vice 1996(14) 122,062 22,469 14,979(8) 20,287(13)
President
Bruce E. Johnson, 1997 131,700 --(2) 20,000 -- 6,585(4)
Vice President 1996(14) 105,676 19,936 13,290(8) 6,893(15)
David Nicol, Vice 1997 132,036 --(2) 20,000 -- 6,602(4)
President 1996(14) 103,292 20,642 13,761(8) 16,344(16)
</TABLE>
46
<PAGE>
- ------------------------
(1) Mr. Moore was hired effective January 1, 1996.
(2) Bonus amounts for this executive for the year 1997 have not yet been
determined.
(3) Mr. Moore has not finalized the terms of his employment agreement with
respect to long-term incentives.
(4) Retirement trust profit sharing contributions for the year 1997 have
not yet been determined and are therefore not included in this amount.
(5) Represents $8,000 in ILLUMINET 401(k) matching contributions.
(6) Represents $5,600 in ILLUMINET 401(k) matching contributions.
(7) Represents $5,641 in ILLUMINET 401(k) matching contributions.
(8) 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.
(9) Represents $4,479 in ILLUMINET 401(k) matching contributions and $9,951
in ILLUMINET retirement trust profit sharing contributions.
(10) Includes $3,182 in U.S. Intelco 401(k) matching contributions and
$6,038 in U.S. Intelco retirement trust profit sharing contributions.
(11) Mr. Donnelly terminated employment effective December 31, 1997.
(12) Represents $7,606 in ILLUMINET 401(k) matching contributions.
(13) Represents $5,841 in ILLUMINET 401(k) matching contributions and
$14,446 in ILLUMINET retirement trust profit sharing contributions.
(14) Messrs. Donnelly, Johnson and Nicol were deemed hired effective
February 23, 1996, the effective date of the Merger.
(15) Represents $5,057 in ILLUMINET 401(k) matching contributions and
$11,836 in ILLUMINET retirement trust profit sharing contributions.
(16) Represents $4,925 in ILLUMINET 401(k) matching contributions and
$11,419 in ILLUMINET retirement trust profit sharing contributions.
47
<PAGE>
Grants Of Stock Options
The following table sets forth options granted during 1997 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
(Individual Grants)
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise Or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Daniel E. Weiss 20,000(1) 11.66% 8.80 10/29/2007
Raymond E. Donnelly 10,000(2) 5.83% 8.80 12/31/99
Bruce E. Johnson 20,000(1) 11.66% 8.80 10/29/2007
David Nicol 20,000(1) 11.66% 8.80 10/29/2007
- --------------
</TABLE>
These employee options are exercisable ratably over five years and expire ten
years from the date of grant, provided that such officer remains
continuously employed by ILLUMINET.
These options became exercisable on Mr. Donnelly's retirement date of December
31, 1997 and expire two years after such retirement date.
48
<PAGE>
Exercises Of Stock Options
The following table provides information on option exercises in 1997 by
Named Executive Officers and the value of such officers' unexercised options on
December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs at
Shares Options/SARs at FY-End (#) FY-End ($)(1)
Acquired on Value
Name Exercise (#) Realized ($)
-------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Weiss -- -- -- 20,000 -- 44,000
Raymond E -- -- 10,000 -- 22,000 --
Donnelly
Bruce E. Johnson -- -- 20,000 -- 44,000
David Nicol -- -- 20,000 -- 44,000
- ------------------
</TABLE>
(1) As ILLUMINET's stock is not traded, a readily ascertainable market
value is not available. A value of $11.00 per share, representing the
Board of Director's good-faith estimate, was used as of December 31,
1997, and for purposes of determining compensation related to grants
made in 1997.
49
<PAGE>
EMPLOYMENT AGREEMENTS
ILLUMINET has agreements with Messrs. Moore, Nicol and Johnson pursuant to which
such person's employment by ILLUMINET may be terminated by ILLUMINET at any
time, with or without cause. The agreements provide for an initial annual base
compensation of $250,000, $110,000 and $108,000, respectively (which such annual
base compensation has been subsequently adjusted by the Board of Directors to
$132,036 for Mr. Nicol,$131,700 for Mr. Johnson for the year ended December
31,1997), and provide for the opportunity to earn bonuses in accordance with
incentive plans established. Each such agreement provides, that, in the event of
involuntary termination (as defined therein) for other than cause such executive
officer will be entitled to receive a severance payment in an amount equal to 12
months of such executive officer's then base compensation. Mr. Moore is also
entitled to such termination payment in the event of his election to resign as a
result of a change of control. In accordance with the terms of his agreement,
Mr. Donnelly received a lump-sum payment equal to his annual base compensation
in the amount of $152,112 upon his termination.
50
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997 the beneficial
ownership of each class of Illuminet Holdings, Inc.'s capital stock held by (i)
owners of five percent (5%) or more of any class, (ii) each director of
Illuminet 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
Illuminet Illuminet Shares of
Common Percent Series A Percent Illuminet Percent
Stock of Preferred of Common of
Name Class Stock Class Stock(1) Class
----- ------ ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Aliant Communications, Inc. (formerly 136,954 2.53 156 6.36 203,293 3.15
Lincoln Telecommunications Co.)
P.O. Box 81309
1440 M Street
Lincoln, NE 68508
CFW Communications Company, Inc. 104,000 1.92 172 7.02 178,751 2.77
401 Spring Lane
Suite 300
P.O. Box 1990
Waynesboro, VA 22980-1990
Coastal Utilities, Inc. 68,130 1.26 125 5.10 119,975 1.86
P.O. Box 631
Hinesville, GA 31310
Consolidated Communication, Inc. 51,029 * 523 21.34 267,677 4.15
121 S. 17th Street
Mattoon, IL 61938
Rock Hill Telephone Co. 25,000 * 303 12.36 148,624 2.30
P.O. Box 470
330 E. Black St
Rock Hill, SC 29731
Shenandoah Telephone Company 61,592 1.14 136 5.55 118,098 1.83
P.O. Box 459
Edinburg, VA 22824
Telephone & Data Systems, Inc. 621,556 11.47 -- -- 621,556 9.64
Suite 4000
30 N. LaSalle St
Chicago, IL 60602
Percent
of
Total Total
Name Votes(2) Votes
----- ------- ------
<S> <C> <C>
Aliant Communications, Inc. (formerly 152,554 2.73
Lincoln Telecommunications Co.)
P.O. Box 81309
1440 M Street
Lincoln, NE 68508
CFW Communications Company, Inc. 121,200 2.17
401 Spring Lane
Suite 300
P.O. Box 1990
Waynesboro, VA 22980-1990
Coastal Utilities, Inc. 80,630 1.44
P.O. Box 631
Hinesville, GA 31310
Consolidated Communication, Inc. 103,329 1.85
121 S. 17th Street
Mattoon, IL 61938
Rock Hill Telephone Co. 55,300 *
P.O. Box 470
330 E. Black St
Rock Hill, SC 29731
Shenandoah Telephone Company 75,192 1.34
P.O. Box 459
Edinburg, VA 22824
Telephone & Data Systems, Inc. 621,556 11.11
Suite 4000
30 N. LaSalle St
Chicago, IL 60602
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Fully
Shares of Shares of Diluted
Illuminet Illuminet Shares of Percent
Common Percent Series A Percent Illuminet 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(3) 9,571 * -- -- 9,571 * 2,867 *
Eugene L. Cole(4) 35,047 * -- -- 35,407 * 28,343 *
Aubrey E. Judy(5) 7,107 * -- -- 7,107 * 736 *
Kenneth L. Lein(6) 26,258 * 9 * 29,920 * 20,454 *
Richard A. Lumpkin(7) 61,767 1.14 523 21.34 278,415 4.32 106,807 1.91
James S. Quarforth(8) 113,144 2.09 176 7.18 189,563 2.94 124,040 2.22
G. I. Ross(9) 218,007 4.02 105 4.28 261,702 4.06 222,247 3.97
James W. Strand(10) 146,115 2.70 156 6.36 212,454 3.29 155,122 2.77
Gregory J. Wilkinson(11) 629,207 11.62 -- -- 629,207 9.76 622,503 11.13
Roger H. Moore -- -- -- -- -- -- -- --
Daniel E. Weiss -- -- -- -- -- -- -- --
Raymond E. Donnelly(12) 15,739 * 20 * 23,836 * 7,739 *
David Nicol 971 * -- -- 971 * 971 *
Bruce E. Johnson 2,381 * 7 * 5,276 * 3,081 *
------ ------ -------- ------ ------- ------ ------- ------
Executive Officers and
Directors as a Group 1,265,314 23.36 996 40.64 1,683,069 26.10 1,294,910 23.16
========= ======= ======== ====== ========= ====== ========= =======
52
</TABLE>
<PAGE>
- --------------
* Less than 1%
(1) Assumes conversion into shares of Illuminet Common Stock of all shares of
each series of Illuminet Series A Preferred Stock, and the Illuminet
Debentures and accrued interest thereon as of December 31, 1997 (assuming
such interest is deemed principal by the holders of such Illuminet
Debentures).
(2) Represents total number of votes for outstanding stock and percentage of
votes held. Holders of Illuminet Series A Preferred Stock are entitled to
100 votes per share.
(3) Includes 6,704 shares issuable to Mr. Berns pursuant to options within 60
days after December 31, 1997.
(4) As an executive officer of Canby, Mr. Cole may be deemed the beneficial
owner of the 27,607 shares of Illuminet Common Stock owned by Canby, and
6,704 shares issuable to Mr. Cole pursuant to options within 60 days after
December 31, 1997.
(5) Includes 6,371 shares issuable to Mr. Judy pursuant to options within 60
days after December 31, 1997.
(6) As an executive officer of Winnebago, Mr. Lein may be deemed the beneficial
owner of the 18,818 shares of Illuminet Common Stock and 1 share of
Illuminet Series A Preferred Stock owned by Winnebago, and 6,704 shares
issuable to Mr. Lein pursuant to options within 60 days after December 31,
1997. In February 1998, Mr. Lein retired from Winnebago and since that date
is no longer affiliated with Winnebago.
(7) As a director and executive officer of McLeodUSA, Mr. Lumpkin may be deemed
the beneficial owner of the 51,029 shares of Illuminet Common Stock and 523
shares of Illuminet Series A Preferred Stock owned by CCI, a wholly owned
subsidiary of McLeodUSA, and 7,260 shares issuable to Mr. Lumpkin pursuant
to options within 60 days after December 31, 1997.
(8) As an executive officer of CFWC, Mr. Quarforth may be deemed the beneficial
owner of the 104,000 shares of Illuminet Common Stock and 172 shares of
Illuminet Series A Preferred Stock owned by CFWC, and 6,704 shares issuable
to Mr. Quarforth pursuant to options within 60 days after December 31,
1997.
(9) As a director and executive officer of LCC, Mr. Ross may be deemed the
beneficial owner of the 208,930 shares of Illuminet Common Stock and 105
shares of Illuminet Series A Preferred Stock owned by LCC, and 6,260 shares
issuable to Mr. Ross pursuant to options within 60 days after December 31,
1997.
53
<PAGE>
(10) As a director and executive officer of Aliant, Mr. Strand may be deemed the
beneficial owner of the 136,954 shares of Illuminet Common Stock and 156
shares of Illuminet Series A Preferred Stock owned by Aliant, and 6,593
shares issuable to Mr. Strand pursuant to options within 60 days after
December 31, 1997.
(11) As an executive officer of TDS, Mr. Wilkinson may be deemed the beneficial
owner of 621,556 shares of Illuminet Common Stock beneficially owned by
TDS, and 6,704 shares issuable to Mr. Wilkinson pursuant to options within
60 days after December 31, 1997.
(12) Includes 10,000 shares issuable to Mr. Donnelly pursuant to options within
60 days after December 31, 1997.
54
<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 Illuminet Holdings, Inc., or to companies who own
five percent (5%) or more of any class of Illuminet Holdings, Inc. stock. The
services provided and the rates charged are the same as those provided to other
customers. For the year ended December 31, 1997, and for the period February 23,
1996, the Merger date, to December 31, 1996, ILLUMINET received (1) $956,000 and
$578,000, respectively, from McLeodUSA or its affiliates, of which Mr. Lumpkin
is a director and executive officer; (2) $698,000 and $619,000, respectively,
from Aliant or its affiliates, of which Mr. Strand is a director and executive
officer; (3) $106,000 and $279,000, respectively, from LCC, of which Mr. Ross is
a director and executive officer; (4) $235,000 and $147,000, respectively, from
CFWC or its affiliates, of which Mr. Quarforth is an executive officer; (5)
$172,000 and $194,000, respectively, from Rock Hill Telephone Company; (6)
$71,000 and $38,000, respectively from Shenandoah Telephone Company, and (7)
$134,000 and $148,000, respectively, from Coastal Utilities, Inc. Under the same
terms, ILLUMINET received from TDS, of which Mr. Wilkinson is an executive
officer, $988,000 and $633,000 for the years ended December 31, 1997 and 1996,
respectively.
For participation in certain data base services provided by ILLUMINET for the
year ended December 31, 1997, and 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) $82,000 and $64,000, respectively, to Aliant or its
affiliates, of which Mr. Strand is a director and executive officer and (2)
$65,000 and $21,000, respectively, to McLeodUSA or its affiliates, of which Mr.
Lumpkin is a director and executive officer. Under the same participation
arrangements, ILLUMINET paid TDS, of which Mr. Wilkinson is an executive
officer, $92,000 and $72,000 for the years ended December 31, 1997 and 1996,
respectively.
For use of transmission lines in the form of private leased lines for the year
ended December 31, 1997,for the period February 23, 1996, the Merger date, to
December 31, 1996, ILLUMINET paid, at rates comparable to third-party service
providers, $1,571,000 and $1,101,000, respectively, to McLeodUSA or its
affiliates of which Mr. Lumpkin is a director, and $102,000 and $77,000,
respectively, to Aliant or its affiliates, of which Mr. Strand is a director and
executive officer.
<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.
EXHIBIT 3.5 Certificate of Amendment of Certificate of Incorporation
of USTN Holdings, Inc. dated May 1, 1997.
EXHIBIT 3.6 First Amendment to the By-Laws of Illuminet Holdings,
Inc. dated June 13, 1996
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(a) 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(b) 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 (Incorporated by reference to Exhibit 4.3
to USTN Holdings, Inc.'s Annual Report on Form 10-KSB
dated March 28, 1997).
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. (Incorporated by reference to
Exhibit 4.4 to USTN
<PAGE>
Holdings, Inc.'s Form 10-KSB for the year ended
December 31, 1996, No. 33-97876).
EXHIBIT 4.5 Certificate of Designation of USTN Holdings, Inc. Series
A Convertible Preferred Stock (Incorporated by reference
to Exhibit 4.5 to USTN Holdings, Inc.'s Form 10-KSB for
the year ended December 31, 1996, No. 33-97876).
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).
Management Contracts and Compensatory Plans
-------------------------------------------
EXHIBIT 10.2 ILLUMINET 1996 Executive Long-Term Bonus Plan
(Incorporated by reference to Exhibit 4.5 to USTN
Holdings, Inc.'s Form 10-KSB for the year ended December
31, 1996, No. 33-97876).
EXHIBIT 10.3 ILLUMINET 1996 Executive Short-Term Bonus Plan
(Incorporated by reference to Exhibit 4.5 to USTN
Holdings, Inc.'s Form 10-KSB for the year ended December
31, 1996, No. 33-97876).
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).
<PAGE>
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).
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 10.12 Illuminet Holdings, Inc. 1997 Equity Incentive Plan
EXHIBIT 10.13 Illuminet Holdings, Inc. 1997 Equity Incentive Plan -
Non-Qualified Stock Option Award Agreement
EXHIBIT 10.14 Illuminet Holdings, Inc. 1997 Equity Incentive Plan -
Director Stock Option Award Agreement
EXHIBIT 10.15 Illuminet, Inc. 1997 Short-Term Incentive Plan
EXHIBIT 10.16 Form of Letter Agreement between Illuminet, Inc. and F.
Terry Kremian regarding Mr. Kremian's employment as Vice
President-Sales and Marketing of Illuminet, Inc.
EXHIBIT 21 LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1997
EXHIBIT 27 FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K
NONE
<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.
ILLUMINET HOLDINGS, INC.
By:
Roger H. Moore
President and Chief Executive
Officer
Date: March 10, 1998
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 10, 1998
Roger H. Moore, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Daniel E. Weiss March 6, 1998
Daniel E. Weiss, Vice President - Finance
(Principal Financial Officer and Accounting Officer)
By: /s/ Richard A. Lumpkin March 25, 1998
Richard A. Lumpkin, Chairman of the Board
By: /s/ Gregory J. Wilkinson March 18, 1998
Gregory J. Wilkinson, Vice Chairman of the Board
By: /s/ Theodore D. Berns March 18, 1998
Theodore D. Berns, Director
By: /s/ Eugene L. Cole March 25, 1998
Eugene L. Cole, Director
By: /s/ Aubrey E. Judy March 19, 1998
Aubrey E. Judy, Director
<PAGE>
By: /s/ Kenneth L. Lein March 21, 1998
Kenneth L. Lein, Director
By: /s/ James S. Quarforth March 25, 1998
James S. Quarforth, Director
By: /s/ G. I. Ross March 19, 1998
G. I. Ross, Director
By: /s/ James W. Strand March 16, 1998
James W. Strand, Director
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,
<PAGE>
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.
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
<PAGE>
of directors, voting together as a single class. Any vacancy on the Board of
Directors that 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.
(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
<PAGE>
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.
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.
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
<PAGE>
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
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
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
EXHIBIT 3.4
BY-LAWS
OF
USTN HOLDINGS INC.
(Formerly known as U.S. TELNET HOLDINGS, INC.)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of USTN HOLDINGS, INC.
(the "Corporation") shall be established and maintained at the office of the
Prentice-Hall Corporation Systems, Inc., in the City of Dover, in the County of
Kent, in the State of Delaware, and said corporation shall be the registered
agent of this Corporation.
SECTION 2. OTHER OFFICES. The Corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the principal office of the
Corporation at 203 North LaSalle Street, Chicago, Illinois 60601-1293 on the
first Monday in June.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
<PAGE>
SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the provisions
of these By-Laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by such stockholder, but no proxy shall be
voted after eleven (11) months from its date unless such proxy provides for a
longer period. Upon the demand of any stockholder, the vote for directors and
the vote upon any question before the meeting shall be by ballot. All elections
for directors shall be decided by plurality vote; all other questions shall be
determined by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 4. QUORUM. Except as otherwise required by these By-Laws, the
presence, in person or by proxy, of stockholders holding a majority of the stock
of the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders. In case a quorum shall not be present at any meeting, a
majority in interest of the stockholders entitled to vote thereat, present in
person or by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the requisite
amount of stock entitled to vote shall be present. At any such adjourned meeting
at which the requisite amount of stock entitled to vote shall be represented,
any business may be transacted which might have been transacted at the meeting
as originally noticed; but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders may be
held whenever and wherever called for by the Chairman of the Board of Directors,
the President or the Board of Directors, or by the written demand of the holders
of no fewer than one-third of all the shares of capital stock entitled to vote
at the meeting. The business which may be conducted at any such special meeting
shall be confined to the purposes stated in the notice thereof, including the
election and/or removal of directors.
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place, date and
time of the meeting, and the purpose or purposes for which the meeting is
called, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the Corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the consent of
the majority of stockholders entitled to vote thereat.
<PAGE>
SECTION 7. INSPECTORS OF ELECTION.
(a) At such time as the Corporation becomes subject to Section 231 of
the General Corporation Law of the State of Delaware, the provisions of this
Section 7 shall become applicable. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entitles to assist the inspectors in the performance of
the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
ss.212(c)(2) of the General Corporation Law of the State of Delaware, ballots
and the regular books and records of the Corporation, except that the inspectors
may consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this Section 7 shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
SECTION 8. CONDUCT OF STOCKHOLDER'S MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if neither of such officers is present, by a
Vice President designated by the Board of Directors, or if none of such officers
is present, by a chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings or, if he is
not present, an Assistant Secretary designated by the chairman of the meeting
shall so
<PAGE>
act; if neither the Secretary nor an Assistant Secretary is present, then a
secretary shall be appointed by the chairman of the meeting. The order of
business shall be as determined by the chairman of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The property and business of the Corporation
shall be managed by its Board of Directors, which shall possess all the powers
of the Corporation except as may be otherwise provided by statute or by the
certificate of incorporation or by these by-laws.
The board of directors may hold its meetings, establish corporate offices
and agencies, and keep the books of the Corporation at such places either within
or without the State of Delaware as it may from time to time determine.
SECTION 2. NUMBER OF DIRECTORS. 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. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his successor
shall be elected and shall qualify. As used in these By-laws, "entire Board"
means the total number of directors the Corporation would have if there were no
vacancies.
SECTION 3. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the Chairman of the Board of Directors, President or
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
SECTION 4. VACANCIES. If the office of any director, member of a committee
or other officer becomes vacant, the remaining directors in office, though less
than a quorum by a majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen.
SECTION 5. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
SECTION 6. INCREASE OR DECREASE OF NUMBER. The number of directors may be
increased or decreased by amendment of these By-Laws by the affirmative vote of
a majority of the directors, though less than a quorum, or, by the affirmative
<PAGE>
vote of a majority in interest of the stockholders, at the annual meeting or at
a special meeting called for that purpose.
SECTION 7. POWERS. The Board of Directors shall exercise all of the powers
of the Corporation except such as are by law, or by the Certificate of
Incorporation of the Corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the Chairman, the President
or by the Secretary on the written request of any four directors on at least
four days' prior notice to each director and shall be held at such place or
places as may be determined by the directors, or as shall be stated in the call
of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by the
<PAGE>
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
<PAGE>
SECTION 10. QUORUM. A majority of the entire Board shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned. The vote of the majority of directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors unless the
Certificate of Incorporation or these By-laws shall require a vote of a greater
number.
SECTION 11. COMPENSATION. Directors shall receive such compensation for
their services as directors or as members of committees, as may be fixed by
resolution of the Board of Directors, including but not limited to a stated
salary, fixed fee, or hourly rate and expenses of attendance for attendance at
each meeting or engagement or activity on behalf of this Corporation. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if all members of the Board or of such committee as
the case may be, consent thereto in writing and the writing or writings and such
written consent is filed with the minutes of proceedings of the Board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of
the Board of Directors, a President, a Treasurer, and a Secretary, all of whom
shall be elected by the Board of Directors and who shall hold office until their
successors are elected and qualified. In addition, the Board of Directors may
elect one or more Vice-Presidents and such Assistant Secretaries and Assistant
Treasurers as they may deem proper. None of the officers (other than the
Chairman of the Board of Directors) need be directors. The officers shall be
elected at the first meeting of the Board of Directors after each annual
meeting, and vacancies in any office and newly created offices may be filled by
the Board at any time. Any two or more offices may be held by the same person.
SECTION 2. REMOVAL OF OFFICERS. Any officer may be removed, either with or
without cause, by the vote of a majority of the directors then in office at any
meeting of the board of directors, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
<PAGE>
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors shall preside at all meetings of directors and stockholders of the
Corporation and may call meetings of the Board of Directors. The Chairman of the
Board of Directors shall also perform such other duties as may be assigned to
him by the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief executive officer of
the Corporation and shall formulate policies with respect to the affairs of the
Corporation and have general powers of supervision and management. In the
absence of the Chairman of the Board of Directors, the President shall preside
at meetings of the stockholders and the Board of Directors. Except as the Board
of Directors shall authorize the execution thereof in some other manner, the
President shall be authorized to execute bonds, mortgages and other contracts on
behalf of the Corporation to cause the Corporation's seal to be affixed to any
instrument requiring such seal, and when so affixed such seal shall be attested
by the signatures of the Secretary or Assistant Secretary.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
SECTION 7. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, the Chairman of the Board of Directors or the
President, taking proper vouchers for such disbursements. He shall render to the
Chairman of the Board of Directors, the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 8. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board of Directors, the President, or by the directors,
or stockholders, upon whose requisition the meeting is called as provided in
these By-Laws. He shall record all the proceedings of the meetings of the
Corporation and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him by the directors or
the Chairman of the Board of Directors or the President. He shall have the
custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the Chairman of
the Board of Directors or the President, and attest the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate of stock, signed by the
Chairman of the Board of Directors, the President or Vice-President, and the
Treasurer or an Assistant Treasurer or Secretary or an Assistant Secretary,
shall be issued to each stockholder certifying the number of shares owned by him
in the Corporation. Any of or all the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the Corporation a bond, in such sum as they may direct, not exceeding
double the value of the stock, to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall
be transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the Corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other person as the directors may designate, by whom they shall be cancelled,
and new certificates shall thereupon be issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the Corporation.
<PAGE>
SECTION 6. SEAL. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers, agent or agents of the
Corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by law.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
<PAGE>
ARTICLE VII
IDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application, that
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in Sections 1 and 2, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 4. Any indemnification under Sections 1 and 2 (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
<PAGE>
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 1 and 2. Such determination shall be made (a)
by the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
SECTION 5. Expenses (including attorneys' fees) incurred in defending a
civil, criminal, administrative or investigative action suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
SECTION 6. The indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any contract, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
SECTION 7. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article.
SECTION 8. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
EXHIBIT 3.5
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
USTN HOLDINGS, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of USTN HOLDINGS, INC.,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "FIRST" so that, as amended, said
article shall be and read as follows:
The name of the Corporation is ILLUMINET HOLDINGS, INC.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and help
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said shareholders of USTN HOLDINGS, INC. has caused this
certificate to be signed by Roger H. Moore, an Authorized Officer, this 1st day
of May, 1997.
BY: /s/ Roger H. Moore
TITLE OF OFFICER: President & CEO
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/09/1997
971152906-2530006
EXHIBIT 3.6
FIRST AMENDMENT TO THE BY-LAWS
OF
ILLUMINET HOLDINGS, INC.
Pursuant to the Annual Meeting of Stockholders of Illuminet Holdings,
Inc., (f/k/a U.S. Telnet Holdings, Inc. and USTN Holdings, Inc.) a Delaware
corporation (the "Corporation"), dated June 13, 1996, the By-Laws of the
Corporation are hereby amended as follows:
1. Article III, Section 2 of the By-Laws is hereby amended and restated in
its entirety so as to read as follows:
SECTION 2. NUMBER OF DIRECTORS. 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, The Board shall be divided into three classes,
which are hereby designated Class I, Class II and Class III.
The term of office of the initial Class I directors shall
expire at the 1997 Annual Meeting of Stockholders; that of the
initial Class II directors at the 1998 Annual Meeting of
Stockholders; and that of the initial Class III directors at
the 1999 Annual Meeting of Stockholders. At each annual
meeting after the initial classification of directors,
directors to replace those whose terms expire at such annual
meeting shall be elected to hold office until the third
succeeding annual meeting. The directors shall be elected at
the annual meeting of the stockholders and each director shall
be elected to serve until his successor shall be elected and
shall qualify. As used in these By-Laws, "entire Board" means
the total number of directors the Corporation would have if
there were no vacancies.
2. The following shall be added to the end of Article III, Section 5
of the By-Laws.
After January 1, 1997, directors may not be elected or
re-elected to the Board after attaining the age of sixty-five
years old. Directors who attain the age of sixty-five years
old during their term will be allowed to complete their full
term.
<PAGE>
3. Article VI of the By-Laws is hereby amended and restated in its
entirety so as to read as follows:
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting; provided,
however, that the affirmative vote of two-thirds (2/3) of a majority of the
stock issued and outstanding and entitled to vote thereat shall be required to
amend Article III, Section 2 of these By-Laws.
IN WITNESS WHEREOF, the By-Laws are so amended as of this 13th day of June 1996.
/s/Daniel E. Weiss
Secretary
EXHIBIT 10.12
ILLUMINET HOLDINGS, INC.
1997 EQUITY INCENTIVE PLAN
SECTION 1
PURPOSE AND DURATION
1.1 Effective Date. This Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units and
Performance Shares. This Plan shall be effective on the date of its adoption by
the Company's Board of Directors.
1.2 Purpose of this Plan. This Plan is intended to attract, motivate,
and retain (a) employees of the Company and its Affiliates, (b) consultants who
provide significant services to the Company and its Affiliates, and (c) members
of the Board of Directors of the Company who are employees of neither the
Company nor any Affiliate. This Plan also is designed to further the growth and
financial success of the Company and its Affiliates by aligning the interests of
the Participants, through the ownership of Shares and through other incentives,
with the interests of the Company's stockholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
"Affiliate" means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by or
under common control with the Company.
"Affiliated SAR" means an SAR that is granted in connection with a
related Option, and that automatically will be deemed to be exercised at the
same time that the related Option is exercised.
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"Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units or Performance Shares.
"Award Agreement" means the written agreement setting forth the terms
and provisions applicable to each Award granted under this Plan.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Board Member" means any individual who is a member of the Board of
Directors of the Company.
"Change in Control" shall have the meaning assigned to such term in
Section 12.2.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section, and
any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means the committee appointed by the Board (pursuant to
Section 3.1) to administer this Plan.
"Company" means Illuminet Holdings, Inc., a Delaware corporation, and
any successor thereto. With respect to the definitions of the Performance Goals,
the Committee in its sole discretion may determine that "Company" means
Illuminet Holdings, Inc., and its consolidated subsidiaries.
"Consultant" means any consultant, independent contractor or other
person who provides significant services to the Company or its Affiliates, but
who is neither an Employee nor a Board Member.
"Disability" means a permanent and total disability within the meaning
of Code section 22(e)(3), provided that in the case of Awards other than
Incentive Stock Options, the Committee in its sole discretion may determine
whether a permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
"Earnings Per Share" means as to any Fiscal Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by a weighted average
number of Shares outstanding and dilutive equivalent Shares deemed outstanding.
"Employee" means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time this Plan is adopted or becomes
so employed subsequent to the adoption of this Plan.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific section of ERISA or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
"Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to the exercise of an Option.
"Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Shares on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Shares are listed or on the Nasdaq
Stock Market. If there is no regular public trading market for such Shares, the
Fair Market Value of the Shares shall be determined by the Committee in good
faith. Notwithstanding the preceding, for federal, state and local income tax
reporting purposes, fair market value shall be determined by the Committee (or
its delegate) in accordance with uniform and nondiscriminatory standards adopted
by it from time to time.
"Fiscal Year" means the fiscal year of the Company.
"Freestanding SAR" means a SAR that is granted independently of any
Option.
"Grant Date" means, with respect to an Award, the date that the Award
was granted.
"Incentive Stock Option" means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of section 422 of the Code.
"Individual MBOs" means as to a Participant, the objective and
measurable goals set by a "management by objectives" process and approved by the
Committee (in its sole discretion).
"Net Income" means as to any Fiscal Year, the income after taxes of the
Company for the Fiscal Year determined in accordance with generally accepted
accounting principles; provided, however, that the Committee shall determine
whether any significant item(s) shall be included or excluded from the
calculation of Net Income with respect to one or more Participants and, if the
Committee intends an Award to qualify as "performance-based compensation" under
Section 162(m) of the Code, the Committee shall make such determination prior to
the latest date permissible under Section 162(m) of the Code.
"Nonemployee Board Member" means a Board Member who is not an employee
of the Company or of any Affiliate.
"Nonqualified Stock Option" means an Option to purchase Shares which is
not an Incentive Stock Option.
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<PAGE>
"Option" means an Incentive Stock Option or a Nonqualified Stock Option
"Participant" means an Employee, Consultant or Nonemployee Board Member
who has an outstanding Award.
"Performance Goals" means the goal(s) (or combined goal(s)) determined
by the Committee (in its sole discretion) to be applicable to a Participant with
respect to an Award. As determined by the Committee, the Performance Goals
applicable to an Award may provide for a targeted level or levels of achievement
using predetermined measurements, including, for example, one or more of the
following measures: (a) Earnings Per Share, (b) Individual MBOs, (c) Net Income,
(d) Pro Forma Net Income, (e) Return on Designated Assets, (f) Return on
Revenues, and (g) Satisfaction MBOs. The Performance Goals may differ from
Participant to Participant and from Award to Award.
"Performance Period" shall have the meaning assigned to such term in
Section 8.3.
"Performance Share" means an Award granted to a Participant pursuant to
Section 8.
"Performance Unit" means an Award granted to a Participant pursuant to
Section 8.
"Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and, therefore, the
Shares are subject to a substantial risk of forfeiture. As provided in Section
7, such restrictions may be based on the passage of time, the achievement of
target levels of performance or the occurrence of other events as determined by
the Committee in its sole discretion.
"Plan" means the Illuminet Holdings, Inc., 1997 Equity Incentive Plan,
as set forth in this instrument and as hereafter amended from time to time.
"Pro Forma Net Income" means as to any business unit for any Fiscal
Year, the portion of Company's Net Income allocable to such business unit;
provided, however, that the Committee shall determine the basis on which such
allocation shall be made.
"Restricted Stock" means an Award granted to a Participant pursuant to
Section 7.
"Retirement" means, in the case of an Employee, a Termination of
Service by reason of the Employee's retirement pursuant to any retirement
program instituted by the Company or any Affiliate employer or as otherwise
agreed to by the Employer or the applicable Affiliate employer. With respect to
a Consultant, no Termination of Service shall be deemed to be on account of
"Retirement". With respect to a Nonemployee Board Member, "Retirement" means
termination of service on the Board at or after age sixty-five (65).
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<PAGE>
"Return on Designated Assets" means as to any Fiscal Year, (a) the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or (b) the Net Income of the Company,
divided by the average of beginning and ending designated corporate assets.
"Return on Revenues" means as to any Fiscal Year, the percentage equal
to the Company's Net Income or the business unit's Pro Forma Net Income, divided
by the Company's or the business unit's annual revenue.
"Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.
"Satisfaction MBOs" means as to any Participant, the objective and
measurable individual goals set by a "management by objectives" process and
approved by the Committee, which goals relate to the satisfaction of external or
internal requirements.
"Section 16 Person" means a person who, with respect to the Shares, is
subject to section 16 of the 1934 Act.
"Shares" means the shares of common stock of the Company.
"Stock Appreciation Right" or "SAR" means an Award, granted alone or in
connection with a related Option, that is designated as a SAR pursuant to
Section 6.
"Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"Tandem SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
"Termination of Service" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an employee and the
Company or an Affiliate for any reason, including, but not limited to, a
cessation by resignation, discharge, death, Disability, Retirement or the
disaffiliation of an Affiliate, but excluding any such cessation where there is
a simultaneous reemployment by the Company or an Affiliate, and (b) in the case
of a Board Member or Consultant, a cessation of the service relationship between
a Board Member or Consultant and the Company or an Affiliate for any reason,
including, but not limited to, a cessation by resignation, discharge, death,
Disability, (Retirement, with respect to a Board
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<PAGE>
Member) or the disaffiliation of an Affiliate, but excluding any such cessation
where there is a simultaneous reengagement of the Board Member or Consultant by
the Company or an Affiliate.
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<PAGE>
SECTION 3
ADMINISTRATION
3.1 The Committee. This Plan shall be administered by the Committee.
The Committee shall consist of not less than two (2) Board Members, all of whom
are Nonemployee Board Members. The members of the Committee shall be appointed
from time to time by, and shall serve at the pleasure of, the Board of
Directors.
3.2 Authority of the Committee. It shall be the duty of the Committee
to administer this Plan in accordance with its provisions. The Committee shall
have all powers and discretion necessary or appropriate to administer this Plan
and to control its operation, including, but not limited to, the power to (a)
determine which Participants shall be granted Awards, (b) prescribe the terms
and conditions of the Awards, (c) interpret this Plan and the Awards, (d) adopt
rules for the administration, interpretation and application of this Plan as are
consistent therewith, and (e) interpret, amend or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its sole discretion
and on such terms and conditions as it may provide, may delegate all or any part
of its authority and powers under this Plan to one or more Board Members or
officers of the Company; provided, however, that the Committee may not delegate
its authority and powers in any way which would jeopardize this Plan's
qualification under Rule 16b-3.
3.4 Decisions Binding. All determinations and decisions made by the
Committee, the Board and any delegate of the Committee pursuant to Section 3.3
shall be final, conclusive, and binding on all persons, and shall be given the
maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THIS PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant under this Plan shall not exceed
1,000,000. Shares granted under this Plan may be either authorized but unissued
Shares or treasury Shares, or any combination thereof.
4.2 Lapsed Awards. If an Award is settled in cash, or is canceled,
terminates, expires or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award thereafter shall be available to be the subject
of an Award.
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4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, Share combination, or other change in
the corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under this Plan,
the number, class and price of Shares subject to outstanding Awards, and the
numerical limits of Sections 4.1, 5.1, 6.1, 7.1 and 8.1, in such manner as the
Committee (in its sole discretion) shall determine to be advisable or
appropriate to prevent the dilution or diminution of such Awards.
Notwithstanding the preceding, the number of Shares subject to any Award always
shall be a whole number.
4.4 Repurchase Option. The Committee may, in its sole discretion,
include in the terms of any Award Agreement, that the Company shall have the
option to repurchase Shares of any Participant acquired pursuant to any Award
granted under the Plan upon the Termination of Service of such Participant upon
such terms as the Committee shall state in the Award.
4.5 Buy-Out Provision. The Committee may at any time offer on behalf of
the Company to buy out, for a payment in cash or Shares, an Award previously
granted, based on such terms and conditions as the Committee, in its sole
discretion, shall establish and communicate to the Participants at the time such
offer is made.
4.6 Restrictions on Share Transferability. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Award as
it may deem advisable or appropriate in its sole discretion, including, but not
limited to, restrictions related to applicable Federal securities laws, the
requirements of any national securities exchange or system upon which Shares are
then listed or traded, and any blue sky or state securities laws.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of this Plan,
Options may be granted to Participants at any time and from time to time as
determined by the Committee in its sole discretion. The Committee, in its sole
discretion, shall determine the number of Shares subject to each Option;
provided, however, that during any Fiscal Year, no Participant shall be granted
Options covering more than 100,000 Shares. The Committee may grant Incentive
Stock Options, Nonqualified Stock Options, or any combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option and such other terms and conditions as the Committee, in
its sole discretion, shall determine. The Award Agreement also shall specify
whether the Option is intended to be an Incentive Stock Option or a Nonqualified
Stock Option.
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5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the Exercise Price may be less than the Fair
Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive
Stock Option, the Exercise Price shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the Grant Date;
provided, however, that if on the Grant Date, the Employee (together
with persons whose stock ownership is attributed to the Employee
pursuant to section 424(d) of the Code) owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred ten percent (110%) of the Fair Market Value of a
Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in section 424(a) of the Code
(e.g., the acquisition of property or stock from an unrelated
corporation), persons who become Participants on account of such
transaction may be granted Options in substitution for options granted
by such former employer or recipient of services. If such substitute
Options are granted, the Committee, in its sole discretion and
consistent with section 424(a) of the Code, may determine that such
substitute Options shall have an exercise price less than one hundred
(100%) of the Fair Market Value of the Shares on the Grant Date.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Except as provided in Section 5.7
regarding Incentive Stock Options, each Option shall terminate upon the
earlier of the first to occur of the following events:
(a) The date(s) for termination of the Option set
forth in the Award Agreement; or
(b) The expiration of ten (10) years from the Grant
Date.
5.4.2 Committee Discretion. Subject to the limits of Section
5.4.1, the Committee, in its sole discretion, (a) shall provide in each
Award Agreement when each Option expires and becomes unexercisable, and
(b) may, after an Option is granted, extend the maximum term of the
Option (subject to Section 5.7 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under this Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in
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its sole discretion. After an Option is granted, the Committee, in its sole
discretion, may accelerate the exercisability of the Option. If the Committee
provides that any Option is exercisable only in installments, the Committee may
at any time waive such installment exercise provisions, in whole or in part,
based on such factors as the Committee may determine.
5.6 Payment. Options shall be exercised by the Participant's delivery
of a written notice of exercise to the Secretary of the Company (or its
designee), setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines (i) to provide legal consideration for the Shares, and
(ii) to be consistent with the purposes of this Plan.
As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 Certain Additional Provisions for Incentive Stock Options.
5.7.1 Exercisability. The aggregate Fair Market Value
(determined on the Grant Date(s)) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by any
Employee during any calendar year (under all plans of the Company and
its Subsidiaries) shall not exceed $100,000.
5.7.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's
Termination of Service for any reason other than Disability or death,
unless (a) the Participant dies during such three-month period, and (b)
the Award Agreement or the Committee permits later exercise. No
Incentive Stock Option may be exercised more than one (1) year after
the Participant's termination of employment on account of Disability,
unless (a) the Participant dies during such one-year period, and (b)
the Award Agreement or the Committee permits later exercise.
5.7.3 Company and Subsidiaries Only. Incentive Stock Options
may be granted only to persons who are employees of the Company or a
Subsidiary on the Grant Date.
5.7.4 Expiration. No Incentive Stock Option may be exercised
after the expiration of ten (10) years from the Grant Date; provided,
however, that if the Option is granted to an Employee who, together
with persons whose stock ownership is attributed to the
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Employee pursuant to section 424(d) of the Code, owns stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Option may not be
exercised after the expiration of five (5) years from the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of this Plan, an
SAR may be granted to Participants at any time and from time to time as shall be
determined by the Committee, in its sole discretion. The Committee may grant
Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof.
6.1.1 Number of Shares. The Committee shall have complete
discretion to determine the number of SARs granted to any Participant,
provided that during any Fiscal Year, no Participant shall be granted
SARs covering more than 100,000 Shares.
6.1.2 Exercise Price and Other Terms. The Committee, subject
to the provisions of this Plan, shall have complete discretion to
determine the terms and conditions of SARs granted under this Plan;
provided, however, that the exercise price of a Freestanding SAR shall
be not less than one hundred percent (100%) of the Fair Market Value of
a Share on the Grant Date. The exercise price of Tandem or Affiliated
SARs shall equal the Exercise Price of the related Option.
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to
be exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
6.4 Exercise of Freestanding SARs. Freestanding SARs shall be
exercisable on such terms and conditions as the Committee, in its sole
discretion, shall determine.
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6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Committee, in
its sole discretion, shall determine.
6.6 Expiration of SARs. An SAR granted under this Plan shall expire
upon the date determined by the Committee, in its sole discretion, as set forth
in the Award Agreement. Notwithstanding the foregoing, the terms and provisions
of Section 5.4 also shall apply to SARs.
6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The positive difference between the Fair Market Value of a
Share on the date of exercise over the exercise price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the sole discretion of the Committee, the payment upon SAR exercise
may be in cash, in Shares of equivalent value, or in any combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of
this Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee, in its sole
discretion, shall determine. The Committee, in its sole discretion, shall
determine the number of Shares to be granted to each Participant; provided,
however, that during any Fiscal Year, no Participant shall receive more than
100,000 Shares of Restricted Stock.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Committee, in its sole discretion, shall determine. Unless the Committee, in its
sole discretion, determines otherwise, Shares of Restricted Stock shall be held
by the Company as escrow agent until the end of the applicable Period of
Restriction.
7.3 Transferability. Except as otherwise determined by the Committee,
in its sole discretion, Shares of Restricted Stock may not be sold, transferred,
gifted, bequeathed, pledged, assigned, or otherwise alienated or hypothecated,
voluntarily or involuntarily, until the end of the applicable Period of
Restriction.
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7.4 Other Restrictions. The Committee, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate in accordance with this Section 7.4.
7.4.1 General Restrictions. The Committee may set restrictions
based upon (a) the achievement of specific performance objectives
(Company-wide, divisional or individual), (b) applicable Federal or
state securities laws, or (c) any other basis determined by the
Committee in its sole discretion.
7.4.2 Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock as "performance-based
compensation" under section 162(m) of the Code, the Committee, in its
sole discretion, may set restrictions based upon the achievement of
Performance Goals. The Performance Goals shall be set by the Committee
on or before the latest date permissible to enable the Restricted Stock
to qualify as "performance-based compensation" under section 162(m) of
the Code. In granting Restricted Stock that is intended to qualify
under Code section 162(m), the Committee shall follow any procedures
determined by it in its sole discretion from time to time to be
necessary, advisable or appropriate to ensure qualification of the
Restricted Stock under Code section 162(m) (e.g., in determining the
Performance Goals).
7.4.3 Legend on Certificates. The Committee, in its sole
discretion, may legend the certificates representing Restricted Stock
to give appropriate notice of such restrictions. For example, the
Committee may determine that some or all certificates representing
Shares of Restricted Stock shall bear the following legend:
"THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED
BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY
OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE ILLUMINET HOLDINGS, INC., 1997
EQUITY INCENTIVE PLAN, AND IN A RESTRICTED STOCK AGREEMENT. A
COPY OF THIS PLAN AND SUCH RESTRICTED STOCK AGREEMENT MAY BE
OBTAINED FROM THE SECRETARY OF ILLUMINET HOLDINGS, INC."
7.5 Removal of Restrictions. Except as otherwise provided in this
Section 7, Shares of Restricted Stock covered by each Restricted Stock grant
made under this Plan shall be released from escrow as soon as practicable after
the end of the applicable Period of Restriction. The Committee, in its sole
discretion, may accelerate the time at which any restrictions shall lapse and
remove any restrictions. After the end of the applicable Period of Restriction,
the Participant shall be entitled to have any legend or legends under Section
7.4.3 removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
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7.6 Voting Rights. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the applicable Award Agreement
provides otherwise.
7.7 Dividends and Other Distributions. During the Period of
Restriction, Participants holding Shares of Restricted Stock shall be entitled
to receive all dividends and other distributions paid with respect to such
Shares unless otherwise provided in the applicable Award Agreement. If any such
dividends or distributions are paid in Shares, the Shares shall be subject to
the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
7.8 Return of Restricted Stock to Company. On the date set forth in the
applicable Award Agreement, the Restricted Stock for which restrictions have not
lapsed shall revert to the Company and thereafter shall be available for grant
under this Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and
Performance Shares may be granted to Participants at any time and from time to
time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant; provided,
however, that during any Fiscal Year, (a) no Participant shall receive
Performance Units having an initial value greater than $250,000, and (b) no
Participant shall receive more than 100,000 Performance Shares.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have
an initial value that is established by the Committee on or before the Grant
Date. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its sole discretion which, depending on the extent to
which they are met, will determine the number or value of Performance Units or
Performance Shares, or both, that will be paid out to the Participants. The time
period during which the performance objectives must be met shall be called the
"Performance Period". Each Award of Performance Units or Performance Shares
shall be evidenced by an Award Agreement that shall specify the Performance
Period, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
8.3.1 General Performance Objectives. The Committee may set
performance objectives based upon (a) the achievement of Company-wide,
divisional or individual
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goals, (b) applicable Federal or state securities laws, or (c) any
other basis determined by the Committee in its discretion.
8.3.2 Section 162(m) Performance Objectives. For purposes of
qualifying grants of Performance Units or Performance Shares as
"performance-based compensation" under section 162(m) of the Code, the
Committee, in its sole discretion, may determine that the performance
objectives applicable to Performance Units or Performance Shares, as
the case may be, shall be based on the achievement of Performance
Goals. The Performance Goals shall be set by the Committee on or before
the latest date permissible to enable the Performance Units or
Performance Shares, as the case may be, to qualify as
"performance-based compensation" under section 162(m) of the Code. In
granting Performance Units or Performance Shares which are intended to
qualify under Code section 162(m), the Committee shall follow any
procedures determined by it from time to time to be necessary or
appropriate in its sole discretion to ensure qualification of the
Performance Units or Performance Shares, as the case may be, under Code
section 162(m) (e.g., in determining the Performance Goals).
8.4 Earning of Performance Units/Shares. After the applicable
Performance Period has ended, the holder of Performance Units or Performance
Shares shall be entitled to receive a payout of the number of Performance Units
or Performance Shares, as the case may be, earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance objectives have been achieved. After the grant of a
Performance Unit or Performance Share, the Committee, in its sole discretion,
may reduce or waive any performance objectives for such Performance Unit or
Performance Share.
8.5 Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units or Performance Shares shall be made as soon as
practicable after the end of the applicable Performance Period. The Committee,
in its sole discretion, may pay earned Performance Units or Performance Shares
in the form of cash, in Shares (which have an aggregate Fair Market Value equal
to the value of the earned Performance Units or Performance Shares, as the case
may be, at the end of the applicable Performance Period), or in any combination
thereof.
8.6 Cancellation of Performance Units/Shares. On the earlier of the
date set forth in the Award Agreement or the Participant's Termination of
Service (other than by death, Disability or, with respect to an Employee,
Retirement), all unearned or unvested Performance Units or Performance Shares
shall be forfeited to the Company, and thereafter shall be available for grant
under this Plan. In the event of a Participant's death, Disability or, with
respect to an Employee, Retirement, prior to the end of a Performance Period,
the Committee shall reduce his or her Performance Units or Performance Shares
proportionately based on the date of such Termination of Service.
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SECTION 9
MISCELLANEOUS
9.1 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral election shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
9.2 No Effect on Employment or Service. Nothing in this Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of this Plan, transfer of employment of a Participant between the
Company and any of its Affiliates (or between Affiliates) shall not be deemed a
Termination of Service. Employment or secure relationship with the Company and
its Affiliates is on an at-will basis only, unless otherwise provided by an
applicable employment or service agreement between the Participant and the
Company or its Affiliate, as the case may be.
9.3 Participation. No Participant shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
9.4 Indemnification. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability or expense (including
attorneys' fees) that may be imposed upon or reasonably incurred by him or her
in connection with or resulting from any claim, action, suit or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under this Plan or any Award Agreement,
and (b) from any and all amounts paid by him or her in settlement thereof, with
the Company's prior written approval, or paid by him or her in satisfaction of
any judgment in any such claim, action, suit or proceeding against him or her;
provided, however, that he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to handle
and defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of Incorporation or
Bylaws, by contract, as a matter of law or otherwise, or under any power that
the Company may have to indemnify them or hold them harmless.
9.5 Successors. All obligations of the Company under this Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business or assets of the Company.
9.6 Beneficiary Designations. If permitted by the Committee, a
Participant under this Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
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Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of this Plan and of the applicable Award Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
9.7 Transferability of Awards. Except as provided otherwise in the
Award Agreement, Awards granted under this Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated.
9.8 No Rights as Stockholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary thereof) shall have
any of the rights or privileges of a stockholder of the Company with respect to
any Shares issuable pursuant to an Award (or the exercise thereof), unless and
until certificates representing such Shares shall have been issued, recorded on
the records of the Company or its transfer agents or registrars, and delivered
to the Participant (or his or her beneficiary).
SECTION 10
AMENDMENT, TERMINATION, AND DURATION
10.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate this Plan, or any part thereof, at any time
and for any reason; provided, however, that if and to the extent required by law
or to maintain this Plan's qualification under Rule 16b-3, the Code, or the
rules of any national securities exchange (if applicable), any such amendment
shall be subject to stockholder approval. The amendment, suspension or
termination of this Plan shall not, without the consent of the Participant,
alter or impair any rights or obligations under any Award theretofore granted to
such Participant. No Award may be granted during any period of suspension or
after termination of this Plan.
10.2 Duration of this Plan. This Plan shall become effective on the
date specified herein, and subject to Section 10.1 (regarding the Board's right
to amend or terminate this Plan), shall remain in effect thereafter; provided,
however, that without further stockholder approval, no Incentive Stock Option
may be granted under this Plan after the tenth anniversary of the effective date
of this Plan.
SECTION 11
TAX WITHHOLDING
11.1 Withholding Requirements. Prior to the delivery of any Shares or
cash pursuant to an Award (or the exercise thereof), the Company shall have the
power and the right to deduct or withhold from any amounts due to the
Participant from the Company, or require a Participant to remit to the Company,
an amount sufficient to satisfy Federal, state and local taxes (including
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the Participant's FICA obligation) required to be withheld with respect to such
Award (or the exercise thereof).
11.2 Withholding Arrangements. The Committee, in its sole discretion
and pursuant to such procedures as it may specify from time to time, may permit
a Participant to satisfy such tax withholding obligation, in whole or in part,
by (a) electing to have the Company withhold otherwise deliverable Shares, or
(b) delivering to the Company Shares then owned by the Participant having a Fair
Market Value equal to the amount required to be withheld. The amount of the
withholding requirement shall be deemed to include any amount that the Committee
agrees may be withheld at the time any such election is made, not to exceed the
amount determined by using the maximum federal, state or local marginal income
tax rates applicable to the Participant with respect to the Award on the date
that the amount of tax to be withheld is to be determined. The Fair Market Value
of the Shares to be withheld or delivered shall be determined as of the date
that the taxes are required to be withheld.
SECTION 12
CHANGE IN CONTROL
12.1 Change in Control. In the event of a Change in Control of the
Company, all Awards granted under this Plan that then are outstanding and not
then exercisable or are subject to restrictions, shall, unless otherwise
provided for in the Award Agreements applicable thereto, become immediately
exercisable, and all restrictions shall be removed, as of the first date that
the Change in Control has been deemed to have occurred, and shall remain as such
for the remaining life of the Award as provided herein and within the provisions
of the related Award Agreements. Notwithstanding the preceding sentence, in the
event that the Committee is advised by the Company's independent auditors that
the effect of the preceding sentence would be to preclude the ability of the
Company to account for an acquisition or merger transaction as a pooling of
interests, the Committee may declare the preceding sentence to be inoperable to
such extent as the Committee, in its sole discretion, deems advisable.
Notwithstanding the preceding sentence, in the event that the Committee is
advised by the Company's independent auditors that the effect of the preceding
sentence would be to preclude the ability of the Company to account for a
transaction as a pooling of interests, the Committee may declare the preceding
sentence to be inoperable to such extent as the Committee, in its sole
discretion, deems advisable.
12.2 Definition. For purposes of Section 12.1 above, a Change in
Control of the Company shall be deemed to have occurred if the conditions set
forth in any one or more of the following shall have been satisfied, unless such
condition shall have received prior approval of a majority vote of the
Continuing Directors, as defined below, indicating that Section 12.1 shall not
apply thereto:
(a) any "person", as such term is used in Sections 13(d) and 14(d) of
the 1934 Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
corporation owned, directly or indirectly,
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by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange
Act), directly or indirectly, of securities of the Company representing
thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities;
(b) during any period of two consecutive years (not including any
period prior to the Effective Date of this Plan), individuals
("Existing Directors") who at the beginning of such period constitute
the Board of Directors, and any new board member (an "Approved
Director") (other than a board member designated by a person who has
entered into an agreement with the Company to effect a transaction
described in paragraph (a), (b) or (c) of this Section 12.2) whose
election by the Board of Directors or nomination for election by the
Company's shareholders was approved by a vote of a least two-thirds
(2/3) of the board members then still in office who either were board
members at the beginning of the period or whose election or nomination
for election previously was so approved (Existing Directors together
with Approved Directors constituting "Continuing Directors"), cease for
any reason to constitute at least a majority of the Board of Directors;
or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other person, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities for the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a merger in which no "person" (as defined in
Section 12.2(a)) acquires more than thirty percent (30%) of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (or
any transaction having a similar effect).
SECTION 13
LEGAL CONSTRUCTION
13.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular, and the singular shall include the plural.
13.2 Severability. In the event any provision of this Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of this Plan, and this Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
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13.3 Requirements of Law. The grant of Awards and the issuance of
Shares under this Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required from time to time.
13.4 Securities Law Compliance. With respect to Section 16 Persons,
Awards under this Plan are intended to comply with all applicable conditions of
Rule 16b-3. To the extent any provision of this Plan, Award Agreement 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 or appropriate by the Committee in
its sole discretion.
13.5 Governing Law. This Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Delaware
(excluding its conflict of laws provisions).
13.6 Captions. Captions are provided herein for convenience of
reference only, and shall not serve as a basis for interpretation or
construction of this Plan.
Adopted October 29, 1997
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EXHIBIT 10.13
ILLUMINET HOLDINGS, INC.
1997 EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AWARD AGREEMENT
This Stock Option Award Agreement (the "Award Agreement"), made this
____ day of ____________, 19__ evidences the grant, by Illuminet Holdings, Inc.,
(the "Company"), of a stock option to _____________ (the "Grantee") on the date
hereof (the "Date of Grant"). By accepting the Award and executing this Award
Agreement, the Grantee agrees to be bound by the provisions hereof and of the
Illuminet Holdings, Inc. 1997 Equity Incentive Plan (the "Plan"). Capitalized
terms not defined herein shall have the same meaning as used in the Plan.
1. Shares Optioned and Option Price. The Grantee shall have an option
to purchase _________ shares of the Company's Common Stock, $ par value (the
"Shares"), at an exercise price of $_______ for each share (the "Option"),
subject to the terms and conditions of this Award Agreement and of the Plan, the
provisions of which are incorporated herein by this reference. The Option is
not, nor is it intended to be, an Incentive Stock Option as described in section
422 of the Internal Revenue Code of 1986.
2. Exercise Period. The Option may be exercised, from time to time,
with respect to the following number of Shares subject to this Option: (i) prior
to the first anniversary of the Date of Grant, none of such Shares; (ii) from
and after the first anniversary of the Date of Grant, 25% of such Shares; (iii)
from and after the second anniversary of the Date of Grant, 50% of such Shares
(less any Shares as to which this Option shall have been exercised prior to such
second anniversary); (iv) from and after the third anniversary of the date of
Grant, 75% of such Shares (less any Shares as to which this Option shall have
been exercised prior to such third anniversary); and (v) from and after the
fourth anniversary of the Date of Grant, 100% of such Shares (less any Shares as
to which this Option shall have been exercised prior to such fourth
anniversary). Provided, however, that the Grantee's right to exercise the Option
shall terminate on the earliest to occur of the following dates:
a. the tenth anniversary of the Date of Grant;
b. the first anniversary of the date of the Grantee's Termination
of Service on account of Disability or death;
c. the date sixty days following the date of the Grantee's
Termination of Service for any reason other than Disability or
death (the "Termination Date"); provided, however, that until
there is a regular public trading market for the Shares, as
determined by the Committee, in its sole discretion, the
Termination Date shall be the date one year following the date
of the Grantee's Termination of Service for any reason other
than Disability or death.
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Provided further that, during the sixty day period following the date of the
Grantee's Termination of Service for any reason other than Disability or death,
that portion of the Shares that was not exercisable on the date of the Grantee's
Termination of Service shall not become exercisable.
3. Restriction on Exercise After Termination. Notwithstanding the
foregoing provisions of paragraph 2 or any other provision of this Award
Agreement, the Committee, in its sole discretion, may reduce the number of
Shares subject to the Option or may cancel the Option in its entirety if the
Grantee (a) takes other employment or renders services to others without the
written consent of the Company; or (b) conducts himself or herself in a manner
that the Committee, in its sole discretion, deems has adversely affected or may
adversely affect the Company. The Grantee will not be entitled to any
remuneration or compensation whatsoever for the loss of all or a portion of the
Grantee's Option if the number of Shares subject to the Grantee's Option are
reduced, or if the Grantee's Option is canceled in its entirety, pursuant to
this paragraph.
4. Exercise. To the extent that the Option is exercisable hereunder, it
may be exercised in full or in part by the Grantee or, in the event of the
Grantee's death, by the person or persons to whom the Option was transferred by
will or the laws of descent and distribution, by delivering or mailing written
notice of the exercise and full payment of the purchase price to the Secretary
of the Company. The written notice shall be signed by each person entitled to
exercise the Option and shall specify the address and social security number of
each person. If any person other than the Grantee purports to be entitled to
exercise all or any portion of the Option, the written notice shall be
accompanied by proof, satisfactory to the Secretary of the Company, of that
entitlement. The written notice shall be accompanied by full payment in cash
(including personal check), in Shares represented by certificates transferring
ownership to the Company and with an aggregate Fair Market Value equal to the
purchase price on the date the written notice is received by the Secretary, or
in any combination of cash and Shares, provided that payment in full or part by
the transfer of Shares shall be subject to approval by the Committee. Payment
may also be made in such other manner as may be permitted by the Plan at the
time of exercise, subject to approval by the Committee. The written notice will
be effective and the Option shall be deemed exercised to the extent specified in
the notice on the date that the written notice (together with required
accompaniments) is received by the Secretary of the Company at its then
executive offices during regular business hours.
5. Issue of Shares Upon Exercise. As soon as practicable after receipt
of an effective written notice of exercise and full payment of the purchase
price as provided in paragraph 4, the Secretary of the Company shall cause
ownership of the appropriate number of Shares to be transferred to the person or
persons exercising the Option by having a certificate or certificates for those
Shares registered in the name of such person or persons and shall have each
certificate delivered to the appropriate person. Notwithstanding the foregoing,
if the Company or a Subsidiary requires reimbursement of any tax required by law
to be withheld with respect to Shares received upon exercise of an Option, the
Secretary shall not transfer ownership of those Shares until the required
payment is made.
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6. Transferability of Options. The rights under this Award Agreement
may not be transferred except pursuant to a "domestic relations order," as
defined in the Code or Title I of ERISA, or by will or the laws of descent and
distribution. The rights under this Award Agreement may be exercised during the
lifetime of the Grantee only by the Grantee or permitted transferees.
[ALTERNATIVE PROVISION (waiting for SEC interpretation of Rule 701 and Form S-8
which do not contemplate transfer of options): The Grantee may transfer the
Option to (i) the spouse, children, or grandchildren of the Grantee ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefits of such
Immediate Family Members, or (iii) a partnership in which such Immediate Family
Members are the only partners, provided that (y) there may be no consideration
for any such transfer and (z) subsequent transfers of the Option shall be
prohibited, except by will or the laws of descent and distribution. Following
transfer, the Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
the purposes of the Award Agreement, the term "Grantee" shall be deemed to refer
to the transferee. The event of a Termination of Service shall continue to be
applied with respect to the original Grantee, following which the Option shall
be exercisable by the transferee only to the extent, and for the periods,
specified in Paragraph 2. Neither the Committee nor the Company shall have any
obligation to provide notice to a transferee of termination of the Option under
the terms of this Award Agreement.]
6.01 Transferees of Stockholders. The Company shall not be
required to transfer any Shares on its books which shall have been sold,
assigned or otherwise transferred in violation of this Award Agreement, or to
treat as owner of such shares of stock, or to accord the right to vote as such
owner or to pay dividends to, any person or organization to which any such
Shares shall have been sold, assigned or otherwise transferred, from and after
any sale, assignment or transfer of any Share made in violation of this Award
Agreement. Any transfer in violation of the terms of this Award Agreement shall
be deemed null and void.
7. Authorized Leave. For purposes hereof, an authorized leave of
absence (authorized by the Company or a Subsidiary to the Grantee in writing)
shall not be deemed a Termination of Service hereunder.
8. Taxes. The Grantee will be solely responsible for any Federal, state
or local income taxes imposed in connection with the exercise of the Option or
the delivery of Shares incident thereto, and the Grantee authorizes the Company
or any Subsidiary to make any withholding for taxes which the Company deems
necessary or proper in connection therewith, from any amounts due to the Grantee
by the Company. Subject to approval by the Committee, the Grantee may satisfy
such withholding obligations, in whole or in part, by (a) electing to have the
Company withhold otherwise deliverable Shares or (b) delivering to the Company
Shares then owned by Grantee having a Fair Market Value equal to the amount
required to be withheld.
-3-
<PAGE>
9. Risk of Investment. It is expressly understood and agreed that the
Grantee assumes all risks incident to any change hereafter in the applicable
laws or regulations or incident to any change in the market value of the Shares
after the exercise of this Option in whole or in part. The Grantee has received
and read a copy of the Plan and made a detailed inquiry concerning the Company
and its business, and the Grantee is aware of the limited market available for
resale of the Shares. The Grantee agrees that the Shares acquired on exercise of
this Option shall be acquired for his or her own account for investment only and
not with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act of 1933 (the
"Securities Act") or other applicable securities laws. If the Board of Directors
or Committee so determines, any stock certificates issued upon exercise of this
Option shall bear a legend to the effect that the Shares have been so acquired.
The Company may, but in no event shall be required to, bear any expenses of
complying with the Securities Act, other applicable securities laws or the rules
and regulations of any national securities exchange or other regulatory
authority in connection with the registration, qualification, or transfer, as
the case may be, of this Option or any Shares acquired upon the exercise
thereof. The foregoing restrictions on the transfer of the Shares shall be
inoperative if (a) the Company previously shall have been furnished with an
opinion of counsel, satisfactory to it, to the effect that such transfer will
not involve any violation of the Securities Act and other applicable securities
laws or (b) the Shares shall have been duly registered in compliance with the
Securities Act and other applicable state or federal securities laws. If this
Option, or the Shares subject to this Option, are so registered under the
Securities Act, the Grantee agrees that he or she will not make a public
offering of the said Shares except on a national securities exchange on which
the stock of the Company is then listed.
10. Transferability of Shares; Company Repurchase Option.
10.01 No Transfer. Except as otherwise provided herein, and
until such time as (i) there shall be a regular public trading market for the
Shares; or (ii) the Board shall approve a transaction in which all shareholders
are expressly granted the right to transfer their shares, the Grantee may not
sell, pledge, give, assign, distribute, hypothecate, mortgage or transfer (all
hereinafter referred to as "transfer") any Shares acquired pursuant to this
Award Agreement; provided, however, that the Grantee may transfer Shares
acquired pursuant to this Award Agreement if the Committee specifically consents
thereto in writing prior to the consummation of the transfer.
10.02 Repurchase Option. The Company shall have the exclusive
option to purchase all, but not less than all, of the Shares acquired by Grantee
pursuant to this Award Agreement at a purchase price per Share equal to the Fair
Market Value on the date of such Termination of Service (the "Purchase Option").
The Purchase Option shall be exercisable for a thirty day period following the
later of (i) the date on which the Grantee acquires the Shares pursuant to the
Award Agreement; or (ii) the date of the Grantee's Termination of Service.
10.03 Payment. If the Company elects to exercise the Purchase
Option, the Company shall give notice of its intention to purchase the Shares
and deliver payment for such
-4-
<PAGE>
Shares within fifteen days after the date of such notice. At the Company's
option, the Company may designate another person or entity to purchase any of
the Shares on its behalf, on the terms provided herein.
10.04 No Disclosure Obligation. The Grantee acknowledges and
agrees that neither the Company nor any of its shareholders, board members and
officers, has any duty or obligation to disclose to the Grantee any material
information regarding the business of the Company or affecting the value of the
Shares before or at the time of a Grantee's Termination of Service, including,
without limitation, any information concerning plans for the Company to make a
public offering of its securities or to be acquired by or merged with or into
another firm or entity.
11. No Conflict. In the event of a conflict between this Award
Agreement and the Plan, the provisions of the Plan shall govern.
12. Governing Law. This Award shall be governed under the laws of the
State of Delaware.
ILLUMINET HOLDINGS, INC.
By:------------------------------------
Title:---------------------------------
ACKNOWLEDGMENT
The undersigned Grantee acknowledges that he or she understands and
agrees to be bound by each of the terms and conditions of this Award Agreement.
- ----------------------------------- ------------------------------------
Printed Name Signature
[Form adopted October 29, 1997]
-5-
<PAGE>
EXHIBIT 10.14
ILLUMINET HOLDINGS, INC.
1997 EQUITY INCENTIVE PLAN
DIRECTOR STOCK OPTION AWARD AGREEMENT
This Stock Option Award Agreement (the "Award Agreement"), made this
____ day of ____________, 19__ evidences the grant, by Illuminet Holdings, Inc.,
(the "Company"), of a stock option to _____________ (the "Grantee") on the date
hereof (the "Date of Grant"). By accepting the Award and executing this Award
Agreement, the Grantee agrees to be bound by the provisions hereof and of the
Illuminet Holdings, Inc. 1997 Equity Incentive Plan (the "Plan"). Capitalized
terms not defined herein shall have the same meaning as used in the Plan.
1. Shares Optioned and Option Price. The Grantee shall have an option
to purchase _________ shares of the Company's Common Stock, $ par value (the
"Shares"), at an exercise price of $_______ for each share (the "Option"),
subject to the terms and conditions of this Award Agreement and of the Plan, the
provisions of which are incorporated herein by this reference. The Option is
not, nor is it intended to be, an Incentive Stock Option as described in section
422 of the Internal Revenue Code of 1986.
2. Exercise Period. The Option may be exercised, from time to time,
with respect to any or all of the Shares subject to this Option at any time from
and after the Date of Grant. Provided, however, that the Grantee's right to
exercise the Option shall terminate on the earliest to occur of the following
dates:
(a) the tenth anniversary of the Date of Grant; or
(b) the first anniversary of the date of the Grantee's death;
death;
3. Restriction on Exercise After Termination. Notwithstanding the
foregoing provisions of paragraph 2 or any other provision of this Award
Agreement, the Committee, in its sole discretion, may reduce the number of
Shares subject to the Option or may cancel the Option in its entirety if the
Grantee (a) takes other employment or renders services to others without the
written consent of the Company; or (b) conducts himself or herself in a manner
that the Committee, in its sole discretion, deems has adversely affected or may
adversely affect the Company. The Grantee will not be entitled to any
remuneration or compensation whatsoever for the loss of all or a portion of the
Grantee's Option if the number of Shares subject to the Grantee's Option are
reduced, or if the Grantee's Option is canceled in its entirety, pursuant to
this paragraph.
4. Exercise. To the extent that the Option is exercisable hereunder, it
may be exercised in full or in part by the Grantee or, in the event of the
Grantee's death, by the person or persons to whom the Option was transferred by
will or the laws of descent and distribution,
-1-
<PAGE>
by delivering or mailing written notice of the exercise and full payment of the
purchase price to the Secretary of the Company. The written notice shall be
signed by each person entitled to exercise the Option and shall specify the
address and social security number of each person. If any person other than the
Grantee purports to be entitled to exercise all or any portion of the Option,
the written notice shall be accompanied by proof, satisfactory to the Secretary
of the Company, of that entitlement. The written notice shall be accompanied by
full payment in cash (including personal check), in Shares represented by
certificates transferring ownership to the Company and with an aggregate Fair
Market Value equal to the purchase price on the date the written notice is
received by the Secretary, or in any combination of cash and Shares, provided
that payment in full or part by the transfer of Shares shall be subject to
approval by the Committee. Payment may also be made in such other manner as may
be permitted by the Plan at the time of exercise, subject to approval by the
Committee. The written notice will be effective and the Option shall be deemed
exercised to the extent specified in the notice on the date that the written
notice (together with required accompaniments) is received by the Secretary of
the Company at its then executive offices during regular business hours.
5. Issue of Shares Upon Exercise. As soon as practicable after receipt
of an effective written notice of exercise and full payment of the purchase
price as provided in paragraph 3, the Secretary of the Company shall cause
ownership of the appropriate number of Shares to be transferred to the person or
persons exercising the Option by having a certificate or certificates for those
Shares registered in the name of such person or persons and shall have each
certificate delivered to the appropriate person. Notwithstanding the foregoing,
if the Company or a Subsidiary requires reimbursement of any tax required by law
to be withheld with respect to Shares received upon exercise of an Option, the
Secretary shall not transfer ownership of those Shares until the required
payment is made.
6. Transferability of Options. The rights under this Award Agreement
may not be transferred except pursuant to a "domestic relations order," as
defined in the Code or Title I of ERISA, or by will or the laws of descent and
distribution. The rights under this Award Agreement may be exercised during the
lifetime of the Grantee only by the Grantee or permitted transferees.
[ALTERNATIVE PROVISION (waiting for SEC interpretation of Rule 701 and Form S-8
which do not contemplate transfer of options): The Grantee may transfer the
Option to (i) the spouse, children, or grandchildren of the Grantee ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefits of such
Immediate Family Members, or (iii) a partnership in which such Immediate Family
Members are the only partners, provided that (y) there may be no consideration
for any such transfer and (z) subsequent transfers of the Option shall be
prohibited, except by will or the laws of descent and distribution. Following
transfer, the Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
the purposes of the Award Agreement, the term "Grantee" shall be deemed to refer
to the transferee. Neither the Committee nor the Company shall have any
obligation to provide notice to a transferee of termination of the Option under
the terms of this Award Agreement.]
-2-
<PAGE>
6.01 Transferees of Stockholders. The Company shall not be
required to transfer any Shares on its books which shall have been sold,
assigned or otherwise transferred in violation of this Award Agreement, or to
treat as owner of such shares of stock, or to accord the right to vote as such
owner or to pay dividends to, any person or organization to which any such
Shares shall have been sold, assigned or otherwise transferred, from and after
any sale, assignment or transfer of any Share made in violation of this Award
Agreement. Any transfer in violation of the terms of this Award Agreement shall
be deemed null and void.
7. Taxes. The Grantee will be solely responsible for any Federal, state
or local income taxes imposed in connection with the exercise of the Option or
the delivery of Shares incident thereto, and the Grantee authorizes the Company
or any Subsidiary to make any withholding for taxes which the Company deems
necessary or proper in connection therewith, from any amounts due to the Grantee
by the Company. Subject to approval by the Committee, the Grantee may satisfy
such withholding obligations, in whole or in part, by (a) electing to have the
Company withhold otherwise deliverable Shares or (b) delivering to the Company
Shares then owned by Grantee having a Fair Market Value equal to the amount
required to be withheld.
8. Risk of Investment. It is expressly understood and agreed that the
Grantee assumes all risks incident to any change hereafter in the applicable
laws or regulations or incident to any change in the market value of the Shares
after the exercise of this Option in whole or in part. The Grantee has received
and read a copy of the Plan and made a detailed inquiry concerning the Company
and its business, and the Grantee is aware of the limited market available for
resale of the Shares. The Grantee agrees that the Shares acquired on exercise of
this Option shall be acquired for his or her own account for investment only and
not with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act of 1933 (the
"Securities Act") or other applicable securities laws. If the Board of Directors
or Committee so determines, any stock certificates issued upon exercise of this
Option shall bear a legend to the effect that the Shares have been so acquired.
The Company may, but in no event shall be required to, bear any expenses of
complying with the Securities Act, other applicable securities laws or the rules
and regulations of any national securities exchange or other regulatory
authority in connection with the registration, qualification, or transfer, as
the case may be, of this Option or any Shares acquired upon the exercise
thereof. The foregoing restrictions on the transfer of the Shares shall be
inoperative if (a) the Company previously shall have been furnished with an
opinion of counsel, satisfactory to it, to the effect that such transfer will
not involve any violation of the Securities Act and other applicable securities
laws or (b) the Shares shall have been duly registered in compliance with the
Securities Act and other applicable state or federal securities laws. If this
Option, or the Shares subject to this Option, are so registered under the
Securities Act, the Grantee agrees that he or she will not make a public
offering of the said Shares except on a national securities exchange on which
the stock of the Company is then listed.
-3-
<PAGE>
9. Transferability of Shares; Company Repurchase Option.
9.01 No Transfer. Except as otherwise provided herein, and
until such time as (i) there shall be a regular public trading market for the
Shares; or (ii) the Board shall approve a transaction in which all shareholders
are expressly granted the right to transfer their shares, the Grantee may not
sell, pledge, give, assign, distribute, hypothecate, mortgage or transfer (all
hereinafter referred to as "transfer") any Shares acquired pursuant to this
Award Agreement; provided, however, that the Grantee may transfer Shares
acquired pursuant to this Award Agreement if the Committee specifically consents
thereto in writing prior to the consummation of the transfer.
9.02 Repurchase Option. The Company shall have the exclusive
option to purchase all, but not less than all, of the Shares acquired by Grantee
pursuant to this Award Agreement at a purchase price per Share equal to the Fair
Market Value on the date of such Termination of Service (the "Purchase Option").
The Purchase Option shall be exercisable for a thirty day period following the
later of (i) the date on which the Grantee acquires the Shares pursuant to the
Award Agreement; or (ii) the date of the Grantee's Termination of Service.
9.03 Payment. If the Company elects to exercise the Purchase
Option, the Company shall give notice of its intention to purchase the Shares
and deliver payment for such Shares within fifteen days after the date of such
notice. At the Company's option, the Company may designate another person or
entity to purchase any of the Shares on its behalf, on the terms provided
herein.
9.04 No Disclosure Obligation. The Grantee acknowledges and
agrees that neither the Company nor any of its shareholders, board members and
officers, has any duty or obligation to disclose to the Grantee any material
information regarding the business of the Company or affecting the value of the
Shares before or at the time of a Grantee's Termination of Service, including,
without limitation, any information concerning plans for the Company to make a
public offering of its securities or to be acquired by or merged with or into
another firm or entity.
10. No Conflict. In the event of a conflict between this Award
Agreement and the Plan, the provisions of the Plan shall govern.
11. Governing Law. This Award shall be governed under the laws of the
State of Delaware.
-4-
<PAGE>
ILLUMINET HOLDINGS, INC.
By:----------------------------------------
Title:-------------------------------------
ACKNOWLEDGMENT
The undersigned Grantee acknowledges that he or she understands and
agrees to be bound by each of the terms and conditions of this Award Agreement.
- ----------------------------------- ------------------------------------
Printed Name Signature
[Form adopted October 29, 1997]
-5-
<PAGE>
ILLUMINET
EXECUTIVE SHORT TERM BONUS PLAN
1997
Participant:
Confidential & Proprietary
<PAGE>
ILLUMINET
1997 EXECUTIVE SHORT TERM INCENTIVE COMPENSATION PLAN
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
TopicPage
----------------------------------------------
Short-Term Bonus Plan Philosophy 3
Bonus Plan Overview 4
Plan Description 5
Plan Policies and Practices 6
Bonus Calculation Examples 10
<PAGE>
EXECUTIVE SHORT-TERM BONUS PHILOSOPHY
Objectives In order to achieve its desired
place in the market, Illuminet must
continually enhance its focus on
customer services in order to
respond rapidly to changing market
and competitive conditions. To do
this, we will continue to depend on
exceptional contributions from our
Senior Managers. Illuminet has
therefore committed to a bonus
strategy that will recognize and
reward performance of the company as
well as the individual.
Plan Achievement of our corporate goals
Participant's will depend on unity of purpose and
Role teamwork. Exceptional teams are made
up of exceptional individuals,
mostly fulfilling specialists'
roles. Illuminet's success depends
on your success. We therefore depend
on you to contribute to the
execution of the business plan and
manage for revenue growth and
profitability.
Illuminet's Role We are committed to give our
Senior Managers both the opportunity
and the motivation to excel. Our
goal is to provide incentives to
produce exceptional results.
<PAGE>
EXECUTIVE SHORT-TERM BONUS PLAN OVERVIEW
Plan Objectives There are two important
objectives of this short-term bonus
plan:
- Focus attention of Senior
Management team on specific
short-term revenue and profit goals
and motivate balanced achievement of
these goals.
- Reward Senior Managers in line
with individual performance and
contribution
Bonus The Short-Term bonus is the Target
bonus opportunity for performance at
100% of goal. Exceptional
performance beyond Target to Stretch
means the maximum achievable value
as defined in the Performance
Measures identified as Company
Financial Objectives. Short-term
bonuses may be awarded at less than
100%, however, no bonuses will be
awarded under this plan unless
EBITDA is at least 80% of target. No
bonuses will exceed Stretch (40% for
Officers and 20% for Directors). The
Target and Stretch percentages are
listed below:
Officers Directors
-------------- ----------------
Target 20% Target 10%
Stretch 40% Stretch 20%
Performance The 1997 Executive Short-Term Bonus is affected Measures by the
following measures:
- Company Financial Objectives
EBITDA
ROE
- Individual Objectives
<PAGE>
PLAN DESCRIPTION
Financial Performance Bonus The bonus awarded
for achievement of thecompany
financial objectives is defined at
target and stretch is weighted
heavier for Officers and Directors,
as noted, and is based on the
following measures:
- EBITDA: Earnings before interest,
taxes, depreciation and
amortization. This is a measure of
the company's ability to generate
cash from operations. Percentage
possible for target/stretch for
Directors is 30/60 and for Vice
Presidents it is 40/80.
- Return on Equity (ROE): This is a
measure of the return for
shareholders based upon their equity
in the company. Components affecting
equity include net income (including
non-operational events such as gains
and losses on investments accounted
for on the equity basis), stock
redemptions (dissenters) and
dividends (if any). It is calculated
as net income as a percentage of
average equity (beginning and
ending). Percentage possible for
target/stretch for Directors is
30/60 and for Vice Presidents it is
40/80.
Individual Performance
Measures: Individual performance objectives
represent strategic activities
related to your position. The bonus
awarded in this area is
discretionary and is weighted
heavier for Directors. A percentage
is established for Directors at 0 -
80% and Officers the percentage
range is 0 - 40%. The maximum bonus
will be awarded for exceptional
performance only.
<PAGE>
1997 SHORT-TERM EXECUTIVE BONUS
PLAN POLICIES AND PRACTICES
Various administrative issues impact the payout and administration of the
Short-Term Executive Bonus Plan. These administrative issues are detailed
below:detailed below:
Plan Period The Plan Period is the fiscal year
of the company which is now January
1 of each calendar year.
Bonus Eligibility At the beginning of the
Performance Measurement Period,
Officers and Directors of Illuminet
will be named by the Personnel
Committee as participants in the
1997 Plan.
Executives who are employed after
the beginning of the Plan Period,
which is less than a full
measurement period, will receive
prorated incentive payments based on
the number of months of service and
achievement of goals.
Administration of the Plan The President/CEO determines the
procedures and implementation of the
Plan. The President will authorize
the Executives to establish the
individual objectives for each
participant in line with corporate
strategies and objectives. The
President has final authority to
approve or disapprove any issues
related to interpretation or
administration of the Plan including
resolution of any unusual
circumstances. The decision of the
President will be binding on all
parties.
<PAGE>
Performance Standards Performance measurements are set and
approved at the beginning of the
fiscal year. The standards are set
in line with corporate and
divisional operating objectives. The
Standards will be reviewed each
year. Individual objective measures
will be agreed to in writing at the
start of the period.
Bonus Calculation Calculations of the bonus are based
on achievement of the financial
performance objectives: EBITDA and
ROE as well as Individual
Performance Objectives. A level of
incentive is established for
Officers at a Target of 20% and a
Stretch of 40%; and for Directors
the Target is 10% and the Stretch is
20%.
Calculations of the Financial
Measurements are weighted for
Officers at a Target and Stretch of
between 40 and 80%. For Directors
the Financial Measurements are
weighted at a Target and Stretch of
between 30 and 60%.
The calculation of the Individual
Performance Measurement is
discretionary. A level of incentive
is established for Officers from 0 -
40% and for Directors from 0 - 80%.
Authorization of Payment Bonus awards must be approved by the President/CEO.
Incentive Payment Timing The Short-Term bonus
will be paid approximately 45 days
following the announcement of the
corporate financial results after
the end of the fiscal year.
Management Discretion Management reserves the
right to alter,amend, suspend or in
any other way change this Bonus Plan
in accordance with the changing
needs of the Company. The Company
view will prevail in any dispute
over the interpretation of this
Plan.
Termination An individual may be terminated from
the Plan at any time at the sole
discretion of management. In the
event that a person terminates for
reasons of retirement or disability,
the final award will be prorated.
Upon the death of a participant, the
award, if any, will be prorated and
will be paid to a beneficiary(ies)
as designated by the participant.
<PAGE>
If a participant terminates
employment for any other reason
prior to completing the incentive
period, the participant is not
eligible to earn any award for the
period in which the termination
occurs. A participant must be
employed by Illuminet on the last
day of the fiscal year to be
eligible for an award.
Right of Employment Participation under this Plan does
not guarantee any right to continued
employment. Management reserves the
right to restrict participation in
the Plan for a specified period of
time. A participant or Illuminet may
terminate the employment
relationship at any time, for any
reasons, with or without cause.
Right of Assignment No right or interest
in the Plan is assignable or
transferable, or subject to any
lien, directly, by operation of law,
or otherwise including (without
limitation) bankruptcy, pledge,
garnishment, attachment, levy or
other creditor's process.
Taxes All awards payable under this Plan
are taxable as ordinary income in
the year of payment and subject to
applicable taxes.
EXHIBIT 10.16
October 8, 1997
Mr. Terry Kremian
1604 145th Place S.E.
Millcreek, WA 58012
Dear Terry:
It is a pleasure to offer you the position of Vice President-Sales and Marketing
for Illuminet beginning no later than December 1, 1997. Your starting salary
will be $145,000 and you will be eligible for an annual bonus of up to 40% of
your salary depending upon attainment of a combination of corporate and
individual performance objectives. A copy of the short-term bonus plan is
attached.
You will receive a bonus of $25,000 upon joining the company and, it approved by
the Board of Directors, will be eligible for a long-term stock option program
for officers and directors. This program will be presented for approval by the
Board of Directors in late October. I anticipate the initial grant to be
approximately 20,000 shares.
The company will provide up to $800.00 per month for a 1 bedroom furnished
apartment in Olympia to assist you in your relocation. The apartment will be
provided for up to 9 months. The company will also reimburse you for reasonable
relocation expenses to cover the sale of your home, the purchase of a new home
and transportation of household goods. As we discussed, your relocation package
will not include reimbursement for any loss on the sale of your existing home.
If you are terminated, except for cause, within a two year period from your date
of hire, you will be given a separation payment equal to 6 months of your base
salary.
I'm looking forward to working with you and to your contribution to the growth
of Illuminet.
Please acknowledge the acceptance of this offer by signing and returning one
copy of this letter to me.
Sincerely,
/s/ Roger H. Moore
Roger H. Moore
President & CEO
RHM:cm
Enclosures
I acknowledge and accept this offer.
/s/ F. Terry Kremian
Terry Kremian
EXHIBIT 21
ILLUMINET HOLDINGS, INC.
LIST OF SUBSIDIARIES
AS OF DECEMBER 31, 1997
Illuminet, Inc.
U.S. Intelco Wireless Communications, Inc., a Washington corporation
U.S.I. Gateway, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ILLUMINET HOLDINGS, INC. AS OF DECEMBER 31,
1997, AND FOR THE TWELEVE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001002119
<NAME> Illuminet Holdings, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 11,167,152
<SECURITIES> 0
<RECEIVABLES> 25,100,209
<ALLOWANCES> (1,282,000)
<INVENTORY> 0
<CURRENT-ASSETS> 39,007,335
<PP&E> 68,530,057
<DEPRECIATION> 33,815,369
<TOTAL-ASSETS> 78,026,364
<CURRENT-LIABILITIES> 27,011,053
<BONDS> 18,014,115
0
25
<COMMON> 53,471
<OTHER-SE> 30,172,655
<TOTAL-LIABILITY-AND-EQUITY> 78,026,364
<SALES> 0
<TOTAL-REVENUES> 54,308,057
<CGS> 0
<TOTAL-COSTS> 46,519,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 844,000
<INTEREST-EXPENSE> 807,933
<INCOME-PRETAX> 6,980,627
<INCOME-TAX> (676,807)
<INCOME-CONTINUING> 7,657,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,657,434
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.27
</TABLE>
