<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ILLUMINET HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 36-4042177
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
P.O. BOX 2909
4501 INTELCO LOOP, S.E.
LACEY, WASHINGTON 98503
(360) 493-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROGER H. MOORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLUMINET HOLDINGS, INC.
P.O. BOX 2909
4501 INTELCO LOOP, S.E.
LACEY, WASHINGTON 98503
(360) 493-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JAMES M. ASH JAMES S. SCOTT, SR.
BLACKWELL SANDERS PEPER MARTIN LLP JEANNE M. CAMPANELLI
TWO PERSHING SQUARE SHEARMAN & STERLING
2300 MAIN STREET, SUITE 1100 599 LEXINGTON AVENUE
KANSAS CITY, MISSOURI 64108 NEW YORK, NEW YORK 10022
(816) 983-8000 (212) 848-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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- ------------------------------------------------------------------------------------------------------------
----------------------
PROPOSED MAXIMUM
AGGREGATE OFFERING
PRICE(1)
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share...................... $60,000,000 $16,680
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued August , 1999
Shares
LOGO
COMMON STOCK
------------------------
ILLUMINET HOLDINGS, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ILUM."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 12.
------------------------
PRICE $ A SHARE
------------------------
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total.............................. $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.
------------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE> 3
[INSIDE FRONT COVER]
Inside Front Cover
A diagram illustrating SS7 technology, the services Illuminet provides and
how those services relate to Illuminet's network and other signaling networks.
Fold-Out
Two maps of the United States, one showing the locations of the signal
transfer points owned by Illuminet, those owned by third parties that are
accessed by Illuminet, and other significant components of Illuminet's SS7
network, and the second showing the numerous customer locations throughout the
United States that are connected to Illuminet's network.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary............................. 5
Risk Factors........................ 12
Use of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Selected Consolidated Financial and
Other Data........................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 25
Business............................ 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management.......................... 48
Principal Stockholders.............. 55
Description of Capital Stock........ 57
Shares Eligible for Future Sale..... 61
Underwriters........................ 62
Legal Matters....................... 64
Experts............................. 64
Glossary............................ 65
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. In this prospectus, Illuminet
Holdings, Inc., together with its predecessors and subsidiaries, is referred to
as "we," "us" or "Illuminet," unless the context indicates otherwise.
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
Our principal executive offices are located at 4501 Intelco Loop, S.E.,
Lacey, Washington 98503 and our telephone number is (360) 493-6000. Our website
address is http://www.illuminet.com. The information on our website is not
incorporated by reference into this prospectus.
3
<PAGE> 5
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document, including the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," based on our management's beliefs and assumptions
and on information currently available to our management. Forward-looking
statements include the information concerning our possible or assumed future
results of operations, business strategies, financing plans, competitive
position, potential growth opportunities, benefits resulting from the offering
and the effects of competition. Forward-looking statements include all
statements that are not historical facts and can be identified by the use of
forward-looking terms such as the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.
You should understand that many important factors, in addition to those
discussed elsewhere in this prospectus, could cause our results to differ
materially from those expressed in forward-looking statements. These factors
include our competitive environment, economic and other conditions in the
markets in which we operate, changes in or developments under laws, regulations,
licensing requirements or telecommunications standards, our Year 2000 issues,
Year 2000 issues of third parties we work with and cyclical and seasonal
fluctuations in our operating results.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the exhibit for a more complete understanding of the document or subject
matter involved. You may read and copy any document we file with the SEC,
including that registration statement, at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the SEC's public reference room. You
may also request copies of those documents, upon payment of a duplicating fee,
by writing to the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or
obtain copies of such documents over the Internet at the SEC's website at
http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
4
<PAGE> 6
SUMMARY
This summary highlights some of the information in this prospectus and
summarizes the material terms of this offering. It is not complete and may not
contain all of the information that you should consider before deciding to
purchase our common stock. You should read the entire prospectus carefully,
including the "Risk Factors" and the financial statements and the notes to those
statements.
ILLUMINET
OUR COMPANY
We operate the largest unaffiliated Signaling System 7 ("SS7") network in
the United States and are a leading provider of complementary intelligent
network and SS7 services to telecommunications carriers. Connection to our
network gives carriers access to the system of signaling networks of the entire
U.S. public-switched telecommunications infrastructure through a single source.
SS7 is the industry standard used by almost every switched telephone
network operator in the United States and Canada to identify available network
routes and designate the circuits to be used for each individual telephone call.
SS7 networks also provide access to intelligent network services, such as caller
identification, calling card validation and other specialized database access
functions, all of which are performed in the seconds it takes to complete a
call. SS7 networks are specialized packet-switched data networks that provide
these control functions and services in parallel with separate voice networks.
Through our SS7 network, we provide:
- SS7 connectivity, switching and transport; and
- intelligent network services, including local number portability and
support for roaming between wireless carriers and various other
specialized database services.
Also, we serve the telecommunications industry with:
- clearinghouse services to facilitate payment among telecommunications
carriers; and
- network usage software applications.
Our network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and all of the largest U.S. telecommunications
carriers through leased lines. Our network serves over 600 network customers,
including incumbent local exchange carriers, competitive local exchange
carriers, long distance companies, wireless telecommunications providers and
Internet service providers.
We have been a provider of telecommunications database services since 1981
and of critical SS7 network services since 1990. In 1998, we generated revenues
of $71.9 million, operating income of $9.5 million and net income of $5.3
million.
Our competitive strengths include:
- COST-EFFECTIVE ACCESS TO SS7 NETWORK AND INTELLIGENT NETWORK SERVICES. We
provide our customers cost-effective connectivity to the signaling
networks of nearly the entire U.S. public-switched telecommunications
infrastructure and an array of network-enabled services through a single
source. We believe our customers choose not to build in-house SS7
networks due to the significant capital and technical expertise required
to install and manage necessary SS7 connections with the largest U.S.
telecommunications carriers.
- ESTABLISHED RELATIONSHIPS WITH NUMEROUS TELECOMMUNICATIONS CARRIERS. We
have established relationships with AT&T, MCI Worldcom, Sprint, all of
the regional Bell operating companies, most major competitive local
exchange carriers and a significant number of wireless operators,
5
<PAGE> 7
independent telephone companies and interexchange carriers. We believe
that the need for such broad relationships poses a significant barrier to
entry for other potential SS7 service providers.
- EXTENSIVE EXPERIENCE IN OFFERING CRITICAL SS7 SERVICES. SS7 signaling is
an advanced technology that is essential in providing telecommunications
services and presents significant operating complexities. We believe that
our customers are reluctant to outsource this critical function to other
less established SS7 service providers or to attempt to manage these
functions in-house.
- INDEPENDENCE AND NEUTRALITY IN THE TELECOMMUNICATIONS MARKETPLACE. As the
largest non-carrier affiliated SS7 network provider, we have fostered
business relationships with existing and emerging carriers, both wireline
and wireless, and do not compete with them in providing services to their
residential and business customers. We believe that our independence and
neutrality significantly enhances our attractiveness to the entire
industry as a provider of outsourced SS7 services.
- PROVEN BUSINESS MODEL THAT GENERATES PROFITABLE AND RECURRING REVENUE
STREAMS. Our network provides us with a profitable base of recurring
service revenue, while serving as an established platform for additional
growth through the delivery of new and enhanced services. We believe that
the costs incurred by a carrier in moving to a competitor's SS7 network
are relatively high, further strengthening the stability of our revenue
base.
- POSITIONED TO BE THE SS7 SERVICE PROVIDER OF CHOICE TO INTERNET
PROTOCOL-BASED CARRIERS. As one of the largest providers of outsourced
SS7 and intelligent network services in the United States, we are
strategically positioned to provide those services to emerging Internet
protocol-based carriers who must access existing public-switched
telecommunications networks to serve their rapidly growing customer
bases.
OUR INDUSTRY
Key industry trends that are expanding our business opportunities include:
- DEREGULATION. Deregulation has opened telecommunications markets to many
new service providers, many of which use our SS7 services. In addition,
deregulation has opened specific service opportunities to competition,
such as the provision of toll-free number database services, line
information database services and local number portability.
- GROWING NEED FOR VALUE-ADDED SERVICES. Increased competition in the
telecommunications industry is forcing carriers to differentiate
themselves by providing advanced, value-added services, such as personal
toll-free numbers, caller identification and billing validation services.
Providing these services requires SS7 connectivity and simultaneous
database access through an SS7 network. Most U.S. independent local
exchange carriers and competitive local exchange carriers use us to
provide these types of services.
- MANDATED LOCAL NUMBER PORTABILITY. In 1996, the FCC mandated that
telephone subscribers be allowed to keep their existing telephone numbers
when changing local service providers. The FCC required that this mandate
be implemented beginning in 1999 for wireline carriers and in 2002 for
wireless carriers. To provide this service, a carrier must be able to
access a local number registry database to route and complete a call.
Many competitive local exchange carriers, independent local exchange
carriers and wireless carriers obtain this database access service
through us.
GROWTH STRATEGY
Our growth strategy consists of the following key elements:
- BROADEN OUR CUSTOMER BASE BY TARGETING EMERGING CARRIERS. We intend to
continue to aggressively grow our customer base by targeting new
telecommunications carriers as they enter the market. These carriers
include competitive local exchange carriers, integrated communications
providers, wireless carriers and Internet service providers.
6
<PAGE> 8
- PROVIDE NEW SERVICES TO HELP DIFFERENTIATE OUR CUSTOMERS FROM THEIR
COMPETITORS. In addition to our standard services, we intend to
capitalize on the scalability of our network by developing new and
enhanced services and applications that will enable our customers to
broaden their service offerings and improve their market position.
- UTILIZE OUR NETWORK USAGE MEASUREMENT CAPABILITIES TO GENERATE ADDITIONAL
REVENUE. We will seek to use our proprietary network usage software
applications and related expertise to develop services to monitor usage
of customers' networks and capture usage pattern data. We believe this
data can be used to enhance the billing and network management
capabilities of our customers, allowing them to gain additional revenue
and more efficiently operate their networks. This data can also be used
to help our customers develop targeted marketing plans.
- BECOME THE PREFERRED PROVIDER OF SS7-BASED SERVICES TO EMERGING INTERNET
PROTOCOL-BASED CARRIERS. We believe that providing carrier-class
intelligent network capabilities is one of the biggest challenges facing
emerging Internet protocol-based carriers. We are actively working with
hardware providers, including Cisco and Lucent, to certify new
SS7-related equipment for emerging Internet protocol-based carriers. We
intend to continue to position ourselves to provide intelligent network
capabilities using emerging Internet protocol-based technologies.
- STRENGTHEN OUR MARKET PRESENCE THROUGH SELECT ACQUISITIONS. We will
actively seek to acquire companies that possess complementary service
offerings. Through select acquisitions, we believe we can combine new,
complementary services with our existing product line and extensive
network. This will increase our market reach and allow us to quickly
broaden our service portfolio.
7
<PAGE> 9
STOCK RESTRUCTURING
At the time of this offering, we will restructure our stock. This "stock
restructuring" will:
- create two classes of common stock;
- rename all of our common stock outstanding immediately prior to the
offering as Class A common stock; and
- convert all of our Series A preferred stock into shares of Class A common
stock.
In addition, Class A common stock will be issued to our optionholders and
debentureholders if they elect to exercise or convert within 180 days after the
date of this prospectus. Therefore, we may have as many as shares of
Class A common stock outstanding 180 days after the offering. 181 days after the
date of this prospectus, each share of Class A common stock will automatically
convert into shares of common stock. Except for this conversion
feature, all of the rights of holders of Class A common stock and holders of
common stock will be identical and the two classes of stock will be treated as
one group for all voting, dividend and other matters.
Our Class A common stock will not trade through the Nasdaq National Market.
Additionally, holders of an aggregate of % of our Class A common stock have
agreed that they will not sell any of their stock in any manner for 180 days
after the date of this prospectus. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
As a result of this restructuring, all of the shares to be issued in this
offering will be newly issued shares of common stock. Prior to the offering
there will be no shares of common stock outstanding. Until , 2000, the
common stock sold in this offering will be the only shares of our stock that
will trade through the Nasdaq National Market.
Unless otherwise indicated, all information in this prospectus assumes (1)
the issuance of 204,941 additional shares of Class A common stock upon the
automatic conversion of our Series A preferred stock upon completion of the
offering, (2) the issuance on , 2000 of additional shares of
common stock upon the automatic conversion of our Class A common stock, (3)
optionholders do not exercise any outstanding options, (4) debentureholders do
not elect to convert any debentures and (5) the underwriters do not exercise
their over-allotment option.
Throughout this prospectus, when we use the term "common stock" we mean the
shares of common stock and Class A common stock or the shares into which the
Class A common stock will convert. When we use the term "stockholders" we mean
the holders of all classes of stock.
8
<PAGE> 10
THE OFFERING
Common stock offered.......... shares
Common stock to be outstanding
after this offering......... shares(1)
Over-allotment option......... shares
Use of proceeds............... We intend to use the net proceeds:
- to fund potential acquisitions;
- to develop new and improved services;
- to maintain and expand our network equipment
and infrastructure; and
- for general corporate purposes.
We cannot specify with certainty all of the
particular uses for the net proceeds. See "Use
of Proceeds."
Dividend policy............... We do not anticipate paying any cash dividends
in the foreseeable future. Any future
determination to pay cash dividends will be at
the discretion of the board of directors. The
declaration and payment of dividends will
depend upon our financial condition, operating
results, contractual restrictions, capital
requirements, business prospects and other
factors the board of directors deems relevant.
Proposed Nasdaq National
Market symbol................. "ILUM"
- -------------------------
(1) Assumes the conversion of shares of Class A common stock
outstanding as of the date of this prospectus into shares of
common stock. See "Description of Capital Stock" for a discussion of the
terms of our common stock and Series A preferred stock and for a description
of our stock restructuring.
9
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
We derived the following summary consolidated financial data for the years
ended December 31, 1996, 1997 and 1998 from our consolidated financial
statements, which have been audited by Ernst & Young LLP, independent auditors.
We derived the summary consolidated financial data as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 from our unaudited consolidated
financial statements, which, in our opinion, reflect all adjustments (consisting
of only normal and recurring accruals) necessary to present fairly our financial
position and results of operations for those periods. Other data are unaudited.
Interim results do not necessarily indicate the results that you may expect for
any other interim period or for the full year. You should read this summary
information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those financial statements that are included
elsewhere in this prospectus.
The as adjusted balance sheet data as of June 30, 1999 reflect our receipt
of the estimated net proceeds from the sale of shares of common stock
in this offering at an assumed initial public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
You should read the following information with the data in the table on the
next page:
- In February 1996, we merged with Independent Telecommunications Network,
Inc. We accounted for the merger as a purchase business combination.
Accordingly, the operating results of Independent Telecommunications
Network, Inc., including carrier costs, are only included in our
operating results since the merger.
- The 1996 income tax provision and the 1997 income tax benefit reflect the
benefits of using net operating loss carryforwards of $1.0 million and
$2.4 million, respectively. In addition, the 1997 income tax benefit
includes a benefit of $.9 million attributable to the reversal of
substantially all of the remaining previously recorded deferred tax
valuation allowance due to improved operating results.
- Long-term obligations, less current portion includes (1) obligations
under capital leases, less current portion, and (2) long-term debt, less
current portion.
- Capital expenditures includes purchases and capital leases of property
and equipment.
- Customers is the number of entities that received a bill from us,
including, in some cases, subsidiaries of consolidated groups and
individual locations of a single company.
- Signaling points represents the number of connections to our network.
These points may be either individual switches or connections to other
companies' signaling transfer points with networks attached to them.
- Intelligent network messages represents an estimated number of SS7
transactions handled by our network for call completion and delivery of
intelligent network services. We did not provide a significant level of
services measured by intelligent network messages prior to 1997.
10
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<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Network services................... $ 29,434 $ 44,117 $ 60,274 $ 26,600 $ 41,562
Clearinghouse services............. 7,896 6,723 6,232 3,463 3,052
Network usage software
applications.................... 558 3,468 5,406 1,523 502
---------- ---------- ---------- ---------- ----------
Total revenues.................. 37,888 54,308 71,912 31,586 45,116
Expenses:
Carrier costs...................... 9,358 15,313 22,983 10,752 13,598
Operating.......................... 11,139 14,979 19,768 8,547 12,487
Selling, general and
administrative.................. 7,774 8,873 10,287 4,540 6,128
Depreciation and amortization...... 5,714 7,354 9,372 3,783 5,317
---------- ---------- ---------- ---------- ----------
Total expenses.................. 33,985 46,519 62,410 27,622 37,530
---------- ---------- ---------- ---------- ----------
Operating income..................... 3,903 7,789 9,502 3,964 7,586
Interest expense, net................ 838 808 746 225 392
---------- ---------- ---------- ---------- ----------
Income before income taxes........... 3,065 6,981 8,756 3,739 7,194
Income tax provision (benefit)....... 112 (676) 3,463 1,388 2,734
---------- ---------- ---------- ---------- ----------
Net income........................... $ 2,953 $ 7,657 $ 5,293 $ 2,351 $ 4,460
========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share - basic........... $ .59 $ 1.45 $ .99 $ .44 $ .83
Earnings per share - diluted......... $ .57 $ 1.27 $ .88 $ .39 $ .71
Weighted-average common shares -
basic.............................. 4,995,092 5,295,509 5,356,385 5,347,081 5,366,363
Weighted-average common shares -
diluted............................ 5,972,284 6,396,665 6,497,360 6,497,006 6,531,223
OTHER FINANCIAL DATA:
Capital expenditures................. $ 6,727 $ 10,121 $ 17,870 $ 5,579 $ 5,830
OTHER DATA:
Customers............................ 311 417 544 436 655
Signaling points..................... 388 533 686 627 737
Intelligent network messages (in
billions).......................... -- 158 372 156 256
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $11,347 $
Property and equipment, net................................. 44,549
Total assets................................................ 91,828
Long-term obligations, less current portion................. 20,734
Stockholders' equity........................................ 40,832
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making an
investment in our common stock. The risks described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. If any of the following risks occurs, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose all
or part of your investment.
SYSTEM FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.
Our success depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of:
- our network;
- our connections to third parties; and
- our computer hardware or software or our customers' or suppliers'
computer hardware or software.
Our systems and operations are also vulnerable to damage or interruption
from:
- power loss, transmission cable cuts and other telecommunications
failures;
- fires, earthquakes, floods and other natural disasters;
- computer viruses or software defects;
- physical or electronic break-ins, sabotage, intentional acts of vandalism
and similar events;
- errors by our employees or third-party service providers; and
- Year 2000 problems.
Any such damage or failure or the occurrence of any of these events could
disrupt the operation of our network and the provision of our services and
result in the loss of current and potential customers.
For example, on two occasions, once in 1997 and once in 1998, flaws in
third-party software caused network outages that disrupted the ability of our
customers to connect through our network to other parts of the U.S.
telecommunications system. As a result of these outages, some of our customers
reduced their usage of our network.
Our contracts with customers generally contain provisions designed to limit
our exposure to potential product liability claims. These provisions include
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. In addition, our agreements generally
limit the amounts recoverable for damages to the amounts paid by the customer to
us for the product or service giving rise to the damages. However, a court or
arbitrator may not enforce these contractual limitations on liability, and we
may be subject to claims based on errors in our software or mistakes in
performing our services. Any of those claims, including any relating to damages
to our customers' internal systems, whether or not successful, could harm our
business by increasing our costs and distracting our management.
OUR RELIANCE ON THIRD PARTY COMMUNICATIONS INFRASTRUCTURE, HARDWARE AND SOFTWARE
EXPOSES US TO A VARIETY OF RISKS WE CANNOT CONTROL.
Our success will depend on our network infrastructure, including the
capacity leased from telecommunications suppliers. In particular, we rely on
AT&T, MCI Worldcom, Sprint and other
12
<PAGE> 14
telecommunications providers for leased long-haul and local loop transmission
capacity. These companies provide the dedicated links that connect our network
components to each other and to our customers.
Our business also depends upon the capacity, reliability and security of
the infrastructure owned by third parties that is used to connect telephone
calls. Specifically, we currently lease capacity from regional partners on eight
of the twelve mated pairs of SS7 signal transfer points that comprise our
network. We have no control over the operation, quality or maintenance of a
significant portion of that infrastructure and whether or not those third
parties will upgrade or improve their equipment.
We depend on these companies to maintain the operational integrity of our
connections. If one or more of these companies is unable or unwilling to supply
or expand its levels of service to us in the future, our operations could be
severely interrupted. In addition, rapid changes in the telecommunications
industry have led to the merging of many companies. These mergers may cause the
availability, pricing and quality of the services we use to vary and could cause
the length of time it takes to deliver the services that we use to increase
significantly. For example, one of our regional partners was recently acquired
by another company and has terminated its lease to us of capacity on a pair of
signal transfer points.
We rely on links, equipment and software provided to us from our vendors,
the most important of which are gateway equipment and software from Tekelec and
Hewlett-Packard. We cannot assure you that we will be able to continue to
purchase equipment from these vendors on acceptable terms, if at all. If we are
unable to maintain current purchasing terms or ensure product availability with
these vendors, we may lose customers and experience an increase in costs in
seeking alternative suppliers of products and services.
THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING COMPLEMENTARY BUSINESSES
AND TECHNOLOGIES COULD IMPEDE OUR FUTURE GROWTH AND ADVERSELY AFFECT OUR
COMPETITIVENESS.
We may make investments in complementary companies, technologies or other
assets, exposing us to several risks, including:
- greater than expected costs and management time and effort involved in
identifying, completing and integrating acquisitions;
- potential disruption of our ongoing business and difficulty in
maintaining our standards, controls, information systems and procedures;
- entering into markets and acquiring technologies in areas in which we
have little experience;
- the inability to successfully integrate the services, products and
personnel of any acquisition into our operations;
- a need to incur debt or issue equity securities, which may dilute the
ownership interests of existing stockholders, and may reduce our cash
available for operations and other uses; and
- realizing little, if any, return on our investment.
OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR SS7 NETWORK AND THE
TELECOMMUNICATIONS MARKET'S CONTINUING USE OF SS7 TECHNOLOGY.
Our future growth depends on the commercial success and reliability of our
SS7 network. Our SS7 network is a vital component of our intelligent network
services, which have been an increasing source of revenue for us. Our business
will suffer if our target customers do not use our SS7 network. Our future
financial performance will also depend on the successful development,
introduction and customer acceptance of new and enhanced SS7-based products and
services. We are not certain that our target
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<PAGE> 15
customers will choose our particular SS7 network solution or continue to use our
SS7 network. In the future, we may not be successful in marketing our SS7
network or any new or enhanced products or services.
WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING EMPLOYEES WITH THE REQUISITE
SKILLS TO EXECUTE OUR GROWTH PLANS.
Our success depends, in part, on the continued service of our existing
management and technical personnel. If a significant number of those individuals
are unable or unwilling to continue in their present positions, we will have
difficulty in maintaining and enhancing our networks and services. This may
adversely affect our operating results and growth prospects.
In addition, we have experienced, and we expect to continue to experience,
difficulty in hiring and retaining highly skilled employees. Specifically, we
centralize a large portion of our technical operations in geographic areas in
which competition for technical talent is intense, due to the existence of
competing employers seeking employees with similar sets of skills. Our continued
success depends on our ability to attract, retain and motivate highly skilled
employees, particularly engineering and technical personnel. Failure to do so
may adversely affect our ability to expand our network and enhance our products
and services.
IF WE FAIL TO ADEQUATELY ADDRESS POTENTIAL YEAR 2000 PROBLEMS, WE COULD
EXPERIENCE MAJOR SYSTEM FAILURES.
Our core business depends on hardware and software systems that interact
with customers, including SS7 network signaling, database information and
network usage software applications. If modifications and replacements to our
hardware and software systems are needed to address the Year 2000 issue and are
not made or are not completed in a timely manner, the Year 2000 issue could have
a material impact on our operations.
We also rely on networks, including the Internet, the public-switched
telephone network and private data networks, and computer hardware and software,
owned and maintained by third parties, some of which may not be Year 2000
compliant. The failure of a network or computer hardware or software owned and
maintained by a third party because it is not Year 2000 compliant could
adversely affect the operations of our systems. In addition, to the extent our
vendors and suppliers fail to certify that they are Year 2000 compliant, we may
find it necessary to terminate our relationships with them. If we terminate
these relationships, we cannot assure you that we will be able to find suitable
replacement vendors or suppliers on terms favorable to us, if at all. Our
failure to find replacement vendors or suppliers could increase our costs or
disrupt our ability to provide services to our customers. We may face claims
based on Year 2000 issues arising from our customers' integration of multiple
products and services, including ours, within an overall system. For information
regarding our efforts to prepare for Year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000."
IF WE DO NOT ADAPT TO RAPID TECHNOLOGICAL CHANGE IN THE TELECOMMUNICATIONS
INDUSTRY, WE COULD LOSE CUSTOMERS OR MARKET SHARE.
Our industry is characterized by rapid technological change and frequent
new product and service announcements. Significant technological changes could
make our technology obsolete. We must adapt to our rapidly changing market by
continually improving the responsiveness, reliability and features of our
network and by developing new network features, services and applications to
meet changing customer needs. We cannot assure you that we will be able to adapt
to these challenges or respond successfully or in a cost-effective way to
adequately meet them. Our failure to do so would adversely affect our ability to
compete and retain customers or market share.
14
<PAGE> 16
We sell our products and services primarily to traditional
telecommunications companies. Emerging companies are providing convergent
Internet protocol-based telecommunication services. Our future revenues and
profits, if any, could depend upon our ability to provide products and services
to these Internet protocol-based telephony providers.
THE MARKET FOR SS7 NETWORK SERVICES AND RELATED PRODUCTS IS INTENSELY
COMPETITIVE AND MANY OF OUR COMPETITORS HAVE SIGNIFICANT ADVANTAGES THAT COULD
ADVERSELY AFFECT OUR BUSINESS.
We compete in markets that are intensely competitive and rapidly changing.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins and loss of market share, any of which could harm our
business. We face competition from large, well-funded regional providers of SS7
network services and related products, such as regional Bell operating
companies, GTE and Southern New England Telephone. We are aware of major
Internet service providers, software developers and smaller entrepreneurial
companies that are focusing significant resources on developing and marketing
products and services that will compete with us. We anticipate continued growth
of competition in the telecommunications industry and the entrance of new
competitors into our business. We expect that competition will increase in the
near term and that our primary long-term competitors may not yet have entered
the market. Many of our current and potential competitors have significantly
more employees and greater financial, technical, marketing and other resources
than we do. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements than we can. Also,
many of our current and potential competitors have greater name recognition and
more extensive customer bases that they can use to their advantage.
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING LEVELS
COULD IMPACT OUR ABILITY TO MAINTAIN PROFITABILITY OR POSITIVE CASH FLOW.
Competition and industry consolidation could result in significant pricing
pressure. This pricing pressure could cause large reductions in the selling
price of our services. For example, our competitors may provide customers with
reduced communications costs for Internet access or private network services,
reducing the overall cost of solutions and significantly increasing pricing
pressures on us. We may not be able to offset the effects of any price
reductions by increasing the number of our customers, generating higher revenues
from enhanced services or reducing our costs. We believe that the business of
providing network connectivity and related network services will likely see
increased consolidation in the future. Consolidation could decrease selling
prices and increase competition in these industries, which could erode our
market share, revenues and operating margins.
THE INABILITY OF OUR CUSTOMERS TO SUCCESSFULLY IMPLEMENT OUR SERVICES WITH THEIR
EXISTING SYSTEMS COULD ADVERSELY AFFECT OUR BUSINESS.
Significant technical challenges exist in our business because many of our
customers:
- purchase and implement SS7 network services in phases;
- deploy SS7 connectivity across a variety of telecommunication switches
and routes; and
- integrate our SS7 network with a number of legacy systems, third-party
software applications and engineering tools.
Customer implementation currently requires participation by our order
management and our engineering and operations groups, each of which has limited
resources. Some customers may also require us to develop costly customized
features or capabilities, which increase our costs and consume our limited
customer service and support resources. Also, we typically charge one-time flat
rate fees for initially connecting a customer to our SS7 network and a monthly
recurring flat rate fee after the connection is established. If new or existing
customers have difficulty deploying our products or require
15
<PAGE> 17
significant amounts of our engineering service support, we may experience
reduced operating margins. Our customers' ability to deploy our network services
to their own customers and integrate them successfully within their systems
depends on our customers' capabilities and the complexity involved. Difficulty
in deploying those services could reduce our operating margins due to increased
customer support and could cause potential delays in recognizing revenue until
the services are implemented.
CAPACITY LIMITS ON OUR TECHNOLOGY AND NETWORK HARDWARE AND SOFTWARE MAY BE
DIFFICULT TO PROJECT AND WE MAY NOT BE ABLE TO EXPAND AND UPGRADE OUR SYSTEMS TO
MEET INCREASED USE.
As traffic from our customers through our network increases, we will need
to expand and upgrade our technology and network hardware and software. We may
not be able to accurately project the rate of increase in usage on our network.
In addition, we may not be able to expand and upgrade, in a timely manner, our
systems and network hardware and software capabilities to accommodate increased
traffic on our network. If we do not appropriately expand and upgrade our
systems and network hardware and software, we may lose customers and revenues.
WE USE A STRATEGIC RELATIONSHIP TO IMPLEMENT AND SELL OUR NETWORK USAGE SOFTWARE
APPLICATIONS. WE COULD LOSE REVENUES OR INCUR SIGNIFICANT COSTS TO RETAIN
REVENUES IF THIS RELATIONSHIP IS TERMINATED.
We have a non-exclusive agreement with Hewlett-Packard to sell our network
usage software applications. The agreement may be terminated with limited notice
by either party without cause or penalty. In the past, we have received
significant revenues under this agreement. There is no guarantee that
Hewlett-Packard will continue to market our network usage software applications.
If this relationship is terminated or materially changes, we would be required
to devote substantial new resources to the distribution, sales and marketing,
implementation and support of our network usage software applications and our
efforts may not be as effective as those of Hewlett-Packard.
THERE IS A LIMITED MARKET FOR OUR EXISTING NETWORK USAGE SOFTWARE APPLICATIONS.
We derived 7% and 1% of our revenues in 1998 and the first six months of
1999, respectively, from sales and maintenance of our network usage software
applications. Current users of these software products include most of the
regional Bell operating companies, as well as other large telecommunications
carriers. With initial market sales essentially completed, our ability to derive
continued revenue from our network usage software applications is limited,
unless we can develop new derivative products.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
We may require more capital in the future to:
- fund our operations;
- finance investments in equipment and corporate infrastructure needed to
maintain and expand our network;
- enhance and expand the range of services we offer; and
- respond to competitive pressures and potential opportunities, such as
investments, acquisitions and international expansion.
We cannot assure you that additional financing will be available on terms
favorable to us, or at all. The terms of available financing may place limits on
our financial and operating flexibility. If adequate funds are not available on
acceptable terms, we may be forced to reduce our operations or abandon expansion
opportunities. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could reduce our competitiveness as our
competitors may provide better maintained
16
<PAGE> 18
networks or offer an expanded range of services. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
REGULATIONS AFFECTING OUR CUSTOMERS AND FUTURE REGULATIONS TO WHICH WE MAY BE
SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.
Although we are not subject to telecommunications industry regulations, the
business of our customers is subject to regulation that indirectly affects our
business. The U.S. telecommunications industry has been subject to continuing
deregulation since 1984, when AT&T was required to divest ownership of the Bell
telephone system. We cannot predict when, or upon what terms and conditions,
further regulation or deregulation might occur or the effect of regulation or
deregulation on our business. Several services that we offer may be indirectly
affected by regulations imposed upon potential users of those services, which
may increase our costs of operations. In addition, future services we may
provide could be subject to direct regulation. See "Business -- Regulation."
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY IMPACT AND CAUSE
VOLATILITY IN OUR STOCK PRICE.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. In future quarters, our operating results
may be below the expectations of analysts and investors and, as a result, the
price of our common stock may fall or become volatile. Factors that could cause
quarterly fluctuations include:
- seasonal fluctuations in consumer use of telecommunications services;
- varying rates at which telecommunications companies, telephony resellers
and Internet service providers use our services;
- loss of customers through industry consolidation;
- the timing and execution of individual contracts, particularly large
contracts;
- significant lead times before a product or service begins generating
revenues;
- volatile economic conditions specific to the telecommunications industry;
and
- an inability to collect our accounts receivable.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING AND WE
CANNOT GUARANTEE THAT OUR USE OF THE PROCEEDS WILL ENHANCE THE VALUE OF YOUR
INVESTMENT.
Our management will have broad discretion over the allocation of the net
proceeds from the offering, as well as over the timing of their expenditure. As
a result, you will be relying on our management's judgment with only limited
information about its specific intentions for the use of proceeds. The failure
of our management to apply the net proceeds effectively could adversely affect
our future prospects. See "Use of Proceeds."
OUR CERTIFICATE OF INCORPORATION, BYLAWS, SHAREHOLDER RIGHTS PLAN AND DELAWARE
LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE A TAKEOVER.
Provisions of our certificate of incorporation and bylaws and Delaware law
may discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. See "Description of Capital Stock." These provisions of our
certificate of incorporation and bylaws:
- establish a classified board of directors, of which only a portion of the
total number of directors will be elected at each annual meeting;
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<PAGE> 19
- authorize the board to issue preferred stock with substantial voting
rights; and
- prohibit cumulative voting in the election of directors.
In addition, we have a shareholder rights plan that could significantly
discourage, delay or prevent a merger or acquisition. The rights become
exercisable if a person or group acquires or makes a tender offer for more than
20% of our outstanding common stock. If any of those events occurs, each right
entitles the holder (other than the acquiror) to purchase for $150 our common
stock or, in some instances, stock of the acquiring entity, that would be worth
$300. The rights expire on November 20, 2008, unless we redeem them earlier.
We have also chosen to be subject to Section 203 of the Delaware General
Corporation Law, which prevents a stockholder of more than 15% of a company's
voting stock from entering into certain business combinations with that company.
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING AND THE STOCK
PRICES FOR COMPANIES IN OUR INDUSTRY HAVE BEEN HIGHLY VOLATILE.
Our common stock has not been publicly traded prior to the offering. We
anticipate that our common stock (other than Class A common stock) will be
approved for quotation on the Nasdaq National Market at the time of the
offering. However, an active trading market may not develop or be sustained. In
recent years, the market for stock in technology, telecommunications and
computer companies has been highly volatile. The common stock price after the
offering may be volatile and may fluctuate due to factors such as:
- actual or anticipated fluctuations in quarterly and annual results;
- announcements of technological innovations;
- introduction of new services;
- mergers and strategic alliances in the telecommunications industry; and
- changes in government regulation.
FUTURE SALES BY EXISTING STOCKHOLDERS COULD CAUSE THE PRICE OF OUR COMMON STOCK
TO DECLINE.
Sales of a large number of shares of our common stock in the public market
following this offering could adversely affect the market price for our common
stock or impair our ability to raise capital through an offering of equity
securities. The number of shares of common stock available for sale in the
public market is limited by legal and contractual restrictions. The holders of
shares of Class A common stock have agreed not to sell their
shares for a period of 180 days after the date of this prospectus without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters. The remaining shares of our Class A common stock will
not be tradeable in the public market until 180 days after the date of this
prospectus when they automatically convert into shares of common stock.
Immediately after this offering, we will have outstanding the shares
of our common stock sold in this offering (assuming the underwriters do not
exercise their over-allotment option) and shares of Class A common
stock. We will also have reserved an additional shares of common stock
for issuance under our stock option plan and shares for issuance upon
conversion of our debentures. All of the shares sold in this offering will be
freely tradeable without restriction or further registration under the federal
securities laws.
Upon expiration of the 180-day period referred to above, approximately
shares of Class A common stock will automatically convert into shares
of common stock and will be freely transferable without restriction under the
Securities Act, unless they are held by persons that have control relationships
with us. See "Shares Eligible for Future Sale."
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<PAGE> 20
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit
shares reserved for issuance under our stock option plan to be
sold in the public market.
YOU WILL HAVE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. If other security
holders exercise options to purchase our capital stock or convert their
debentures, you will suffer further dilution. See "Dilution."
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<PAGE> 21
USE OF PROCEEDS
We estimate that the net proceeds from the offering will be approximately
$ million, or $ million if the underwriters exercise their
over-allotment option in full. This is based on an initial public offering price
of $ per share, the midpoint of the range indicated on the cover of this
prospectus, and after deducting estimated underwriting discounts and commissions
and other expenses.
We intend to use the net proceeds from the offering to fund potential
acquisitions, to develop new and improved services, to maintain and expand our
network and for general corporate purposes. We currently do not have any
agreements, and we are not involved in any negotiations, concerning any
acquisitions. As of the date of this prospectus, we cannot specify with
certainty all of the particular uses for the net proceeds we will have after
completion of the offering. The actual amounts we spend will vary significantly
depending on a number of factors, including future revenue growth, if any,
capital expenditures, the amount of cash generated by our operations and other
factors, many of which are beyond our control. Accordingly, our management will
have broad discretion in the application of the net proceeds.
Pending the uses described above, we intend to invest the net proceeds in
direct or guaranteed obligations of the United States, interest-bearing,
investment-grade instruments or certificates of deposit.
DIVIDEND POLICY
We currently intend to retain future earnings, if any, to finance
operations and expand our business. We have never declared or paid any dividends
on our common stock. We do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of the board of directors. The declaration and payment of
dividends will depend upon our financial condition, operating results,
contractual restrictions, capital requirements, business prospects and other
factors the board of directors deems relevant. The terms of our secured loan
facilities restrict our ability to declare and pay dividends without the consent
of our lender, unless we meet minimum net worth and cash margin tests. In
addition, the terms of our debentures prohibit us from declaring a dividend that
exceeds a formula based on our net income and proceeds we receive from any
securities offerings.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our cash and cash equivalents, current
portion of long-term debt and capitalization as of June 30, 1999. We present
this unaudited information on an actual basis after giving effect to the stock
restructuring, and as adjusted to give effect, upon the closing of the offering,
to the automatic conversion of the Class A common stock into common stock and
our receipt of the estimated net proceeds from this offering. See "Use of
Proceeds."
You should read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial and Other Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes to those
financial statements that are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $11,347 $
======= =======
Current portion of long-term debt and capital lease
obligations............................................... $ 5,186 $
======= =======
Long-term debt, less current portion:
Obligations under capital leases.......................... $ 6,170 $
Secured notes payable to Rural Telephone Finance
Cooperative............................................ 6,539
Convertible redeemable subordinated debentures and
deferred interest payable.............................. 8,025
------- -------
Total long-term debt................................. 20,734
------- -------
Stockholders' equity:
Common stock, par value $.01 per share, shares
authorized and none outstanding, actual, and
outstanding, as adjusted............................... --
Class A common stock, par value $.01 per share, 25,000,000
shares authorized and 5,571,671 shares outstanding,
actual, and none outstanding, as adjusted.............. 56
Additional paid-in capital................................ 12,855
Deferred stock-based compensation......................... (359)
Retained earnings......................................... 28,280
------- -------
Total stockholders' equity........................... 40,832
------- -------
Total capitalization.............................. $61,566 $
======= =======
</TABLE>
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DILUTION
As of June 30, 1999, our net tangible book value, after giving effect to
our stock restructuring, as well as the automatic conversion of the Class A
common stock to common stock, was $ or $ per share of common stock.
"Net tangible book value" per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, divided by the number of
shares of common stock outstanding. As of June 30, 1999, our net tangible book
value, as further adjusted for the sale of shares in the offering
at an assumed initial public offering price of $ per share (the midpoint of
the range indicated on the cover of this prospectus), and after deducting the
estimated underwriting discounts and commissions and other expenses, would have
been approximately $ per share of common stock. This represents an immediate
increase of $ per share to existing stockholders and an immediate dilution
of $ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of June 30, 1999....... $
Increase in net tangible book value per share attributable
to purchasers in this offering............................
----
Net tangible book value per share after this offering.......
----
Dilution per share to new investors......................... $
====
</TABLE>
The following table summarizes, as of June 30, 1999, after giving effect to
our stock restructuring, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by the
existing stockholders and by the investors purchasing shares of common stock in
this offering (before deducting the estimated underwriting discounts and
commissions and other expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New investors........................
------- ----- -------- -----
Total...................... 100.0% $ 100.0%
======= ===== ======== =====
</TABLE>
The table above assumes no conversion of the outstanding debentures and no
exercise of stock options outstanding as of June 30, 1999. As of June 30, 1999,
shares were issuable upon conversion of the debentures and there were
options to purchase a total of shares of common stock at a
weighted average exercise price of $ per share. To the extent that any of
these debentures are converted or options are exercised, you will be diluted
further.
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<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
We derived the following selected consolidated financial data as of and for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 from our
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. We derived the selected consolidated financial data as of
and for the six months ended June 30, 1998 and 1999 from our unaudited
consolidated financial statements, which, in our opinion, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly our financial position and results of operations for those
periods. Other data are unaudited. Interim results do not necessarily indicate
the results that you may expect for any other interim period or for the full
year. You should read this summary information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes to those financial
statements that are included elsewhere in this prospectus.
You should read the following information with the data in the table on the
next page:
- In February 1996, we merged with Independent Telecommunications Network,
Inc. We accounted for the merger as a purchase business combination.
Accordingly, the operating results of Independent Telecommunications
Network, Inc., including carrier costs, are only included in our
operating results since the merger.
- The 1996 income tax provision and the 1997 income tax benefit reflect the
benefits of using net operating loss carryforwards of $1.0 million and
$2.4 million, respectively. In addition, the 1997 income tax benefit
includes a benefit of $.9 million attributable to the reversal of
substantially all of the remaining previously recorded deferred tax
valuation allowance due to improved operating results.
- Long-term obligations, less current portion includes (1) obligations
under capital leases, less current portion, and (2) long-term debt, less
current portion.
- Capital expenditures includes purchases and capital leases of property
and equipment.
- Customers is the number of entities that received a bill from us,
including, in some cases, subsidiaries of consolidated groups and
individual locations of a single company. Information prior to 1996 is
not available.
- Signaling points represents the number of connections to our network.
These points may be either individual switches or connections to other
companies' signaling transfer points with networks attached to them.
Information prior to 1996 is not available.
- Intelligent network messages represents an estimated number of SS7
transactions handled by our network for call completion and delivery of
intelligent network services. We did not provide a significant level of
services measured by intelligent network messages prior to 1997.
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<PAGE> 25
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Network services................... $ 9,701 $ 8,438 $ 29,434 $ 44,117 $ 60,274 $ 26,600 $ 41,562
Clearinghouse services............. 5,640 7,049 7,896 6,723 6,232 3,463 3,052
Network usage software
applications..................... -- 1,123 558 3,468 5,406 1,523 502
Other.............................. 1,766 494 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues................... 17,107 17,104 37,888 54,308 71,912 31,586 45,116
Expenses:
Carrier costs...................... -- -- 9,358 15,313 22,983 10,752 13,598
Operating.......................... 9,220 9,547 11,139 14,979 19,768 8,547 12,487
Selling, general and
administrative................... 4,961 6,764 7,774 8,873 10,287 4,540 6,128
Depreciation and amortization...... 1,992 2,846 5,714 7,354 9,372 3,783 5,317
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses................... 16,173 19,157 33,985 46,519 62,410 27,622 37,530
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss).............. 934 (2,053) 3,903 7,789 9,502 3,964 7,586
Interest expense, net................ 85 169 838 808 746 225 392
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.... 849 (2,222) 3,065 6,981 8,756 3,739 7,194
Income tax provision (benefit)....... 305 (707) 112 (676) 3,463 1,388 2,734
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 544 $ (1,515) $ 2,953 $ 7,657 $ 5,293 $ 2,351 $ 4,460
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings (loss) per share - basic.... $ .15 $ (.41) $ .59 $ 1.45 $ .99 $ .44 $ .83
Earnings (loss) per
share - diluted.................... $ .15 $ (.41) $ .57 $ 1.27 $ .88 $ .39 $ .71
Weighted-average common shares -
basic.............................. 3,732,146 3,729,015 4,995,092 5,295,509 5,356,385 5,347,081 5,366,363
Weighted-average common shares -
diluted............................ 3,732,146 3,729,015 5,972,284 6,396,665 6,497,360 6,497,006 6,531,223
OTHER FINANCIAL DATA:
Capital expenditures................. $ 2,080 $ 1,579 $ 6,727 $ 10,121 $ 17,870 $ 5,579 $ 5,830
OTHER DATA:
Customers............................ 311 417 544 436 655
Signaling points..................... 388 533 686 627 737
Intelligent network messages (in
billions).......................... -- -- -- 158 372 156 256
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents............ $ 4,126 $ 6,992 $ 12,515 $ 11,167 $ 11,967 $ 10,545 $ 11,347
Property and equipment, net.......... 14,006 12,794 31,377 34,715 43,747 36,799 44,549
Total assets......................... 35,586 39,398 70,822 78,026 89,450 80,967 91,828
Long-term obligations, less current
portion............................ 4,396 7,638 21,060 18,014 20,742 18,177 20,734
Stockholders' equity................. 13,955 12,419 21,760 30,226 36,192 32,995 40,832
</TABLE>
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and the results of our operations together with our financial
statements and the notes to those financial statements included in this
prospectus.
OVERVIEW
We operate the largest unaffiliated SS7 network in the United States and
are a leading provider of complementary intelligent network and SS7 services to
telecommunications carriers. Connection to our network gives carriers access to
the system of signaling networks of the entire U.S. public-switched
telecommunications infrastructure through a single source.
SS7 is the industry standard used by almost every switched telephone
network operator in the United States and Canada to identify available network
routes and designate the circuits to be used for each individual telephone call.
SS7 networks also provide access to intelligent network services, such as caller
identification, calling card validation and other specialized database access
functions, all of which are performed in the seconds it takes to complete a
call. SS7 networks are specialized packet-switched data networks that provide
these control functions and services in parallel with separate voice networks.
Our network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and all of the largest U.S. telecommunications
carriers through leased lines. Our network serves over 600 network customers,
including incumbent local exchange carriers, competitive local exchange
carriers, long distance companies, wireless telecommunications providers and
Internet service providers.
Our products and services can be grouped into three general categories:
- network services, which includes SS7 connectivity, switching and the
transport of messages used to route calls and query databases, and
intelligent network services, such as database access, including local
number portability and support for roaming between carriers;
- clearinghouse services, to facilitate payment among telecommunications
carriers; and
- network usage software applications.
Our SS7 network connectivity, switching and transport services provide
telecommunications carriers access to the signaling networks of nearly the
entire U.S. public-switched telecommunications infrastructure through a single
source. Once connected, customers use our network to route and complete voice
and data transmissions and access related and complementary services and
applications available from us or from third party vendors. Once a customer is
connected to our network, we continue to provide support services to maintain
and upgrade its connection on a 24 hour a day, seven day a week basis.
Intelligent network services encompass a number of database query
functions, including caller identification, toll-free calling, calling card
validation, local number portability and seamless wireless roaming. Each of
these services uses our SS7 network to access databases, some maintained by us
and others maintained by third parties.
Our clearinghouse services include serving as a distribution and collection
point for billing information and payment collection for services provided by
one carrier to customers billed by another. For example, we receive a monthly
report from a carrier that provides long distance services detailing the long
distance calls made by the customers of another carrier. We prepare statements
to each billing carrier of the customers' usage, which the billing carrier then
uses to bill its customers. The billing carrier
25
<PAGE> 27
remits the payments received from its customers to us. We aggregate these
payments and remit them to the carrier providing the long distance service, net
of our servicing fee.
Network usage software applications are commercial applications derived
primarily from software we developed to create billing data for the use of our
network and services. This software is licensed to carriers and allows them to
create billing data to bill another carrier for use of their signaling network
or their underlying public-switched telecommunications network.
REVENUES
Most of our revenues come from the sale of network services, including SS7
connectivity, switching and transport and the provision of intelligent network
services. To a lesser extent, we derive revenues from our clearinghouse services
and network usage software applications.
Customers generally are charged for connectivity to our SS7 network on a
monthly "per link" basis. If we provision the network facilities that provide
their connection to our network, they pay us for establishing the initial
connections that link them to our network and pay a separate monthly fee to
maintain those links. We generally price these connectivity links on a cost-plus
basis based on our facility lease costs.
In addition, customers are charged for network switching (the transmission
of signaling traffic throughout the network) based on the number of switches to
which they signal. The more switch locations to which that customer uses us to
signal, the more they pay us. We are evaluating the potential to change our
pricing structure to allow for volume-based "per-signaling message" charges.
Our intelligent network services are delivered through our network and a
substantial majority of our customers purchase both SS7 network connectivity and
intelligent network services. Our intelligent network services fall into two
general categories: database administration and database query services. In
addition to paying monthly fees for SS7 connectivity, our customers pay a per
use or per query fee for database services. For example, we price local number
portability service order administration on a per-ported number basis, and
obtain volume-based revenue for accessing the local number portability database
on a per-query basis.
Clearinghouse services are provided on a per message billed basis. Our
revenues vary based on the number of messages provided to us by
telecommunications companies and other message providers for aggregation and
distribution by us to the carrier who will bill to and collect from its
customers. Clearinghouse services are relatively mature and are experiencing
competitive pricing pressures.
Revenues from network usage software applications are derived from licenses
of our software products and continuing software maintenance fees. These
products have a long sales cycle, with each individual license normally
contributing significant revenue to the product line. New sales opportunities
for these products in their current form are limited, as many of the customers
in the top tier market, comprised primarily of regional Bell operating
companies, have already licensed our product.
The table below indicates the portion of our revenues attributable to
network services, clearinghouse services and network usage software applications
in 1996, 1997 and 1998 and in the first six months of 1998 and 1999, together
with the percentage change in revenues from 1996 to 1997, 1997 to 1998 and from
June 30, 1998 to June 30, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ------------------------------
1996 1997 % CHANGE 1998 % CHANGE 1998 1999 % CHANGE
------- ------- -------- ------- -------- ------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Network services............. $29,434 $44,117 50% $60,274 37% $26,600 $41,562 56%
Clearinghouse services....... 7,896 6,723 (15) 6,232 (7) 3,463 3,052 (12)
Network usage software
applications............... 558 3,468 522 5,406 56 1,523 502 (67)
------- ------- ------- ------- -------
$37,888 $54,308 43% $71,912 32% $31,586 $45,116 43%
======= ======= ======= ======= =======
</TABLE>
26
<PAGE> 28
EXPENSES
Our costs and expenses, which we do not attribute directly to individual
product lines, consist generally of the following:
- Carrier costs, which include recurring payments to telecommunications
carriers for leased lines and signal transfer point ports. These lines
and ports provide connections (1) between our customers and our network,
(2) among our own network locations and (3) between our network and
nearly all other SS7 networks in the United States. Cost of links and
ports to our customers is variable, relating directly to the number of
links and ports we provide to our customers. Cost of links and ports
among our own network locations and to other SS7 networks is primarily
fixed. We generally lease lines and ports under tariffs with volume
discounts;
- Operating expenses, which include the cost of providing network services,
clearinghouse services and network usage software applications. Such
costs primarily include personnel costs and hardware and software
maintenance costs to monitor and maintain our network on a 24 hour a day,
seven day a week basis, maintain and operate our databases, process our
clearinghouse messages, and develop and maintain our network usage
software applications;
- Selling, general and administrative, which consist primarily of executive
and administrative personnel and professional services expense; and
- Depreciation and amortization, which relate primarily to our installed
network equipment, our computer hardware and software, our corporate
facilities and our network usage software applications.
In August 1999, we issued employee stock options for 150,000 shares of
common stock at an exercise price of $32.00 per share. This resulted in deferred
stock-based compensation of $2.6 million, after income taxes, which will be
recognized as a noncash stock-based compensation expense over the four year
vesting period of the options. See "Management -- Executive Compensation."
The table below indicates our expenses in 1996, 1997 and 1998 and in the
first six months of 1998 and 1999, together with the percentage change in
expenses from 1996 to 1997, 1997 to 1998 and from June 30, 1998 to June 30,
1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ------------------------------
1996 1997 % CHANGE 1998 % CHANGE 1998 1999 % CHANGE
------- ------- -------- ------- -------- ------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrier costs................ $ 9,358 $15,313 64% $22,983 50% $10,752 $13,598 26%
Operating.................... 11,139 14,979 34 19,768 32 8,547 12,487 46
Selling, general and
administrative............. 7,774 8,873 14 10,287 16 4,540 6,128 35
Depreciation and
amortization............... 5,714 7,354 29 9,372 27 3,783 5,317 41
------- ------- ------- ------- -------
$33,985 $46,519 37% $62,410 34% $27,622 $37,530 36%
======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 29
RESULTS OF OPERATIONS
The table below indicates the results of our operations expressed as a
percentage of total revenues. The historical results are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Network services................................. 78% 81% 84% 84% 92%
Clearinghouse services........................... 21 13 9 11 7
Network usage software applications.............. 1 6 7 5 1
--- --- --- --- ---
Total revenues................................ 100 100 100 100 100
Expenses:
Carrier costs.................................... 25 28 32 34 30
Operating........................................ 29 28 28 28 28
Selling, general and administrative.............. 21 16 14 14 13
Depreciation and amortization.................... 15 14 13 12 12
--- --- --- --- ---
Total expenses................................ 90 86 87 88 83
--- --- --- --- ---
Operating income................................... 10 14 13 12 17
Interest expense, net.............................. 2 1 1 1 1
--- --- --- --- ---
Income before income taxes......................... 8 13 12 11 16
Income tax provision (benefit)..................... -- (1) 5 4 6
--- --- --- --- ---
Net income......................................... 8% 14% 7% 7% 10%
=== === === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Network services. Network services revenues increased by $15.0 million, or
56%, from $26.6 million for the first six months of 1998 to $41.6 million for
the first six months of 1999. This increase was due to an increased number of
customer connections and signaling across our network, substantial growth in
queries processed through the line information, calling name delivery and
toll-free databases and the rollout of local number portability.
During the fourth quarter of 1998, our customer base increased and we
obtained access to additional caller information maintained in third-party
databases. We first recognized revenue from local number portability in June
1998 and revenue from that service grew rapidly throughout the remainder of 1998
and the first six months of 1999. We expect revenue from local number
portability to continue to increase rapidly in the foreseeable future.
Clearinghouse services. Clearinghouse services revenues decreased by $.4
million, or 12%, from $3.5 million for the first six months of 1998 to $3.1
million for the first six months of 1999. This decrease was caused by a decline
in messages processed in the first six months of 1999, due to a large customer
that in 1997 started directly billing messages to its end users rather than
using our services as was required by contract.
Network usage software applications. Network usage software applications
revenues decreased by $1.0 million, or 67%, from $1.5 million for the first six
months of 1998 to $.5 million for the first six
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<PAGE> 30
months of 1999. This increase was due to the inclusion in the 1998 period of
license fees, while revenues in the 1999 period represented only software
maintenance fees.
EXPENSES
Carrier costs. Carrier costs increased by $2.8 million, or 26%, from $10.8
million in the first six months of 1998 to $13.6 million in the first six months
of 1999. This increase was due to the growth in leased network connectivity and
link and local access and transport area access charges incurred to support
increased customer use of our network. Local access and transport area access
charges increased significantly due to our decision to build links directly into
local access and transport areas instead of relying on third-party
intermediaries. While the cost of building links exceeds that of our prior
arrangements, the reliability of our network is enhanced as we gain increased
link control and monitoring capabilities.
Operating. Operating expenses increased by $4.0 million, or 46%, from $8.5
million in the first six months of 1998 to $12.5 million in the first six months
of 1999. This increase was comprised mainly of higher personnel expenses related
to an expansion of the customer support, operations and engineering functions
and increased maintenance costs for new network and systems hardware and
software. Additionally, in the first six months of 1999 we recorded a reserve of
$1.0 million for a loss on a clearinghouse services contract. We have entered
into a new contract with this customer and recently began arbitration
proceedings to settle items in dispute under the prior contract.
Selling, general and administrative. Selling, general and administrative
expenses increased by $1.6 million, or 35%, from $4.5 million for the first six
months of 1998 to $6.1 million for the first six months of 1999. This increase
was primarily due to the addition of personnel necessary to support the overall
growth of our business.
Depreciation and amortization. Depreciation and amortization expenses
increased by $1.5 million, or 41%, from $3.8 million in the first six months of
1998 to $5.3 million in the first six months of 1999. This increase was due to
placing into service new network equipment, including our network monitoring
equipment accounted for as capital leases and local number portability
service-related assets.
Interest expense, net. Interest expense, net increased $.2 million, or 74%,
from $.2 million for the first six months of 1998 to $.4 million for the first
six months of 1999. This increase was primarily related to increased interest
expense from capital leases signed in 1998.
Income taxes. Income tax expense increased by $1.3 million, or 97%, from
$1.4 million in the first six months of 1998 to $2.7 million in the first six
months of 1999, because of our increase in income. The effective tax rate is 37%
for the first six months of 1998 and 38% for the first six months of 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Network services. Network services revenues increased by $16.2 million, or
37%, from $44.1 million in 1997 to $60.3 million in 1998. This increase was due
to increased customer connections and signaling across our network, growth in
queries processed in the line information, calling name delivery and toll-free
databases, as well as the rollout of local number portability. Calling name
delivery growth resulted from an increase in our customer base and additional
access to caller information maintained in third-party databases.
Clearinghouse services. Clearinghouse services revenues decreased by $.5
million, or 7%, from $6.7 million in 1997 to $6.2 million in 1998. This decrease
was due in part to a large customer that in 1997 started directly billing
messages to its end users rather than using our services as was required by
contract and to the loss, in the third quarter of 1998, of a large clearinghouse
participant to a competitor.
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<PAGE> 31
Network usage software applications. Network usage software applications
revenues increased by $1.9 million, or 56%, from $3.5 million in 1997 to $5.4
million in 1998, due to license fees in 1998 derived from installations at
larger customers.
EXPENSES
Carrier costs. Carrier costs increased by $7.7 million, or 50%, from $15.3
million in 1997 to $23.0 million in 1998. This increase was due to the growth in
leased network connectivity and link and local access and transport area access
charges incurred to support increased customer use of our SS7 network. Local
access and transport area access charges increased significantly due to our
decision to build links directly into local access and transport areas.
Operating. Operating expenses increased by $4.8 million, or 32%, from $15.0
million in 1997 to $19.8 million in 1998. The growth resulted mainly from higher
personnel expenses related to an expansion of the customer support, operations
and engineering functions, and increased maintenance costs for new network and
systems hardware and software. Additionally, in 1998 we recorded a reserve of
$1.0 million for a loss on a clearinghouse services contract.
Selling, general and administrative. Selling, general and administrative
expenses grew by $1.4 million, or 16%, from $8.9 million in 1997 to $10.3
million in 1998. This increase was due to the addition of personnel necessary to
support the overall growth of our business, increased marketing costs to
establish a national corporate image and presence and increased sales efforts.
Depreciation and amortization. Depreciation and amortization expenses
increased by $2.0 million, or 27%, from $7.4 million in 1997 to $9.4 million in
1998. This increase was a result of placing new network equipment into service,
including network monitoring equipment accounted for as capital leases and local
number portability service-related assets. During 1998, we replaced two signal
transfer points as part of our network reliability upgrade, resulting in an
expense of $.7 million as we retired the former equipment.
Interest expense, net. Interest expense, net decreased by $.1 million, or
8%, from $.8 million in 1997 to $.7 million in 1998. This decrease was primarily
related to increased interest expense from capital leases signed in 1998.
Income taxes. Income tax expense increased $4.1 million from a tax benefit
of $.7 million in 1997, to tax expense of $3.5 million in 1998. The 1997 tax
accounts and provision reflect benefits of $3.2 million comprised primarily of
$2.4 million due to the utilization of net operating loss carryforwards and $.9
million due to the reversal of substantially all of a previously recorded
deferred tax valuation allowance as a result of improved operating results. The
1997 tax accounts and provision also reflect federal alternative minimum taxes
that cannot be completely offset by tax loss carryforwards.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Network services. Network services revenues increased significantly by
$14.7 million, or 50%, from $29.4 million in 1996 to $44.1 million in 1997. This
increase was due to increased customer connections and signaling across our
network and growth in queries processed in the calling name delivery database.
Clearinghouse services. Clearinghouse services revenues decreased by $1.2
million, or 15%, from $7.9 million in 1996 to $6.7 million in 1997. This
decrease was primarily a result of a volume price reduction for a large customer
in the fourth quarter of 1997.
Network usage software applications. Network usage software applications
revenues increased by $2.9 million, from $.6 million in 1996 to $3.5 million in
1997, due to greater license fees in 1997 compared to 1996.
30
<PAGE> 32
EXPENSES
Carrier costs. Carrier costs increased by $5.9 million, or 64%, from $9.4
million in 1996 to $15.3 million in 1997. This increase was due to the growth in
leased network connectivity and link and local access and transport area access
charges incurred to support increased customer use of the SS7 network.
Operating. Operating expenses increased by $3.9 million, or 34%, from $11.1
million in 1996 to $15.0 million in 1997. This increase was due primarily to the
increasing support required for the continuing expansion of our 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, and increased maintenance costs for new network and systems hardware
and software.
Selling, general and administrative. Selling, general and administrative
expenses increased by $1.1 million, or 14%, from $7.8 million in 1996 to $8.9
million in 1997. This increase was due to higher personnel expenses related to
an expansion in our sales and marketing and product management functions,
including increased travel expenses and new marketing material costs related to
increased sales and marketing efforts.
Depreciation and amortization. Depreciation and amortization expenses
increased by $1.7 million, or 29%, from $5.7 million in 1996 to $7.4 million in
1997. This increase was due to the placing into service of new network equipment
and additional depreciation of $1.0 million due to the acceleration of the
depreciation of the former network equipment.
Interest expense, net. Interest expense, net was unchanged from 1996 to
1997.
Income taxes. Income tax expense decreased $.8 million, from a tax expense
of $.1 million in 1996 to a tax benefit of $.7 million in 1997. The 1997 tax
accounts and provision reflect benefits of $3.2 million comprised primarily of
$2.4 million due to the utilization of net operating loss carryforwards and $.9
million due to the reversal of substantially all of the previously recorded
deferred tax valuation allowance as a result of improved operating results. The
1996 tax accounts and provision reflect the benefit of $1.0 million due to the
utilization of net operating loss carryforwards. The 1996 and 1997 tax accounts
and provision also reflect federal alternative minimum taxes that cannot be
completely offset by tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
We rely on a combination of cash generated from operations, commercial
borrowings, vendor financing and the issuance of debt and equity securities to
fund our operations and capital needs. Currently, our operating activities
generate positive cash flows. However, as we broaden our services and products
to those that may require larger investments, coupled with longer periods before
subsequent revenues are generated, we believe there may be a short-term
reduction in cash generated from operations. We anticipate continued high levels
of investment in our infrastructure over the next several years to manage
increased network volumes, to enhance customer support systems and to continue
to improve network and service reliability. Additionally, we anticipate
continued investments in the development and acquisition of new services and
products related to our network, database and clearinghouse services in order to
keep pace with changing markets and customer needs.
Our working capital (current assets in excess of current liabilities) was
$17.1 million at June 30, 1999. Our cash and cash equivalent balances included
$2.2 million required as working capital to service our clearinghouse services
customers. Clearinghouse funds are received and disbursed on a monthly basis.
The growth in working capital of $4.2 million, or 32%, from $12.9 million at
December 31, 1998, reflects the increase in accounts receivable attributable to
increased revenue, decreased payables related to our clearinghouse services
function, and the utilization of deferred net operating loss carryforward tax
assets.
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<PAGE> 33
Our property and equipment acquisitions were $17.9 million for the year
ended December 31, 1998 and $5.8 million for the first six months of 1999.
Expenditures for property and equipment are primarily for network equipment to
expand capacity and enhance reliability, including network monitoring equipment
and local number portability service-related assets. We currently anticipate
additional capital expenditures of approximately $9.0 million in the remainder
of 1999 and approximately $15.0 million in 2000.
At June 30, 1999, we had a secured line of credit expiring August 15, 2001,
with Rural Telephone Finance Cooperative that permits us to borrow up to $7.3
million, not to exceed 80% of accounts receivable. There were no borrowings
against this line of credit at that date. Additionally, at June 30, 1999, we had
$3.8 million of unused loan facilities established or committed with the
Cooperative, maturing in the years 2000 and 2001. Also, during 1999, we obtained
vendor financing for capital leases related to a purchase of $2.0 million of new
network equipment and applications to enhance monitoring, data collection and
troubleshooting capabilities.
We believe that our existing cash balances, funds generated from our
operations, borrowings available under our existing credit agreements and the
proceeds of this offering will be sufficient to meet our anticipated capital
expenditure and working capital needs for the next 18 months. However,
acquisitions of complementary businesses or technologies may require significant
capital beyond our current expectations, which would require us to issue
additional equity securities and/or incurring additional long-term debt. We
currently do not have any agreements, and are not involved in any negotiations,
with respect to any acquisition.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of some information and operating systems
being written using two digits rather than four to define the applicable year.
Any computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process database or network transactions, send invoices or engage in similar
normal business activities.
We have conducted a comprehensive review of our hardware and software
systems to identify those systems that could be affected by the Year 2000 issue
and we have developed an implementation plan to resolve the identified issues.
Systems that interact with customers and that focus on our core business
functions of SS7 network signaling, database information and network usage
software applications have been given the highest priority. We presently believe
that with the modifications or replacements of existing software and affected
hardware, updates by vendors and conversion to new software, we can avoid any
material adverse impact on our operations from the Year 2000 issue. However, if
the modifications and replacements are not made or are not completed in a timely
manner, the Year 2000 issue could have a material impact on our operations.
Our plan to resolve the Year 2000 issue involves the following four phases:
assessment, conversion, testing and implementation. To date, we have fully
completed our assessment of all critical systems and hardware that could be
affected by the Year 2000 issue. We have completed reprogramming and/or
upgrading the software we maintain. Once software is reprogrammed or replaced
for all or part of a system, we begin testing and implementation. The testing
and implementation phases include not only software maintained by us but
third-party systems as well. To date, we have completed 90% of our testing and
we have implemented 85% of our converted systems. Implementation of all
converted systems is currently targeted for completion by September 30, 1999.
We are using both internal and external resources to implement our Year
2000 compliance plan. To date we have spent $975,000 to remedy the Year 2000
issue and we estimate that our total expenditures
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<PAGE> 34
to complete execution of the Year 2000 compliance plan will range from $1.2
million to $2.0 million. Most of these expenses are being capitalized because
the costs related to Year 2000 modifications are only an incremental part of
overall software and hardware upgrades.
All non-information technology that uses or might use embedded software
chips that use a date function, such as security systems, climate controls and
other electronic devices used in daily business operations, have been
inventoried and assessed. All identified non-compliant systems are being
upgraded and tested as compliant versions become available. This effort is
expected to continue throughout 1999.
Our SS7 network interfaces directly with significant third-party networks
and databases. We are currently working with these and other third-party vendors
to ensure that their systems and interfaces that are relevant to us are Year
2000 compliant by December 31, 1999. To date, we have been advised by over 80%
of our significant third-party vendors that they expect to be Year 2000
compliant by the end of 1999. In addition, we are participating with national
industry groups such as the Network Reliability and Interoperability Council and
committees of the Alliance for Telecommunications Industry Solutions to assess
Year 2000 network reliability and we will continue to monitor the compliance of
our third-party vendors. Failure to address the Year 2000 issue by a third-party
on whom our systems or services rely could have a material adverse effect on us
or our customers.
We believe we have the proper staffing, tools and procedures to identify
and prepare all mission critical systems for the Year 2000 and we believe the
necessary programs are in place for a smooth Year 2000 transition. However, we
have not yet completed all necessary phases of our Year 2000 compliance plan. If
we do not complete the remaining phases, we may be unable to operate our SS7
network or information databases. Additionally, we could be subject to
litigation for product or service failure. We cannot reasonably estimate at this
time the amount of our potential liability and lost revenue.
We anticipate having our contingency plans in place early in the fourth
quarter of 1999. Our contingency planning includes the following:
- reviewing, assessing and updating existing business recovery plans;
- identifying teams to be on call during the change in year to monitor our
network, critical systems, operations centers and business processes;
- developing alternate processes to support critical customer functions;
- developing alternatives for critical suppliers that fail to meet Year
2000 compliance commitment schedules; and
- developing data retention and recovery procedures for critical business
data.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates. We bear
this risk in two specific ways. First, we have debt outstanding. At the end of
1998, we had $7.5 million of debt in the form of a series of 7.5% debentures.
Because this borrowing had a fixed interest rate, neither our income statement
nor our cash flows were exposed to changes in interest rates. Our secured notes
payable, which had average borrowings of $11.0 million during 1998 and was $10.6
million at the end of 1998 had a variable interest rate, which exposed our
income statement and cash flows to changes in interest rates. The rate of these
secured notes is based on the lender's cost of funds. We also have a variable
rate revolving line of credit for up to $7.3 million that has not been used. The
interest rate on this line of credit is based on the prevailing bank prime rate
plus a margin of one and one-half percent per year. The lender may, in its
discretion, fix a lower rate from time to time. If market interest rates were to
increase immediately and uniformly by 10% from levels at June 30, 1999, our net
income and cash flows would decrease by an immaterial amount.
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The second component of interest rate risk involves the short-term
investment of excess cash. Such risk affects fair values, earnings and cash
flows. Excess cash is primarily invested in overnight repurchase agreements
backed by U.S. government securities. These are considered to be cash
equivalents and are shown that way on our balance sheet. Our average balance in
those securities was approximately $10.6 million over the past year. Earnings
from these cash equivalents totaled $.5 million for the year ended December 31,
1998.
Approximately 17% of our total expenses in 1998 were related to access
lines that we lease for our customers. These charges are set by tariff. To date
we have been able to pass through changes in these charges to our customers. At
this point in time, our operations outside of the United States are immaterial.
Accordingly, we are not exposed to substantial risks arising from foreign
currency exchange rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1, which requires capitalization of certain costs incurred
in connection with developing or obtaining internal use software. In April 1998,
the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP
98-5, which requires that all start-up costs related to new operations must be
expensed as incurred. The provisions of SOP 98-1 and SOP 98-5 were adopted in
1999 and are generally consistent with our past accounting policies and,
therefore, there has been no material impact on our financial condition or
operating results.
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BUSINESS
OVERVIEW
We operate the largest unaffiliated SS7 network in the United States and
are a leading provider of complementary intelligent network and SS7 services to
telecommunications carriers. Connection to our network gives carriers access to
the system of signaling networks of the entire U.S. public-switched
telecommunications infrastructure through a single source. The provision of SS7
network services is our primary focus and we are not affiliated with any
telecommunications carrier.
SS7 is the industry standard used by almost every switched telephone
network operator in the United States and Canada to identify available network
routes and designate the circuits to be used for each individual telephone call.
SS7 networks also provide access to intelligent network services, such as caller
identification, calling card validation and other specialized database access
functions, all of which are performed in the seconds it takes to complete a
call. SS7 networks are specialized packet-switched data networks that provide
these control functions and services in parallel with separate voice networks.
Through our SS7 network, we provide:
- SS7 connectivity, switching and transport; and
- intelligent network services, including local number portability and
support for roaming between wireless carriers and various other
specialized database services.
Also, we serve the telecommunications industry with:
- clearinghouse services to facilitate payment among telecommunications
carriers; and
- network usage software applications.
Our network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and all of the largest U.S. telecommunications
carriers through leased lines. Our network serves over 600 network customers,
including incumbent local exchange carriers, competitive local exchange
carriers, long distance companies, wireless telecommunications providers and
Internet service providers.
We have been a provider of telecommunications database services since 1981
and of critical SS7 network services since 1990. In 1998, we generated revenues
of $71.9 million, operating income of $9.5 million and net income of $5.3
million.
OUR HISTORY
Our company was formed as U.S. Intelco and began operations in 1981. Our
original mission was to maintain the independent telephone company customer
records portion of the national telephone calling card database on AT&T's long
distance Common Channel Inter-office Signaling #6 network. Throughout the 1980s,
we expanded our service portfolio with the addition of clearinghouse and revenue
administration services for telecommunications carriers.
AT&T phased out its Common Channel Inter-office Signaling #6 network in the
late 1980s as it and other carriers transitioned to SS7 technology. National
implementation of SS7 technology introduced processing of telephone information
by separating the signaling and voice paths and transmitting signaling
information in the form of data packets over a parallel signaling network.
We capitalized on the shift to SS7 in 1989 by forming a subsidiary to
develop and maintain an SS7 network for independent telephone companies that
needed SS7 capabilities but lacked the expertise or resources to develop their
own network. We continued to develop services that used SS7 technology,
including outsourced maintenance of a line information database for calling card
validation, billing
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validation and third-party collect call validation. These services allow our
customers to control their subscriber data and issue calling cards that are
honored on all major long-distance carrier networks. Today, our line information
database stores 18 million line numbers and related subscriber information.
As the largest non-carrier affiliated SS7 network provider, we became a
principal supplier of SS7 services to many cellular carriers, which use an SS7
network to perform roaming support. Additionally, the emergence of numerous
competitive local exchange carriers since the mid-1990s continues to expand our
base of customers considerably.
We began offering clearinghouse services in 1987 with a revenue
administration agreement with AT&T. This service is still in place today and
involves the passing of billing-and-collection fees from AT&T through to
independent telephone companies who then bill and collect on behalf of AT&T. In
1989, we introduced our toll clearinghouse product line through which we act as
an aggregator and distributor of billable messages between independent telephone
companies and operator service providers.
Our SS7 network today consists of 12 mated pairs of SS7 signal transfer
points, which are specialized switches that manage SS7 signaling, and into which
our customers connect via leased lines. We own four pairs and lease capacity on
eight pairs of SS7 signal transfer points from regional partners. The
combination of these regional partner signaling transfer points with our own
provides us with one of the most extensive inter-carrier SS7 networks in the
United States.
COMPETITIVE STRENGTHS
Our competitive strengths include:
- COST-EFFECTIVE ACCESS TO SS7 NETWORK AND INTELLIGENT NETWORK SERVICES. We
provide our customers cost-effective connectivity to the signaling
networks of nearly the entire U.S. public-switched telecommunications
infrastructure and an array of network-enabled services through a single
source. We believe our customers choose not to build in-house SS7
networks due to the significant capital and technical expertise required
to install and manage necessary SS7 connections with the largest U.S.
telecommunications carriers.
- ESTABLISHED RELATIONSHIPS WITH NUMEROUS TELECOMMUNICATIONS CARRIERS. We
have established relationships with AT&T, MCI Worldcom, Sprint, all of
the regional Bell operating companies, most major competitive local
exchange carriers and a significant number of wireless operators,
independent telephone companies and interexchange carriers. These
relationships provide us with the opportunity to sell additional services
to a broad base of customers while limiting our dependence on any single
customer. We believe that the need for such broad relationships poses a
significant barrier to entry for other potential SS7 service providers.
- EXTENSIVE EXPERIENCE IN OFFERING CRITICAL SS7 SERVICES. SS7 signaling is
an advanced technology that is essential in providing telecommunications
services and presents significant operating complexities. Unlike many of
our competitors, we are primarily focused on providing SS7 network access
and intelligent network services. We have extensive experience in
providing these services and have been recognized through several awards
for our industry expertise. In addition, our top five executives have an
average of 25 years experience in the telecommunications industry. We
believe that a broad array of high quality carriers use our services
primarily due to our singular focus on providing SS7 connectivity and
intelligent network services, as well as our recognized superior
technical expertise. In addition, we believe that our customers are
reluctant to outsource this critical function to other less established
SS7 service providers or to attempt to manage these functions in-house.
- INDEPENDENCE AND NEUTRALITY IN THE TELECOMMUNICATIONS MARKETPLACE. As the
largest non-carrier affiliated SS7 network provider, we have fostered
business relationships with existing and
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emerging carriers, both wireline and wireless, and do not compete with
them in providing services to their residential and business customers.
Our customers consider the subscriber information we manage for them to
be sensitive and do not openly share it with competitors. We believe that
our independence and neutrality significantly enhances our attractiveness
to the entire industry as a provider of outsourced SS7 services.
- PROVEN BUSINESS MODEL THAT GENERATES PROFITABLE AND RECURRING REVENUE
STREAMS. Our network provides us with a profitable base of recurring
service revenue, while serving as an established platform for additional
growth through the delivery of new and enhanced services. The investment
we have made in our network provides a base from which to add additional
customers. Additionally, we believe that the costs incurred by a carrier
in moving to a competitor's SS7 network are relatively high, further
strengthening the stability of our revenue base.
- POSITIONED TO BE THE SS7 SERVICE PROVIDER OF CHOICE TO INTERNET
PROTOCOL-BASED CARRIERS. As one of the largest providers of outsourced
SS7 and intelligent network services in the United States, we are
strategically positioned to provide those services to emerging Internet
protocol-based carriers who must access existing public-switched
telecommunications networks to serve their rapidly growing customer
bases. Emerging packet-based carriers need access to the signaling-based
services that are used by traditional circuit-based telecommunications
providers. By working with manufacturers, such as Lucent and Cisco, to
certify the operation of their equipment with our network, we have
positioned ourselves to provide these signaling-based services to these
new communications providers. Our SS7 expertise also allows us to offer
services to Internet service providers who choose to use SS7-based
signaling to offer more efficient and cost-effective service to their
customers.
THE TELECOMMUNICATIONS INDUSTRY
Historically, telecommunications carriers operated in a highly regulated
environment with little or no competition. Recently, governments worldwide have
begun to deregulate the telecommunications industry in order to reduce costs and
improve service. Deregulation has encouraged the emergence of many new
telecommunications carriers and increased competition. New entrants to the
global telecommunications landscape include:
- competitive long distance and local exchange carriers;
- competitors to government post, telephone and telegraph companies outside
the United States;
- wireless carriers;
- resellers, such as calling card providers; and
- Internet service providers.
Deregulation has also opened specific service opportunities to competition,
such as the provision of toll-free number database services, line information
database services and local number portability.
Increased competition in the telecommunications industry is forcing
carriers to differentiate themselves by providing advanced, value-added
services. Examples of these services include personal toll-free numbers, prepaid
calling cards, caller identification, billing validation services, customized
routing and billing and voice messaging. Carriers in a growing number of markets
are also being required to provide local number portability, which enables a
customer to change local telephone service providers without changing its
telephone number. Providing these services requires SS7 connectivity and
simultaneous database access through an SS7 network.
Telecommunications networks have also significantly increased in complexity
in order to accommodate the functionality requirements of these value-added
services, such as local number
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portability, which was mandated in 1996 by the FCC to be implemented beginning
in 1999 for wireline carriers and in 2002 for wireless carriers. These
intelligent networks allow for various functions to be distributed flexibly
throughout the network. For example, intelligent network functions enable
carriers to deploy advanced services on computer systems separate from the
switching systems that connect their customers. The computer system is accessed
through the SS7 network, reducing cost and increasing quality of customer
service.
The growth of intelligent networks, coupled with a significant worldwide
increase in demand for telecommunications and Internet-related data services,
has resulted in corresponding demand for telecommunications infrastructure and
advanced networking technologies. Telecommunications carriers must provide the
very highest quality and reliability of service to remain competitive.
GROWTH STRATEGY
Our growth strategy consists of the following key elements:
- BROADEN OUR CUSTOMER BASE BY TARGETING EMERGING CARRIERS. We intend to
continue to aggressively grow our customer base by targeting new
telecommunications carriers as they enter the market. These carriers
include competitive local exchange carriers, integrated communications
providers, wireless carriers and Internet service providers. We expect
continued growth in the number of telecommunications providers entering
the market. We believe we will be the SS7 service provider of choice to
these emerging entrants who are unlikely to risk outsourcing their
critical SS7 services to one of their competitors.
- PROVIDE NEW SERVICES TO HELP DIFFERENTIATE OUR CUSTOMERS FROM THEIR
COMPETITORS. The competitive nature of the telecommunications industry
requires providers to offer enhanced services to maintain existing or
attract new customers. Many of these enhanced services are implemented
through the SS7-based intelligent network. In addition to our standard
services, we intend to capitalize on the scalability of our network by
developing new and enhanced services and applications that will enable
our customers to broaden their service offerings and improve their market
position.
- UTILIZE OUR NETWORK USAGE MEASUREMENT CAPABILITIES TO GENERATE ADDITIONAL
REVENUE. We will seek to use our proprietary network usage software
applications and related expertise to develop services to monitor usage
of customers' networks and capture usage pattern data. The hardware and
software investments we have made to capture data elements contained in
SS7 signaling messages give us the ability to gather valuable information
about telephone calls facilitated by our network. In many cases, we can
obtain more information about calling patterns and interactions with
other networks from our network than any single carrier can on its own.
We believe this data can be used to enhance the billing and network
management capabilities of our customers, allowing them to gain
additional revenue and more efficiently operate their networks. This data
can also be used to help our customers develop targeted marketing plans.
- BECOME THE PREFERRED PROVIDER OF SS7-BASED SERVICES TO EMERGING INTERNET
PROTOCOL-BASED CARRIERS. We believe that providing carrier-class
intelligent network capabilities is one of the biggest challenges facing
emerging Internet protocol-based carriers. We are actively working with
hardware providers, including Cisco and Lucent, to certify new
SS7-related equipment for emerging Internet protocol-based carriers. Our
core competencies of database management and signaling-based
communications position us well to offer services similar to our existing
offerings in an Internet protocol-based network. As one of our initial
steps in developing services for these Internet protocol-based network
providers, we offer signaling capabilities to Internet service providers
that help them to improve service quality by reducing congestion on their
networks
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while lowering their costs. We intend to continue to position ourselves
to provide intelligent network capabilities using emerging Internet
protocol-based technologies.
- STRENGTHEN OUR MARKET PRESENCE THROUGH SELECT ACQUISITIONS. We will
actively seek to acquire companies that possess complementary service
offerings. Companies that have developed signaling-based services or
services that can be improved through the use of SS7-based signaling can
provide us incremental revenues and net income. Through select
acquisitions, we believe we can combine new, complementary services with
our existing product line and extensive network. This will increase our
market reach and allow us to quickly broaden our service portfolio.
ANATOMY OF THE SS7 NETWORK
The following diagram illustrates the relationship of the basic components
of the SS7 network:
[SS7 FIGURE]
A telephone call involves two types of information: the call content
(voice, computer data or video) and the signaling information about the call
(such as the party initiating the call and the number being called). This
signaling information is required to connect, manage and bill for the call.
Therefore, modern telecommunication networks not only must convey information
between points, but also must identify the best routes for connections, control
the allocation of resources used to transfer the information and keep
transaction records for billing and measurement purposes.
The call transmission portion of the U.S. public-switched
telecommunications network starts with voice switches located in the offices of
local and long distance service providers. These switches gather traffic from
homes and businesses over local loops and direct it over trunks through the mesh
of different carriers' networks across the country and around the world.
Finally, the traffic is passed onto a local loop for termination at the distant
end.
The SS7 network directs calls through carriers' networks and provides
advanced functions such as completing toll-free calls, identifying calling party
name and tracking telephone numbers transferred between local telephone
companies. SS7 is a standardized set of protocols and architecture that has been
implemented by telecommunications carriers worldwide beginning in the mid 1980s.
SS7 uses packet-switching technology and transmits signaling messages on data
circuits that are independent of the call circuits it controls. Because SS7
messages travel on discrete circuits, SS7 is often referred to as "out-of-band"
signaling. SS7 networks are designed to be reliable, flexible and scalable and
have high capacity, enabling telecommunications carriers to provide new services
quickly and to optimize the network bandwidth used for trunk connections.
Whenever a call originates in a phone network with intelligent network
services, a message signal unit is generated by the originating switch and sent
to the proper destination switch over the SS7 network. All signaling used for
establishing a call, disconnecting a call, database query and response and SS7
network management is carried by these message signal units. As the message
signal unit is routed by the signaling system, the appropriate switches in the
local and, if necessary, long distance
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telephone networks reserve the circuits needed to complete the telephone call.
Finally, the message signal unit reaches the destination switch and the
destination switch processes the dialed number stored in the message signal unit
to connect the call to the dialed party.
The SS7 network consists of three basic network and software components:
Service Switching Points: "SS7-enabled voice switches." Service switching
points are carriers' voice switches (for example, a Lucent 5ESS switch) that use
SS7 technology. In addition to originating, terminating and switching calls,
service switching points exchange messages with other service switching points,
signal transfer points and service control points throughout the network.
Signal Transfer Points: "data switches for SS7 traffic." Signal transfer
points are packet switches that provide access to the SS7 network and route SS7
messages among service switching points and service control points. These are
the traffic controllers of the SS7 network. Signal transfer points typically
consist of highly-reliable computers running special software.
Service Control Points: "intelligent SS7 databases." Service control points
are computers that house databases containing customer and network information.
This information is used by the SS7 network for call routing, billing and
intelligent network database services.
PRODUCTS AND SERVICES
As illustrated in the diagram below, we provide our customers with various
products and services. The majority of our products and services are directly
related to our SS7 network, as either part of the connectivity, switching and
transport function of the SS7 network or as intelligent network services
delivered over our SS7 network. In addition, we provide clearinghouse services
and sell specially designed software for measuring network usage.
[PRODUCTS DIAGRAM]
NETWORK SERVICES -- CONNECTIVITY, SWITCHING AND TRANSPORT
Our network services provide carriers with:
- connectivity to SS7 networks throughout the United States via access to
our network at any of twelve signal transfer point mated pairs located
throughout the country;
- the ability to deliver a full range of services, via SS7 connectivity, to
the incumbent local exchange carriers who serve 222 of the 229 local
access and transport areas in the United States; and
- the opportunity to save time and resources on establishing and
maintaining SS7 links. We provide complete engineering, installation,
testing and activation of all links to our network and work closely with
carriers to ensure configurations meet their specific requirements.
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SS7 Connectivity, Switching and Transport. These are all component parts of
our basic SS7 trunk signaling service. Trunk signaling reduces post-dial delay,
allowing call connection almost as soon as dialing is completed. This enables
carriers to deploy a full range of intelligent network services more quickly and
cost effectively. By using our trunk signaling service, carriers simplify SS7
link provisioning by outsourcing this to us and can:
- increase trunk efficiency through faster call completion and disconnect;
- reach all local, interexchange and wireless carriers' networks through
our access to hundreds of carriers;
- maximize network reliability by having us monitor the performance of
their SS7 connections 24 hours a day, seven days a week;
- facilitate custom local area signaling services, such as caller
identification; and
- lower access costs for local delivery of interexchange and wireless
calls.
Database Access Messaging. We provide the SS7 functions that enable
carriers to find and interact with network databases and conduct the database
queries that are essential for many advanced services. Combined with
connectivity to our SS7 network, we provide access to the database information
that enables carriers to deliver a full range of custom local area signaling
services to their customers.
Seamless Roaming. In 1993, the Cellular Telecommunications Industry
Association endorsed us, for a period of five years, as the nationwide provider
of IS-41 signaling in support of seamless roaming. We remain a nationwide
provider of seamless roaming support using the IS-41 signaling protocol. IS-41
allows carriers to provide support for roamers visiting their service area, and
for their customers when they roam outside their service area. It enables number
validation inside and outside their service areas by accessing our SS7 network.
All U.S. wireless carriers providing subscribers with automatic call delivery
and autonomous registration while roaming use IS-41 or the recently introduced
GSM-MAP protocol, which we also support.
NETWORK SERVICES -- INTELLIGENT NETWORK SERVICES
Intelligent network services encompass a number of database query
functions, the most significant of which are local number portability, line
information database access and transport, toll-free database access and
transport and calling name delivery access and transport. Each of these services
uses our SS7 network to access databases, some maintained by us and others
maintained by third parties.
Local Number Portability. In 1996, the FCC mandated that incumbent local
exchange carriers implement wireline number portability in all major U.S.
markets beginning in 1999. Local number portability allows a telephone
subscriber to switch local service providers while keeping the same telephone
number. It substantially complicates the process of completing an ordinary
telephone call, since the destination telephone number in an area where local
number portability has been implemented no longer bears any direct relationship
to its actual physical location on the network. In order to complete a call to a
telephone number in an area where local number portability has been implemented,
a carrier must conduct a simultaneous database query to route the call
correctly. We manage interactions with number portability databases and provide
database queries on a call-by-call basis, thereby allowing carriers to deploy
local number portability without the high cost of building their own
infrastructure.
Our local number portability services include:
- service order administration, which gives carriers online access to
manage portability information, send that information to the appropriate
national Number Portability Administration Center and retrieve
information about what actions other service providers may have taken;
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- a local service management system that is the hardware and software
database platform necessary to manage customer call routing information;
and
- data access to the appropriate local number portability service control
point for the information necessary to complete a call.
We believe our local number portability services are highly competitive
because we provide integrated, turnkey management of sophisticated and
time-consuming local number portability databases, a single interface to all of
the seven Number Portability Administration Centers in the United States and 24
hour a day, seven day a week technical support.
Line Information Database Access and Transport. Line information databases
are developed and maintained by telecommunications carriers to store information
about their subscribers necessary to provide enhanced services such as
validating telephone numbers and billing information. For example, when a caller
tries to bill a call with a calling card, the local carrier where the call is
initiated sends a query over the SS7 network. The SS7 network then determines
the appropriate database to validate the card number, routes the information to
the switch that analyzes the response and determines how to treat the call.
Through our SS7 network, we offer high-speed access to all of the line
information databases in the United States for seamless, nationwide access to
subscriber information. We also manage and operate our own database of 18
million line information records. Our SS7 network and database access allow
carriers to deliver, in fractions of a second, seamless access to subscriber
information through our access agreements with all databases in the country, for
purposes such as validating calling card, collect and third party billed calls.
Key features of our line information database services include:
- fraud protection features, such as usage monitoring, auto-deactivation,
lost and stolen card service and domestic restrictions to fight
international calling card fraud; and
- high capacity and reliability, fully meeting industry standards for call
processing throughput, storage volume capacity, fault tolerance and
redundancy.
Toll-Free Database Access and Transport. Our SS7 network provides access to
all toll-free numbers in the country for call routing. When a caller dials a
toll-free number from one of our customers' areas, our customer launches a query
over our SS7 network. Our network routes the query to a national toll-free
database, retrieves information and identifies the appropriate carrier and other
routing information as necessary. Our network returns the response to our
customer for call routing.
Calling Name Delivery Access and Transport. Caller identification service
has become an increasingly popular value-added offering for telephone
subscribers. Most local exchange carriers provide a caller identification
service that displays a caller's telephone number. The originating caller's
telephone number is part of the SS7 signaling message that sets up a telephone
call; however, providing the caller's name requires the ability to obtain the
name that matches that telephone number from a line information database. We
develop and offer calling name database access, allowing carriers to query many
regional Bell operating companies and major independent telephone carriers and
reduce the "name not available" messages that customers receive. We also manage
and operate a database for storage of incumbent local exchange carrier,
competitive local exchange carrier and wireless calling name records.
Key components and features of our calling name database include:
- a high capacity calling name database that consistently meets applicable
industry standards for queries per second and data storage volumes;
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- a city/state database in addition to our main calling name database. If a
caller's name is not accessible, a carrier can deliver the caller's city
and state location, giving subscribers a better indication of who is
calling and reducing "name not available" messages; and
- automatic dual updating of our calling name database and our line
information database.
Other Services. We also provide other intelligent network services to our
customers. For example, in addition to network access, we provide a centralized
database of IS-41 messages that enables a wireless carrier to manage and monitor
its roamer activities more efficiently while also providing protection against
cloning fraud.
CLEARINGHOUSE SERVICES
Our clearinghouse services include serving as a distribution and collection
point for billing information and payment collection for services provided by
one carrier to customers billed by another. For example, we receive a monthly
report from a carrier that provides long distance services detailing the long
distance calls made by the customers of another carrier. We prepare statements
to each billing carrier of the customers' usage, which the billing carrier then
uses to bill its customers. The billing carrier remits the payments received
from its customers to us. We aggregate these payments and remit them to the
carrier providing the long distance service, net of our servicing fee.
With our clearinghouse services, carriers can:
- bill and collect messages in a simple consolidated invoice that other
providers may otherwise bill separately to the local carrier's customers;
- bill and collect operator-assisted and calling card calls made through
MCI Worldcom, Sprint and other interexchange carriers; and
- bill and collect direct dialed long-distance calls for selected
interexchange carriers.
NETWORK USAGE SOFTWARE APPLICATIONS
Our network usage software was developed as a commercial derivative of
software originally developed to measure and monitor the usage of our own SS7
network. Using our AMAT7 software, in conjunction with equipment provided by
Hewlett-Packard, SS7 network operators can measure network usage to allow them
to bill other carriers for the use of their SS7 network. Our CDR7 software
captures call record detail directly from SS7 signaling links and provides this
information in a format that allows for billing to, and verification of invoices
received from, other carriers.
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OUR NETWORK
[Network map]
As illustrated above, our network consists of 12 mated pairs of signal
transfer points strategically located across the United States. We own four
pairs of signal transfer points and currently lease capacity on eight pairs of
signal transfer points owned by our regional partners. We are currently planning
to install two additional mated pairs of signal transfer points within the next
twelve months.
Our leases generally have renewable two year terms. If a signal transfer
point lease is terminated, we may continue to use the capacity until we are able
to move our affected customers to another signal transfer point. For example, we
are in the process of moving six customers from the signal transfer point of a
regional partner that, as a result of having recently been acquired, has
terminated its lease with us. The lease will remain in effect on a
month-to-month basis until we relocate all of our customers.
Our network is connected to 222 of the nation's 229 local access and
transport areas, either through a direct connection to the local access and
transport areas or through a gateway switch belonging to the regional Bell
operating company. We have over 400 dedicated connections to local access and
transport areas. As of June 30, 1999, we provided signaling for approximately
17,300 trunk groups providing customers with local access and transport areas
access.
We connect our customers to our nationwide SS7 network through links to our
signal transfer points. As of June 30, 1999, we had approximately 1,800 access
links in service.
In addition to signal transfer points and associated equipment, we maintain
a network operations center in Overland Park, Kansas. We also maintain our
databases, related computers and storage devices in our headquarters building in
Lacey, Washington and in our regional signal transfer point offices in Mattoon,
Illinois and Rock Hill, South Carolina.
SALES AND MARKETING
Our sales force is made up of 17 direct salespeople and two telemarketers.
Eleven of these salespeople are located in our Overland Park office, with six
regional account managers located strategically throughout the United States. In
addition to our direct sales force, we maintain a customer care center with 11
customer service representatives in our Lacey office to handle customer requests
and updates.
Our marketing and sales division identifies customer needs for network
services and promotes our large, reliable network, our competitively priced
services and our neutrality in dealing with carriers. The number and complexity
of our products and services increase the required training and specialization
of our sales force and support staff.
We believe strong account management is our key to a successful sales
effort. We use a consultative sales approach, working with carriers to establish
and maintain relationships that identify and serve customer needs proactively.
We also pursue opportunities to develop custom solutions to meet large customer
requirements.
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<PAGE> 46
We provide incentives for our direct sales staff to further develop their
consultative relationship with our customers by offering bonuses in addition to
salary and commissions. These bonuses are based on a number of factors,
including customer satisfaction, customer retention and new business
development.
We retain an independent consulting company annually to gauge our customer
satisfaction. This consulting company, in conjunction with our review team,
identifies recent successes and plans improvements for the next year. The
results of these surveys show a high level of customer satisfaction.
CUSTOMERS
Our customer base is diversified across the many different types of
facility-based and reseller carriers in the United States. Our top ten customers
accounted for approximately 37% of our revenues for the year ended December 31,
1998, and no customer represented more than 7.5% of our revenues in that year.
Today, in addition to 268 independent telephone companies, our customer base
includes 85 wireless carriers, 176 competitive local exchange carriers and 84
interexchange carriers. Each of our products and services serves multiple
customer types as described below:
- Network Services-Connectivity, Switching and Transport: The customer
focus for these services includes long distance carriers, operator
service providers, independent telephone companies, competitive local
exchange carriers, Internet protocol-based carriers, and wireless
carriers. Our signaling services customers include AT&T, MCI Worldcom,
BellAtlantic Mobile, U.S. Cellular and Winstar.
- Network Services-Intelligent Network Services: The customer focus for
these products includes long distance carriers, operator service
providers, regional Bell operating companies, independent telephone
companies, competitive local exchange carriers, Internet protocol-based
carriers, and wireless carriers. Our intelligent network services
customers include Frontier, Alltel, BellSouth, AT&T and MCI Worldcom.
- Clearinghouse Services: The customer focus for these services includes
long distance carriers, operator service providers, regional Bell
operating companies, independent telephone companies and competitive
local exchange carriers. Our clearinghouse services customers include
AT&T, MCI Worldcom and ZeroPlus Dialing, Inc.
- Network Usage Software Applications: The user focus for these products
includes regional Bell operating companies and other large carriers.
Users of our network usage software applications include SBC, US West,
and BellSouth.
COMPETITION
The market for SS7 network access and related services is relatively new,
but intensely competitive. It is subject to rapid technological change, evolving
industry standards and regulatory developments. We expect competition to
increase in the future. We compete with a number of U.S. and international
companies that vary in size and in the scope and breadth of the products and
services they offer. Our competitors for SS7 network access and intelligent
network services include subsidiaries of AT&T, MCI Worldcom, Southern New
England Telephone, Sprint, GTE and regional Bell operating companies, as well as
other companies. Many of our competitors are small business units of very large
companies, that currently do not actively market their SS7 networks or services.
It is possible that new competitors or alliances among competitors could emerge
and rapidly acquire significant market share. As a result, those competitors may
be able to more quickly develop or adapt to new or emerging technologies and
changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products. Increased competition is
likely to result in price reductions, reduced margins and loss of market share.
We currently compete with only one other company, National Exchange Carrier
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<PAGE> 47
Association -- Independent NECA Services, with respect to our clearinghouse
services. INET, Inc. is our main competitor for network usage software
applications.
We believe that our ability to compete successfully depends on numerous
factors, both within and outside our control, including:
- our responsiveness to telecommunications service providers' needs;
- our ability to support existing and new industry standards;
- the development of technical innovations;
- our ability to attract and retain qualified personnel;
- our response to regulatory changes; and
- the quality, reliability and security of our products and services.
We cannot assure you that we will be able to compete successfully against
current or future competitors or that competitive pressures that we face will
not materially adversely affect our business, financial condition and operating
results.
REGULATION
We are not subject to the direct regulation of the FCC or any state utility
regulatory commission. Some of our customers, however, may be subject to federal
or state regulation that could have an indirect effect on our business. Because
we do not provide voice-grade or data services that are deemed to be common
carrier telecommunications services, we do not anticipate that our services will
be subject to regulation by the FCC or state public utility commissions.
However, future regulation of lines of business we may enter could directly
affect our business or indirectly affect our business through its impact on our
customers. Alternatively, any future change in laws or regulations could subject
us to direct regulation by the FCC or any other federal or state agency.
EMPLOYEES
As of June 30, 1999, we had 304 employees, of whom 197 were engaged in
operations, 60 were engaged in sales and marketing, and 47 were engaged in
administrative and other business support functions. We believe our relationship
with our employees is good. We have no collective bargaining agreements and no
unionized employees.
Our success depends, in part, upon our ability to continue to attract,
motivate and retain additional highly qualified employees, particularly
employees with SS7 knowledge and experience. The process of locating employees
with the skills and attributes necessary to implement our strategy is lengthy.
The loss of any existing key employees or the inability to attract, motivate and
retain additional qualified employees could affect our ability to expand our
network and enhance our products and services. See "Risk Factors -- We may have
difficulty attracting and retaining employees with the requisite skill to
execute our growth plans."
FACILITIES
Our headquarters and a portion of our operations center are located in
Lacey, Washington, where we own a 67,500 square foot facility. The building,
approximately 13.5 acres of land on which the building is constructed, and some
of our computer hardware and software are financed by Rural Telephone Finance
Cooperative. The Cooperative has a first priority lien on substantially all of
our assets, revenues and property, excluding cash collected and held on behalf
of others in the normal course of providing our services.
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<PAGE> 48
We also lease 27,600 square feet with the option to lease another 2,300
square feet of office space, constructed to suit our specifications, in Overland
Park, Kansas, where, in addition to sales and administrative functions, we have
our network surveillance and control center that operates 24 hours a day, seven
days a week. The lease expires January 1, 2006, subject to an option in 2004 to
extend the lease for an additional five years. We have subleased 4,657 square
feet for our signal transfer point facilities at Mattoon, Illinois. The sublease
expires on July 31, 2001. We lease 6,468 square feet for our signal transfer
point facilities at Rock Hill, South Carolina, of which we sublease 1,243 square
feet to another party. The lease expires April 30, 2001.
LEGAL PROCEEDINGS
We are a party to various legal proceedings arising in the ordinary course
of business. We do not believe that those claims, individually or combined, will
have a material adverse effect on our business, financial condition or operating
results.
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<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The persons currently serving as directors and executive officers of
Illuminet Holdings, Inc. and their ages are listed below. Roger H. Moore,
President and Chief Executive Officer, is the only director employed by
Illuminet.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger H. Moore................ 57 President, Chief Executive Officer and Class I
Director
F. Terry Kremian.............. 52 Executive Vice President and Chief Operating
Officer
Daniel E. Weiss............... 51 Chief Financial Officer, Secretary and Treasurer
Bruce E. Johnson.............. 51 Vice President - Operations and Engineering
David J. Nicol................ 53 Vice President - Product Management and Development
Richard A. Lumpkin............ 64 Chairman of the Board and Class III Director
Gregory J. Wilkinson.......... 49 Vice Chairman of the Board and Class III Director
Theodore D. Berns............. 49 Class III Director
Eugene L. Cole................ 63 Class II Director
Aubrey E. Judy................ 61 Class III Director
Kenneth L. Lein............... 66 Class I Director
James S. Quarforth............ 45 Class II Director
G. I. Ross.................... 65 Class I Director
James W. Strand............... 52 Class II Director
</TABLE>
Mr. Moore has been President and Chief Executive Officer since February
1996 and a member of the Board of Directors since July 1998. Prior to that, Mr.
Moore served as vice president of major accounts of Northern Telecom from 1994
to 1995. He was president of Northern Telecom Japan from 1991 to 1994, and from
1989 to 1991, he was vice president of Northern Telecom's Western Region. Mr.
Moore held other senior positions with Northern Telecom since joining that
company in 1985. Prior to joining Northern Telecom, Mr. Moore was the president
of AT&T Canada from 1982 to 1985. He has over 30 years of experience in the
telecommunications and business systems industry. Mr. Moore is a director of Tut
Systems, Inc. and The Center for Telecommunications Management at the University
of Southern California.
Mr. Kremian has been Executive Vice President and Chief Operating Officer
since September 1998. Prior to that, Mr. Kremian was Vice President - Marketing
and Sales from November 1997. He joined Illuminet from MCI where he was employed
since 1982, most recently as director of Carrier Sales, National Accounts.
Mr. Weiss has been Chief Financial Officer since February 1996 and
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. Johnson has been Vice President - Operations and Engineering since
February 1996. Prior to that, he served as Independent Telecommunications
Network's vice president - operations and engineering from 1992 to 1996. Prior
to joining Independent Telecommunications Network, Mr. Johnson was responsible
for implementing NYNEX Corporation's SS7 network. While at NYNEX, Mr. Johnson
was responsible for deploying one of the first industry intelligent networks and
played an active role in providing SS7 performance data to the FCC for its
toll-free database mandate.
Mr. Nicol has been Vice President - Product Management and Development
since February 1996. Prior to that, he served as Independent Telecommunications
Network's vice president, planning and
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<PAGE> 50
administration since 1994. All of his 30-year career has been in technology
industry sectors, the last 15 directly in telecommunications, including six
years at Sprint in various officer positions.
Mr. Lumpkin has been a director since January 1989 and currently serves as
Chairman of the Board of Directors and Chairman of the Executive Committee.
Since 1957, Mr. Lumpkin has been employed by Consolidated Communication Inc. and
its affiliates. In September 1997, Consolidated was merged into McLeodUSA
Incorporated and Mr. Lumpkin became vice chairman and a director of McLeodUSA.
He remains chairman and chief executive officer of Illinois Consolidated
Telephone Company, a local exchange carrier located in Mattoon, Illinois. Mr.
Lumpkin is currently a director of First Mid-Illinois Bancshares and First
Mid-Illinois Bank and Trust in Mattoon, 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
United States Telephone Association.
Mr. Berns has been a director since October 1991. From 1996 until his
retirement in January 1999, Mr. Berns served as chief executive officer of
Integra Telecom, a competitive local exchange carrier located in Portland,
Oregon. He continues to serve as a director of Integra Telecom. From 1993 to
1995, Mr. Berns served as director, president and chief executive officer of
AdVal Communications, Inc., a provider of value-added facsimile services located
in Vancouver, Washington. From 1986 to 1993, Mr. Berns was employed by Pacific
Telecom, Inc., a telecommunications holding company located in Vancouver,
Washington. Mr. Berns held several positions with Pacific Telecom, including
vice president, secretary and president/chief operating officer. In addition,
Mr. Berns is a former director of the United States Telephone Association.
Mr. Cole has been a director since 1981. Mr. Cole worked at Canby Telephone
Association, Canby, Oregon, where in 1968, he was named general manager and in
1986 became president. From 1986 until 1994, Mr. Cole served as president of CTA
Service Corp., a non-regulated telecommunications service provider located in
Canby, Oregon, and North Willamette Telecom, a cable company located in Canby,
Oregon.
Mr. Judy has been a director since April 1982 and is Chairman of the
Nominating Committee. Starting in 1964, Mr. Judy was employed with Farmers
Telephone Cooperative, Inc., an independent telephone company in Kingstree,
South Carolina. He served as its executive vice president from 1981 until his
retirement in December 1993. Mr. Judy served on the National Telephone
Cooperative Association board of directors from 1976 to 1982 and from 1985 to
1992, holding the offices of secretary, vice president and president.
Mr. Lein has been a director since 1987. Mr. Lein managed Winnebago
Cooperative Telephone Association, a local exchange telephone company located in
Lake Mills, Iowa, from 1974 to February 1998. He is a past member of the United
States Telephone Association board of directors and has served as secretary of
that board.
Mr. Quarforth has been a director since January 1989 and is Chairman of the
Personnel Committee. Mr. Quarforth has been an officer of CFW Communications
Company, a local exchange carrier located in Waynesboro, Virginia, since 1991,
most recently serving as chairman and chief executive officer. Mr. Quarforth is
also a director of American Telecasting, Inc., Listing Services Solutions, Inc.,
and Virginia Financial Corporation. Mr. Quarforth is also chairman of the
Virginia PCS Alliance, L.C. and West Virginia PCS Alliance L.C. and a past
director and president of the Virginia Telecommunications Industry Association.
Mr. Ross has been a director since January 1989. From 1970 until his
retirement in March 1999, Mr. Ross was president, chief executive officer and a
director of Lufkin-Conroe Communications Company, a local exchange carrier
located in Texas. Mr. Ross has served as chairman of the board of Texas Exchange
Carriers Association since 1988. Mr. Ross is a member of the United States
Telephone Association board of directors.
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<PAGE> 51
Mr. Strand has been a director since May 1992. Since 1990, Mr. Strand has
been president of the Diversified Operations division of and a director of
Aliant Communications, Inc. (formerly Lincoln Telecommunications Company), a
telecommunications company located in Lincoln, Nebraska. Mr. Strand served on
the board of directors of the Cellular Telecommunications Industry Association.
Mr. Wilkinson has been a director since February 1986 and currently serves
as Vice Chairman of the Board of Directors and Chairman of the Audit/Finance
Committee. Mr. Wilkinson has been associated with Telephone & Data Systems,
Inc., a communications holding company in various capacities since 1972. Since
1992, he has held the position of vice president and controller of that company.
THE BOARD OF DIRECTORS
Our board of directors currently consists of ten directors. Our bylaws
provide for a classified board of directors consisting of three classes. Each
class must consist, as nearly as possible, of one-third of the number of
directors constituting the entire board. The terms of the current directors
terminate on the date of the annual meeting of stockholders in the following
years:
- Class I, 2000;
- Class II, 2001; and
- Class III, 2002.
At each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting will be elected for a
three-year term and until their respective successors are elected and qualified.
Under our certificate of incorporation, a director may only be removed for cause
by the affirmative vote of the holders of 80% of the outstanding shares of
capital stock entitled to vote in the election of directors.
The board has four committees: Executive, Personnel, Audit/Finance and
Nominating. The Executive Committee consists of Mr. Lumpkin, Mr. Wilkinson, Mr.
Judy and Mr. Moore. The Personnel Committee consists of Mr. Quarforth, Mr.
Berns, Mr. Cole and Mr. Lein. The Audit/Finance Committee consists of Mr.
Wilkinson, Mr. Ross and Mr. Strand. The Nominating Committee consists of Mr.
Judy, Mr. Lumpkin and Mr. Wilkinson.
OUTSIDE DIRECTOR COMPENSATION
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 in the form of common stock options granted
under our 1997 Equity Incentive Plan, with an estimated value of $7,000 based on
the Black-Scholes option pricing model. 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 expenses incurred in attending
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. The options expire ten
years after the date of grant. If a director elects options, he must do so prior
to January 1 of the year in question and the option exercise price is set by the
board of directors at that time. The exercise price set at the end of 1997 for
options earned in 1998 was $8.80 per share. In 1998, 32,511 options were issued
to outside directors. For 1999, all outside directors have elected to receive
options. Assuming all directors attend all remaining scheduled meetings during
1999, a total of 16,576 options will have been issued at an exercise price of
$18.18 per share.
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth information for the year ended December 31,
1998 regarding the compensation received by our chief executive officer and each
of our four other most highly compensated executive officers whose salaries and
bonuses for such year were in excess of $100,000 on an annualized basis (we
refer to these individuals as the named executive officers).
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
1998 -------------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
Roger H. Moore........................ $229,774 $120,000 -- $34,422(1)
President and Chief Executive
Officer
F. Terry Kremian...................... 160,008 42,881 10,000 7,250(2)
Executive Vice President and Chief
Operating Officer
Daniel E. Weiss....................... 126,000 31,828 11,000 17,270(3)
Chief Financial Officer, Secretary
and Treasurer
Bruce E. Johnson...................... 143,004 36,123 8,000 20,308(4)
Vice President-Operations and
Engineering
David J. Nicol........................ 143,004 36,123 11,000 20,308(5)
Vice President-Product Management
and Development
</TABLE>
- ---------------
(1) Represents $7,316 in 401(k) matching contributions and $14,821 in
profit-sharing contributions made to our profit-sharing plan, and $12,285 in
compensation for 401(k) matching contributions and profit sharing
contributions due to Mr. Moore in excess of amounts allowable under the
Internal Revenue Code.
(2) Represents $7,250 in 401(k) matching contributions.
(3) Represents $6,300 in 401(k) matching contributions and $10,970 in
profit-sharing contributions.
(4) Represents $7,150 in 401(k) matching contributions and $13,158 in
profit-sharing contributions.
(5) Represents $7,150 in 401(k) matching contributions and $13,158 in
profit-sharing contributions.
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<PAGE> 53
STOCK OPTIONS AWARDED IN 1998
The following table lists options granted during 1998 to the named
executive officers. All of the options were awarded under the 1997 Equity
Incentive Plan. The dollar amounts under these columns are the result of
calculations at the hypothetical stock price appreciation rates of 5% and 10%
set by the SEC. They therefore are not intended to forecast possible future
appreciation, if any, of our common stock price. Options are exercisable ratably
over four years and expire ten years from the date of grant, but the officer
receiving the options must remain continuously employed by us at the time the
option is exercised. The percentages listed in the table are based on an
aggregate of options to purchase 112,500 shares of our common stock granted to
all of our employees in 1998, including the named executive officers. We
computed potential realizable values by multiplying the number of shares of
common stock subject to a given option by the option exercise price. We assumed
that the aggregate stock value derived from that calculation compounds at an
annual 5% or 10% rate shown in the table for the entire ten-year term of the
option and subtracted from that result the aggregate option exercise price. The
5% and 10% assumed annual rates of stock appreciation are mandated by the rules
of the SEC and do not reflect our estimate or projection of future stock price
growth. Actual gains, if any, on stock option exercises depend upon the actual
future price of common stock and the continued employment of the option holders
throughout the vesting period. Accordingly, the potential realizable values
listed in this table may not be achieved.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS EXERCISE APPRECIATION FOR
SECURITIES GRANTED TO OR BASE OPTION TERM
UNDERLYING EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME OPTIONS 1998 ($/SHARE) DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Moore............. -- --% $ -- -- $ -- $ --
F. Terry Kremian........... 10,000 8.9 16.72 7/1/2008 105,151 266,473
Daniel E. Weiss............ 11,000 9.8 16.72 7/1/2008 115,666 293,121
Bruce E. Johnson........... 8,000 7.1 16.72 7/1/2008 84,121 213,179
David J. Nicol............. 11,000 9.8 16.72 7/1/2008 115,666 293,121
</TABLE>
On August 20, 1999, we awarded the following stock options, all of which
vest over four years and expire on their tenth anniversary:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING EXERCISE PRICE
NAME OPTIONS PER SHARE
---- ---------------- --------------
<S> <C> <C>
Roger H. Moore.............................................. -- $ --
F. Terry Kremian............................................ 22,000 32.00
Daniel E. Weiss............................................. 13,000 32.00
Bruce E. Johnson............................................ 12,000 32.00
David J. Nicol.............................................. 12,000 32.00
</TABLE>
AGGREGATE OPTION EXERCISES DURING 1998 AND OPTION VALUES ON DECEMBER 31, 1998
The following table provides information on option exercises in 1998 by the
named executive officers and the value of those officers' unexercised options as
of December 31, 1998. As our stock is not publicly traded, a readily
ascertainable market value is not available. For purposes of this table,
"exercise" means an employee's acquisition of shares of common stock pursuant to
stock option grants, "exercisable" means options to purchase shares of common
stock that are subject to exercise and "unexercisable" means all other options
to purchase shares of common stock.
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<PAGE> 54
To calculate value of unexercised in-the-money options at fiscal year end,
we used the estimated fair value as of December 31, 1998 minus the per share
exercise price, multiplied by the number of shares issuable upon exercise.
AGGREGATED OPTION EXERCISES IN
1998 AND 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED YEAR-END AT FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Moore................ -- $ -- 156,000 104,000 $1,365,000 $910,000
F. Terry Kremian.............. -- -- 5,000 25,000 46,900 155,300
Daniel E. Weiss............... 100 1,084 4,900 26,000 45,962 156,760
Bruce E. Johnson.............. -- -- 5,000 23,000 46,900 153,380
David J. Nicol................ -- -- 5,000 26,000 46,900 156,760
</TABLE>
BENEFIT PLANS
1997 EQUITY INCENTIVE PLAN
We adopted the 1997 Equity Incentive Plan on October 29, 1997. A committee,
which is appointed by the board of directors, consisting of at least two
nonemployee board members, administers the plan. We have reserved 1,000,000
shares for issuance under the plan. If stock awards granted under the plan
expire, are canceled or lapse 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)
shares subject to such awards again become available for issuance under the
plan. As of June 30, 1999, options to acquire up to 386,030 shares are
outstanding under the plan.
The committee may grant incentive stock options that qualify under Section
422 of the Internal Revenue Code to our employees or employees of our
subsidiary. The committee may grant nonstatutory stock options, stock
appreciation rights, restricted stock, performance units or performance shares
to an employee, consultant or nonemployee board member of Illuminet, Inc. or its
affiliate. In addition, if we acquire property or stock from an unrelated
corporation, the committee may grant options to former employees of such
corporation in substitution for options granted to them by the corporation. Only
nonqualified stock options have been granted under the plan.
The exercise price of nonqualified stock options may be less than the fair
market value of stock at the time of grant. The exercise price of an incentive
stock option must be equal to at least 100% of the fair market value of the
stock on the grant date. The committee may grant a substitute option with an
exercise price equal to less than 100% of the fair market value of the shares on
the grant date. Because our stock has not been publicly traded, the board of
directors has determined the estimated fair market value of the common stock.
The maximum option term is ten years. However, generally an option
terminates three months after the option holder's service terminates. If such
termination is due to the option holder's disability, the exercise period
generally is extended to twelve months beyond the termination.
The committee may provide for exercise periods of any length in individual
option grants. Nonqualified stock options that are granted to employees are
generally exercisable ratably over four years. Nonqualified stock options that
are granted to nonemployee board members are generally exercisable on grant. The
committee, in its sole discretion, may accelerate the exercisability of the
option.
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<PAGE> 55
The aggregate fair market value, determined at the grant date, of incentive
stock option shares that are exercisable for the first time during a calendar
year may not exceed $100,000.
The committee may not grant an incentive stock option to any person who, at
the time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined power of Illuminet, Inc. or any subsidiary of Illuminet,
unless the exercise price is at least 110% of the fair market value of a share
on the grant date.
The committee, subject to certain limitations, will determine the terms and
conditions, including the exercise price, of stock appreciation rights granted
under the plan. During the period in which the restricted stock is subject to
restrictions, the restricted stockholders will generally have full voting rights
with respect to the stock they hold.
Transactions resulting in a change to our corporate structure, such as a
merger, reorganization, consolidation, stock dividend or stock split, may change
the class and number of shares subject to the plan and to outstanding awards. In
that event, the committee administering the plan will appropriately adjust the
plan as to the class and maximum number of shares subject to the plan. The
committee will also adjust the outstanding awards as to the class, number of
shares and price per share subject to such awards.
Upon a change in control of our company, all awards will generally become
immediately exercisable, unless the committee declares that the event does not
constitute a change in control for purposes of qualifying for
pooling-of-interests accounting. If there is a sale of substantially all of the
assets of, or a merger involving, Illuminet, the committee may require the
surviving entity to either assume or replace outstanding awards under the plan.
Otherwise, the awards will fully vest and become immediately exercisable for a
period of fifteen days.
The plan will continue indefinitely unless terminated earlier by the board
of directors. However, incentive stock options may not be granted after October
29, 2007.
PROFIT SHARING/401(K) TRUST RETIREMENT PLAN
We have qualified profit sharing/401(k) trust retirement plans covering all
employees, subject to eligibility requirements. We provide matching
contributions to the plans' trusts on a portion of employee contributions to the
plans and may, at the discretion of the board of directors, provide a
discretionary contribution. For 1996, 1997 and 1998, the contribution expense
was approximately $.8 million, $1.2 million and $1.1 million, respectively.
EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Nicol and Johnson that renew
annually or their anniversary date and may be terminated by either party on 90
days' notice prior to the end of an annual term. We may terminate for cause at
any time. The agreements provide for initial annual base compensation of
$110,000 and $108,000, respectively. The annual base compensation has been
subsequently adjusted by the board of directors to $143,000 for both parties for
the year ended December 31, 1998. The agreements provide for the opportunity to
earn bonuses under established incentive plans. In addition, Mr. Johnson's
agreement also provides for an annual bonus, the amount of which must be
approved by the board of directors. Each agreement provides that, if the
executive officer is terminated by us for other than cause, the executive
officer will be entitled to receive a severance payment in a lump sum amount
equal to 12 months of the executive officer's then base compensation. Mr. Moore
and Mr. Kremian each have severance agreements with us. A letter employment
agreement with Mr. Moore provides that if he is terminated without cause or he
elects to resign as a result of a subsequent change of control, he receives a
lump sum severance payment equal to his then annual base salary. A letter
employment agreement with Mr. Kremian provides for an initial base salary of
$145,000 and for an annual bonus based under an incentive plan. If Mr. Kremian
is terminated without cause within two years from his date of hire (October 8,
1997), he receives a lump sum severance payment equal to six months of his base
salary.
54
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table lists information with respect to the beneficial
ownership of our common stock as of June 30, 1999 and as adjusted to reflect our
stock restructuring and the sale of our common stock in the offering by:
- each person known by us to beneficially own more than five percent of our
outstanding common stock:
- each of our directors:
- the named executive officers: and
- all of our executive officers and directors as a group.
Unless otherwise indicated, the person or persons named have sole voting
and investment power and that person's address is c/o Illuminet, 4501 Intelco
Loop, S.E., Lacey, Washington 98503. In determining the number and percentage of
shares beneficially owned by each person, shares that may be acquired by that
person under options exercisable within 60 days of June 30, 1999 are deemed
beneficially owned by that person and are deemed outstanding for purposes of
determining the total number of outstanding shares for that person and are not
deemed outstanding for that purpose for all other stockholders. The following
table assumes the effect of our stock restructuring. The columns entitled "Fully
Diluted Shares of Common Stock" and "Shares Beneficially Owned After the
Offering" assume all convertible debentures and interest accrued on the
debentures as of June 30, 1999 were converted into shares of common stock
(assuming the accrued interest is deemed principal by the holders of the
debentures) at that date. Only the column entitled "Shares Beneficially Owned
After the Offering" adjusts for the conversion of Class A common stock into
shares of common stock at a for ratio.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY FULLY DILUTED SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OF OWNED AFTER THE
OFFERING COMMON STOCK OFFERING
------------------- ------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------------------------------------ --------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Spectrum Equity Investors........................ 887,303 15.9% 920,889 13.8%
245 Lytton Avenue
Suite 175
Palo Alto, CA 94301
Telephone & Data Systems, Inc.................... 621,556 11.2 621,556 9.3
Suite 4000
30 N. LaSalle St
Chicago, IL 60602
CenturyTel, Inc.................................. 466,491 8.4 466,491 7.0
P.O. Box 4065
100 Century Park Drive
Monroe, CA 71203
Theodore D. Berns(1)............................. 14,772 * 14,772 *
Eugene L. Cole(2)................................ 12,557 * 12,557 *
Aubrey E. Judy(3)................................ 12,013 * 12,013 *
Kenneth L. Lein(4)............................... 13,237 * 15,702 *
Richard A. Lumpkin(5)............................ 129,059 2.3 294,079 4.4
James S. Quarforth(6)............................ 133,029 2.4 190,692 2.8
G. I. Ross(7).................................... 13,896 * 13,896 *
James W. Strand(8)............................... 181,326 3.3 231,746 3.5
Gregory J. Wilkinson(9).......................... 634,281 11.4 634,281 9.5
Roger H. Moore(10)............................... 156,000 2.7 156,000 2.3
Daniel E. Weiss(11).............................. 7,750 * 7,750 *
F. Terry Kremian(10)............................. 7,500 * 7,500 *
David J. Nicol(12)............................... 8,721 * 8,721 *
Bruce E. Johnson(13)............................. 9,976 * 12,182 *
Executive officers and directors as a group (14
persons)....................................... 1,334,117 23.9 1,611,891 24.1
</TABLE>
55
<PAGE> 57
- -------------------------
* Less than 1%
(1) Includes 11,905 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(2) Includes 11,821 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(3) Includes 11,277 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(4) Includes 11,821 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(5) As a director of McLeodUSA, Mr. Lumpkin may be deemed the beneficial owner
of the 68,084 shares of (167,797 shares fully diluted) common stock owned
by Consolidated Communications, a wholly owned subsidiary of McLeodUSA. As
a voting member of SKL Investment Group, LLC, Mr. Lumpkin may be deemed the
beneficial owner of 44,614 shares of (109,921 shares fully diluted) common
stock owned by SKL. The figures in the table for Mr. Lumpkin also include
12,883 shares ( shares after the Class A common stock conversion)
issuable under options exercisable within 60 days after June 30, 1999.
(6) As an executive officer of CFW Communications Company, Inc., Mr. Quarforth
may be deemed the beneficial owner of the 118,640 shares of (175,350 shares
fully diluted) common stock owned by CFW. The figures in the table for Mr.
Quarforth also include 11,694 shares ( shares after the Class A
common stock conversion) issuable under options exercisable within 60 days
after June 30, 1999.
(7) Includes 11,079 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(8) As a director and executive officer of Aliant Communications, Inc., Mr.
Strand may be deemed the beneficial owner of the 167,386 shares of (217,806
shares fully diluted) common stock owned by Aliant. The figures in the
table for Mr. Strand also include 11,372 shares ( shares after the
Class A common stock conversion) issuable under options exercisable within
60 days after June 30, 1999.
(9) As an executive officer of Telephone & Data Systems, Inc., Mr. Wilkinson
may be deemed the beneficial owner of the 621,556 shares of (621,556 shares
fully diluted) common stock beneficially owned by TDS. The figures in the
table for Mr. Wilkinson also include 11,778 shares ( shares after the
Class A common stock conversion) issuable under options exercisable within
60 days after June 30, 1999.
(10) Represents shares issuable under options exercisable within 60 days after
June 30, 1999.
(11) Includes 7,650 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(12) Includes 7,750 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
(13) Includes 7,000 shares ( shares after the Class A common stock
conversion) issuable under options exercisable within 60 days after June
30, 1999.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms and provisions of our capital stock and
indebtedness is not complete. Accordingly, you should also refer to our
certificate of incorporation and the indenture relating to our debentures, which
have been filed as exhibits to the registration statement of which this
prospectus is a part.
STOCK RESTRUCTURING
At the time of this offering, we will restructure our stock. This stock
restructuring will:
- create two classes of common stock;
- rename all of our common stock outstanding immediately prior to this
offering as Class A common stock; and
- convert our Series A preferred stock into shares of Class A common stock.
In addition, Class A common stock will be issued to our optionholders and
debentureholders if they elect to exercise or convert within 180 days after the
date of this prospectus. Therefore, we may have as many as shares of
Class A common stock outstanding 180 days after the offering. 181 days after the
date of this prospectus, each share of Class A common stock will automatically
convert into shares of common stock. Except for this conversion
feature, all of the rights of holders of Class A common stock and holders of
common stock will be identical and the two classes of stock will be treated as
one group for all voting, dividend and other matters.
As a result of this restructuring, all of the shares to be issued in this
offering will be newly issued shares of common stock. Prior to the offering
there will be no shares of common stock outstanding. Until , 2000, the
common stock sold in this offering will be the only shares of our stock that
will trade through the Nasdaq National Market.
GENERAL
Immediately following the closing of this offering, our authorized capital
stock will consist of shares of common stock, $.01 par value per
share, shares of Class A common stock, $.01 par value per share, and
shares of preferred stock, $.01 par value per share, with
shares designated as Series A preferred stock and shares designated as
Series B preferred stock. Upon completion of this offering, we will have
outstanding shares of common stock, outstanding shares of
Class A common stock and no outstanding shares of Series A preferred stock or
Series B preference stock.
COMMON STOCK
Other than the conversion feature of the Class A common stock, the terms of
both classes of our common stock are identical. Subject to preferences that may
apply to shares of preferred stock outstanding at the time, the holders of
outstanding common stock are entitled to receive dividends out of assets legally
available at the time and in amounts that the board of directors may from time
to time determine. Each stockholder is entitled to one vote for each share of
common stock held by it submitted to a vote of stockholders. Our certificate of
incorporation does not allow cumulative voting for the election of directors,
which means that the holders of a majority of the shares voted can elect all the
directors then standing for election. Holders of at least a majority of the
shares entitled to vote can determine the outcome of questions presented to
stockholders. However, approval of any of the following
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<PAGE> 59
events requires the vote of the holders of at least two-thirds of the shares
entitled to vote on these matters:
- our merger, consolidation or share exchange with another corporation;
- a transfer of all or substantially all of our assets outside of the
ordinary course of business;
- our voluntary dissolution; or
- an amendment, alteration, change or repeal of any provision of our
certificate of incorporation.
The common stock is not entitled to preemptive rights and, other than the
conversion feature of the Class A common stock described above, is not subject
to conversion or redemption. If the liquidation, dissolution or winding-up of
Illuminet were to occur, the holders of shares of common stock will be entitled
to share ratably in the distribution of all of our assets remaining available
for distribution after satisfaction of all of our liabilities and the payment of
the liquidation preference of any outstanding preferred stock. Each outstanding
share of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and non-assessable.
SERIES A PREFERRED STOCK
Each share of Series A preferred stock is entitled to 100 votes, votes
together with the common stock unless otherwise required by law and is
convertible into 85.12 shares of common stock of Illuminet, at the option of the
holder at any time that the holder elects to convert the debenture issued with
it as a unit. Each share of Series A preferred stock is convertible, at our
option, into 85.12 shares of our common stock, at any time that the debenture
issued as a unit with it is converted into shares of common stock. All Series A
shares will automatically convert into 204,941 shares of Class A common stock
upon completion of the offering. The holders of Series A preferred stock may
receive dividends only upon a resolution of the board of directors. The board of
directors may not pay dividends to the holders of the Series A preferred stock
unless dividends are paid simultaneously to the holders of the common stock. If
the liquidation, dissolution or winding-up of Illuminet were to occur, the
holders of Series A preferred stock would be entitled to receive $1,000 per
share out of the assets of Illuminet available for distribution to the
stockholders and before any payment or distribution is made to the holders of
common stock or Series B preference stock.
DEBENTURES
We issued debentures that bear interest at 7.5% and are due on August 15,
2001 under an indenture dated August 15, 1991. Interest on the debentures is
payable in quarterly installments. 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. Each debenture is convertible
into 90 shares of common stock. The debentures are subordinated to all senior
debt. Prior to completion of the offering, we will notify holders of debentures
of the pending offering.
SERIES B PREFERENCE STOCK
Although no shares are currently outstanding, our Series B participating
cumulative preference stock is entitled to one vote per each one one-thousandth
(1/1000) share and votes together as a class with common stock on matters that
holders of common stock are generally entitled to vote except where otherwise
required by law. These shares were authorized in connection with the
establishment of our shareholders rights plan. The Series B preference stock
ranks superior to common stock upon the liquidation of Illuminet and each one
one-thousandth of a share of Series B preference stock is entitled to
58
<PAGE> 60
receive an amount equivalent to the amount to be distributed per whole share of
common stock in the event of a liquidation, dissolution or winding up of
Illuminet. The shares of Series B preference stock are entitled to cumulative
quarterly dividends at $.01 per quarter and have the right to elect a director
to the board of directors if we fail to pay dividends for six consecutive
quarters.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. Section 203 prevents a Delaware
corporation, including those that are listed on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder. An interested
stockholder is a stockholder who owns 15% or more of the corporation's
outstanding voting stock, as well as affiliates and associates of that person.
This is the case unless:
- the transaction that resulted in the stockholder's becoming an interested
stockholder was approved by the board of directors prior to the date the
interested stockholder attained that status;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction began, excluding those shares owned by (1) persons who
are directors and also officers and (2) employee stock compensation plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
- on or after the date the interested stockholder attained that status, the
business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote
of at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express
stockholders' amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the provisions of the Section 203.
This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to Illuminet and, accordingly, may
discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws include a number of provisions
that may have the effect of deterring or impeding hostile takeovers or
changes-in-control or management. These provisions include:
- our board of directors is classified into three classes of directors
nearly equal in size with staggered three year terms;
- the board of directors has the authority to issue one or more series of
preferred stock; and
- stockholders do not have cumulative voting rights.
These provisions may have the effect of delaying or preventing a
change-in-control. Our certificate of incorporation and bylaws provide that we
will indemnify officers and directors against losses that they
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<PAGE> 61
may incur in investigations and legal proceedings resulting from their services
to us, which may include services related to takeover defense measures. Such
provisions may have the effect of preventing changes in the management of
Illuminet.
SHAREHOLDER RIGHTS PLAN
We have a shareholder rights plan that would significantly discourage,
delay or prevent a merger or acquisition. The rights become exercisable if a
person or group acquires or makes a tender offer for more than 20% of our
outstanding common stock. Upon the occurrence of such an event, each right
entitles the holder (other than the acquiror) to purchase for $150 our common
stock or, in some instances, stock of the acquiring entity, that would be worth
$300. The rights expire on November 20, 2008, unless we redeem them earlier.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
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<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market after
this offering, or the possibility of those sales occurring, could adversely
affect the prevailing market price and our ability to raise capital in the
future.
Upon the completion of this offering, Illuminet will have outstanding
shares of common stock and shares of Class A common
stock. Of these shares, the shares of common stock sold in this
offering will be freely tradeable without restriction. The shares of
Class A common stock were issued and sold in private transactions and are
eligible for public sale only registered under the Securities Act of 1933 or
sold in accordance with Rule 144 under the Securities Act.
Illuminet, certain existing stockholders and all of our executive officers
and directors have entered into lock-up agreements, representing an aggregate of
shares of Class A common stock. The lock-up agreements require
that the locked-up person not dispose of any shares owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of Morgan Stanley on behalf of the underwriters. After the expiration of the
lock-up agreements, those people or entities will be entitled to dispose of the
common stock that they hold subject to the provisions of applicable securities
laws.
The remaining shares of our Class A common stock will not be
tradeable in the public market until 180 days after the date of this prospectus
when they automatically convert into shares of common stock.
In general, under Rule 144, a person who has beneficially owned shares for
at least one year is entitled to sell in broker transactions or to market
makers, within any three-month period, a limited number of shares. This number
may not exceed the greater of:
- one percent (1%) of the then-outstanding shares of common stock,
approximately shares immediately after the offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date of filing of the Form 144 required for
the sale of those shares.
Under Rule 144, however, a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has held the
shares proposed to be sold for a minimum of two years is free to sell those
shares without having to comply with the volume, manner-of-sale, volume
limitation or notice provisions under Rule 144. All existing stockholders have
satisfied the two-year holding period and, therefore, only our affiliates will
be subject to the volume restrictions. Persons deemed affiliates will hold
approximately shares after the offering.
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit the
shares reserved for issuance under our stock option plan to be
sold in the public market.
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<PAGE> 63
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives, have severally agreed to purchase, and we have agreed to sell
to them, severally, the number of shares of common stock indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc...........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
-------
Total.............................................
=======
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of our common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for all
of the shares of common stock offered by this prospectus if any such shares are
taken. However, the underwriters are not required to take or pay for the shares
covered by the underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to securities dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriter may allow, and dealers may re-allow, a
concession not in excess of $ a share to other underwriters or to
securities dealers. After the initial offering of the shares of common stock,
the offering price and other selling terms may from time to time be varied by
the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price
listed on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered by this prospectus. To the extent this option is
exercised, each underwriter will become obligated, subject to specified
conditions, to purchase approximately the same percentage of additional shares
of common stock as the number set forth next to the underwriter's name in the
preceding table bears to the total number of shares of common stock listed next
to the names of all underwriters in the preceding table. If the underwriters
exercise their option in full, the total price to the public would be
$ , the total underwriters' discounts and commissions would be
$ and total proceeds to us would be $ .
The underwriters have informed us that they do not intend to make sales to
discretionary accounts that exceed five percent of the total number of shares of
common stock offered by them.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of common stock for our directors,
officers, employees and business associates. The number of shares available for
sale to the general public will be reduced to the extent these individuals
purchase the reserved shares. Any reserved shares that are not purchased in the
directed share program will be offered by the underwriters to the general public
on the same basis as the other shares offered in this prospectus.
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<PAGE> 64
Each of Illuminet, its directors and executive officers and certain other
of its stockholders have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant, purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by us of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
of this prospectus of which the underwriters have been advised in
writing;
- the granting of stock options and/or restricted stock units pursuant to
our existing employee benefit plans, provided that such options do not
become exercisable and such units do not vest during such 180-day period;
and
- transactions by any person other than Illuminet relating to shares of
common stock or other securities acquired in open market or other
transactions after the completion of the offering of the shares.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. The underwriters have reserved the
right to reclaim selling concessions in order to encourage underwriters and
dealers to distribute the common stock for investment, rather than for
short-term profit taking. Increasing the proportion of the offering held for
investment may reduce the supply of common stock available for short-term
trading. Any of these activities may stabilize or maintain the market price of
the common stock above independent market levels. The underwriters are not
required to engage in these activities, and may end any of these activities, and
may end any of these activities at any time.
Illuminet and the underwriters have agreed to indemnify each other against
a variety of liabilities, including liabilities under the Securities Act.
We have agreed to pay our printing, legal, accounting and other expenses
relating to the offering, which we estimate to be $ .
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<PAGE> 65
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Illuminet and the representatives. Among the factors to be considered in
determining the initial public offering price will be our record of operations,
our current financial position and future prospects, sales, earnings and certain
of our other financial and operating information in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to ours. The estimated initial public offering price range listed on the
cover page of this prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock will be passed
upon for us by Blackwell Sanders Peper Martin LLP, Kansas City, Missouri.
Certain legal matters relating to this offering will be passed upon for the
underwriters by Shearman & Sterling, New York, New York. A partner at Blackwell
Sanders owns four shares of Series A preferred stock and $12,000 of debentures,
all of which will be converted into 1,610 shares of common stock prior to the
offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998, as set forth in their
reports. We have included our financial statements and schedule in the
prospectus and elsewhere in the registration statement in reliance on their
reports, given on their authority as experts in accounting and auditing.
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<PAGE> 66
GLOSSARY
Competitive local exchange carrier. A company that provides local exchange
services, including services from telecommunications lines dedicated to, or
reserved for use by, a particular customer along predetermined routes (in
contrast to links that are temporarily established), in competition with the
incumbent local exchange carrier.
Incumbent local exchange carrier. A company historically providing local
telephone service. Often refers to one of the regional Bell operating companies
or GTE.
Internet. The name used to describe the global open network of computers
that permits a person to exchange information with any other computer connected
to the network.
Internet protocol. The method (or protocol) used to route information sent
from one computer to another on the Internet or other data networks, such as
corporate intranets or industry extranets.
Internet service provider. An organization that provides access to the
Internet.
Interexchange carrier. A long distance carrier.
IS-41. The signaling protocol used in wireless telecommunications that
allows carriers to provide roaming support.
Local access and transport area. The geographical areas within which a
local telephone company may offer telecommunications services.
Local number portability. The ability for subscribers to keep the same
telephone number when changing carriers, specifically when changing from the
incumbent local exchange carrier to a competitive local exchange carrier, as
mandated by the FCC.
Packet-switched network. A communications network in which packets
(messages or fragments of messages) are individually routed between hosts with
no previously established communication path. Packets are routed to their
destination through the most expedient route. Not all packets travelling between
the same two hosts, even those from a single message, will follow the same
route. The destination computer reassembles the packets into their appropriate
sequence. Packet switching is used to optimize the use of the bandwidth
available in a network and to minimize latency.
Public-switched telecommunications network. The switched network available
to all users generally on a shared basis (i.e., not dedicated to a particular
user). The local exchange telephone service networks operated by incumbent local
exchange carriers are the largest and often the only public-switched networks in
a given locality.
Signaling System 7 (SS7). A network signaling system that improves network
efficiency and allows for the provision of advanced services. Signaling System 7
is a means by which elements of the telephone network exchange information.
Switch. A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users.
Trunk. A communication line connecting two switching systems, such as a
line connecting two central offices. Often used to refer to the communication
line(s) with the most bandwidth or capacity on the network, the main line.
65
<PAGE> 67
ILLUMINET HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999......................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999.............................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998 and for the
six months ended June 30, 1999............................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 68
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Illuminet Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Illuminet
Holdings, Inc. ("Illuminet") as of December 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
February 12, 1999
F-2
<PAGE> 69
ILLUMINET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1997 1998 1999
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $11,167 $11,967 $11,347
Accounts receivable, less allowance for doubtful accounts
of $1,747 ($1,282 in 1997 and $1,133 in 1998).......... 23,818 27,155 30,830
Deferred income taxes..................................... 3,645 2,101 868
Prepaid expenses and other................................ 377 784 879
------- ------- -------
Total current assets.............................. 39,007 42,007 43,924
Property and equipment, net................................. 34,715 43,747 44,549
Computer software product costs, less accumulated
amortization of $2,065 ($1,223 in 1997 and $1,784 in
1998)..................................................... 1,636 1,075 794
Other assets................................................ 2,668 2,621 2,561
------- ------- -------
Total assets...................................... $78,026 $89,450 $91,828
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 4,554 $ 3,923 $ 2,645
Accrued expenses.......................................... 3,248 3,378 2,403
Due to customers.......................................... 16,931 16,622 16,599
Current portion of obligations under capital leases....... -- 1,706 2,370
Current portion of long-term debt......................... 2,278 3,458 2,816
------- ------- -------
Total current liabilities......................... 27,011 29,087 26,833
------- ------- -------
Deferred income taxes....................................... 2,775 3,429 3,429
Obligations under capital leases, less current portion...... -- 5,146 6,170
Long-term debt, less current portion........................ 18,014 15,596 14,564
Stockholders' equity:
Preferred Stock, par value $.01 per share, authorized
100,000 shares, 4,416 shares designated as Series A and
7,000 shares designated as Series B.................... -- -- --
Series A Convertible Preferred Stock, par value $.01
per share, issued and outstanding 2,408 (2,451 in
1997 and 2,408 in 1998), aggregate liquidation
preference $2,408.................................... -- -- --
Series B Participating Cumulative Preference Stock, par
value $.01 per share, none issued or outstanding..... -- -- --
Common Stock, par value $.01 per share, authorized
25,000,000 shares, issued and outstanding 5,366,730
(5,347,081 in 1997 and 5,365,605 in 1998).............. 53 54 54
Additional paid-in capital................................ 11,986 12,712 12,857
Deferred stock-based compensation......................... (340) (394) (359)
Retained earnings......................................... 18,527 23,820 28,280
------- ------- -------
Total stockholders' equity........................ 30,226 36,192 40,832
------- ------- -------
Total liabilities and stockholders' equity........ $78,026 $89,450 $91,828
======= ======= =======
</TABLE>
F-3
<PAGE> 70
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Network services.......... $ 29,434 $ 44,117 $ 60,274 $ 26,600 $ 41,562
Clearinghouse services.... 7,896 6,723 6,232 3,463 3,052
Network usage software
applications........... 558 3,468 5,406 1,523 502
---------- ---------- ---------- ---------- ----------
Total revenues.... 37,888 54,308 71,912 31,586 45,116
Expenses:
Carrier costs............. 9,358 15,313 22,983 10,752 13,598
Operating................. 11,139 14,979 19,768 8,547 12,487
Selling, general and
administrative......... 7,774 8,873 10,287 4,540 6,128
Depreciation and
amortization........... 5,714 7,354 9,372 3,783 5,317
---------- ---------- ---------- ---------- ----------
Total expenses.... 33,985 46,519 62,410 27,622 37,530
---------- ---------- ---------- ---------- ----------
Operating income............ 3,903 7,789 9,502 3,964 7,586
Interest expense, net....... 838 808 746 225 392
---------- ---------- ---------- ---------- ----------
Income before income
taxes..................... 3,065 6,981 8,756 3,739 7,194
Income tax provision
(benefit)................. 112 (676) 3,463 1,388 2,734
---------- ---------- ---------- ---------- ----------
Net income.................. $ 2,953 $ 7,657 $ 5,293 $ 2,351 $ 4,460
========== ========== ========== ========== ==========
Earnings per share-basic.... $ 0.59 $ 1.45 $ 0.99 $ 0.44 $ 0.83
========== ========== ========== ========== ==========
Earnings per
share-diluted............. $ 0.57 $ 1.27 $ 0.88 $ 0.39 $ 0.71
========== ========== ========== ========== ==========
Weighted-average common
shares-basic.............. 4,995,092 5,295,509 5,356,385 5,347,081 5,366,363
========== ========== ========== ========== ==========
Weighted-average common
shares-diluted............ 5,972,284 6,396,665 6,497,360 6,497,006 6,531,223
========== ========== ========== ========== ==========
</TABLE>
F-4
<PAGE> 71
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
CLASS A CLASS B COMMON SERIES A PREFERRED ADDITIONAL
--------------- ------------------- ------------------ ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ---------- ------ --------- ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 466 $ 23 1,208,696 $ 24 -- $-- -- $-- $ 4,136
Merger dissenting shares
repurchased....................... (6) -- (17,917) -- -- -- -- -- --
---- ---- ---------- ---- --------- --- ----- --- -------
Total before merger on February 23,
1996.............................. 460 23 1,190,779 24 -- -- -- -- 4,136
Conversion to Illuminet Holdings,
Inc. Common Stock................. (460) (23) (1,190,779) (24) 3,673,871 37 -- -- 10
Purchase of Independent
Telecommunications Network, Inc... -- -- -- -- 1,566,988 16 2,675 -- 6,354
Common Stock issued under former
stock incentive plan.............. -- -- -- -- 7,539 -- -- -- 82
Conversion of Series A Preferred
Stock............................. -- -- -- -- 3,235 -- (38) -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- -- -- 10,721 -- -- -- 119
Net income......................... -- -- -- -- -- -- -- -- --
---- ---- ---------- ---- --------- --- ----- --- -------
Balance at December 31, 1996....... -- -- -- -- 5,262,354 53 2,637 -- 10,701
Conversion of Series A Preferred
Stock............................. -- -- -- -- 15,832 -- (186) -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- -- -- 66,194 -- -- -- 735
Common Stock issued under former
stock incentive plan.............. -- -- -- -- 14,240 -- -- -- 41
Common Stock repurchases........... -- -- -- -- (11,539) -- -- -- --
Deferred stock-based
compensation...................... -- -- -- -- -- -- -- -- 509
Stock-based compensation expense... -- -- -- -- -- -- -- -- --
Net income......................... -- -- -- -- -- -- -- -- --
---- ---- ---------- ---- --------- --- ----- --- -------
Balance at December 31, 1997....... -- -- -- -- 5,347,081 53 2,451 -- 11,986
Conversion of Series A Preferred
Stock............................. -- -- -- -- 3,660 -- (43) -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- -- -- 14,764 1 -- -- 164
Deferred stock-based
compensation...................... -- -- -- -- -- -- -- -- 561
Stock-based compensation expense... -- -- -- -- -- -- -- -- --
Stock options exercised............ -- -- -- -- 100 -- -- -- 1
Net income......................... -- -- -- -- -- -- -- -- --
---- ---- ---------- ---- --------- --- ----- --- -------
Balance at December 31, 1998....... -- -- -- -- 5,365,605 54 2,408 -- 12,712
Deferred stock-based compensation
(unaudited)....................... -- -- -- -- -- -- -- -- 135
Stock-based compensation expense
(unaudited)....................... -- -- -- -- -- -- -- -- --
Stock options exercised
(unaudited)....................... -- -- -- -- 1,125 -- -- -- 10
Net income (unaudited)............. -- -- -- -- -- -- -- -- --
---- ---- ---------- ---- --------- --- ----- --- -------
Balance at June 30, 1999
(unaudited)....................... -- $ -- -- $ -- 5,366,730 $54 2,408 $-- $12,857
==== ==== ========== ==== ========= === ===== === =======
<CAPTION>
DEFERRED TOTAL
STOCK-BASED RETAINED STOCKHOLDERS'
COMPENSATION EARNINGS EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996......... $ -- $ 8,236 $12,419
Merger dissenting shares
repurchased....................... -- (183) (183)
----- ------- -------
Total before merger on February 23,
1996.............................. -- 8,053 12,236
Conversion to Illuminet Holdings,
Inc. Common Stock................. -- -- --
Purchase of Independent
Telecommunications Network, Inc... -- -- 6,370
Common Stock issued under former
stock incentive plan.............. -- -- 82
Conversion of Series A Preferred
Stock............................. -- -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- 119
Net income......................... -- 2,953 2,953
----- ------- -------
Balance at December 31, 1996....... -- 11,006 21,760
Conversion of Series A Preferred
Stock............................. -- -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- 735
Common Stock issued under former
stock incentive plan.............. -- -- 41
Common Stock repurchases........... -- (136) (136)
Deferred stock-based
compensation...................... (509) -- --
Stock-based compensation expense... 169 -- 169
Net income......................... -- 7,657 7,657
----- ------- -------
Balance at December 31, 1997....... (340) 18,527 30,226
Conversion of Series A Preferred
Stock............................. -- -- --
Conversion of convertible
redeemable subordinated
debentures........................ -- -- 165
Deferred stock-based
compensation...................... (561) -- --
Stock-based compensation expense... 507 -- 507
Stock options exercised............ -- -- 1
Net income......................... -- 5,293 5,293
----- ------- -------
Balance at December 31, 1998....... (394) 23,820 36,192
Deferred stock-based compensation
(unaudited)....................... (135) -- --
Stock-based compensation expense
(unaudited)....................... 170 -- 170
Stock options exercised
(unaudited)....................... -- -- 10
Net income (unaudited)............. -- 4,460 4,460
----- ------- -------
Balance at June 30, 1999
(unaudited)....................... $(359) $28,280 $40,832
===== ======= =======
</TABLE>
F-5
<PAGE> 72
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -----------------
1996 1997 1998 1998 1999
------- ------------ -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income................................. $ 2,953 $ 7,657 $ 5,293 $ 2,351 $ 4,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 5,714 7,354 9,372 3,783 5,317
Stock-based compensation expense........... -- 169 507 254 170
Deferred income taxes...................... -- (870) 2,198 1,388 1,233
Change in:
Accounts receivable..................... (1,959) (2,238) (3,337) (3,065) (3,675)
Trade accounts payable.................. 1,631 207 (631) (491) (1,278)
Accrued expenses........................ (1,094) 1,005 130 (1,528) (975)
Due to customers........................ 3,851 (2,306) (309) 1,542 (23)
Other................................... 268 (234) (42) (215) (112)
------- -------- -------- ------- -------
Net cash provided by operating
activities.............................. 11,364 10,744 13,181 4,019 5,117
------- -------- -------- ------- -------
Investing activities:
Net cash payments in connection with
acquisition of Independent
Telecommunications Network, Inc......... (126) -- -- -- --
Capital purchases.......................... (6,727) (10,121) (10,380) (3,677) (3,300)
------- -------- -------- ------- -------
Net cash used in investing activities... (6,853) (10,121) (10,380) (3,677) (3,300)
------- -------- -------- ------- -------
Financing activities:
Purchase of subordinated capital
certificates related to notes payable... (134) -- (68) -- --
Proceeds from issuance of notes payable.... 2,681 -- 1,368 -- --
Proceeds from issuance of Common Stock..... -- -- 1 -- 10
Principal payments on notes payable and
capital leases.......................... (1,352) (1,835) (3,302) (964) (2,447)
Merger dissenting shares repurchased....... (183) -- -- -- --
Common stock repurchases................... -- (136) -- -- --
------- -------- -------- ------- -------
Net cash (used in) provided by financing
activities............................ 1,012 (1,971) (2,001) (964) (2,437)
------- -------- -------- ------- -------
Net (decrease) increase in cash and cash
equivalents................................ 5,523 (1,348) 800 (622) (620)
Cash and cash equivalents at:
Beginning of period........................ 6,992 12,515 11,167 11,167 11,967
------- -------- -------- ------- -------
End of period.............................. $12,515 $ 11,167 $ 11,967 $10,545 $11,347
======= ======== ======== ======= =======
Supplemental cash flow disclosure:
Income taxes (paid) refunded............... 174 (226) (342) (173) (2,435)
Interest paid, net......................... 993 1,219 995 377 569
Capital acquisitions financed through
capital leases.......................... -- -- 7,490 1,902 2,530
</TABLE>
F-6
<PAGE> 73
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Illuminet Holdings, Inc. and its wholly-owned subsidiary Illuminet, Inc.
(collectively referred to as "Illuminet") are 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 calling card validation, advanced intelligent network
services, local number portability, wireless services, toll-free number database
access, and caller identification. Additionally, Illuminet provides advanced
data base services, billing-and-collection services, calling card services, and
network usage software applications to a range of telephone companies as well as
interexchange carriers, operator service providers and other telecommunications
companies and providers of telecommunications services.
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.
Illuminet Holdings, Inc. (formerly USTN Holdings, Inc. through May 1997)
and Illuminet, Inc. (formerly USTN Services, Inc. through May 1997) were
incorporated in the State of Delaware on August 2, 1995.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Illuminet Holdings, Inc. and its subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
Illuminet was formed through a 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.
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of Illuminet presented in
this Form S-1 are unaudited and reflect, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of Illuminet's financial position, results of its operations
and its cash flows for each period presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The results of the interim periods are not necessarily indicative of future
results.
F-7
<PAGE> 74
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
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 and commercial paper that are stated at cost,
which approximates fair value. At December 31, 1997 and 1998, and June 30, 1999,
such investments included $11.2 million, $10.0 million and $11.4 million,
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. At December 31, 1998, commercial paper
investments totaled $2.0 million. There were no commercial paper investments at
December 31, 1997 and June 30, 1999.
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 1998, accounts receivable included
$10.6 million and $11.5 million, respectively, of such toll amounts due from
telephone companies, and due to customers included $14.1 million and $12.4
million, 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 and 1998 is $0.6
million and $0.2 million, respectively, due for services and reimbursable
expenses from a customer in which Illuminet has a preferred stock equity
investment currently representing 13% of the voting rights of the customer.
Revenues earned from the customer were $0.5 million and $0.8 million for the
years ended December 31, 1997 and 1998, 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
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives for property and equipment are as follows:
<TABLE>
<S> <C>
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
</TABLE>
Property and equipment and liabilities under capital leases are recorded at
the lower of the present value of the minimum lease payments or the fair value
of the asset. Interest rates on capitalized leases are imputed based on the
lower of Illuminet's incremental borrowing rate at the inception of each lease
or the lessor's implicit rate of return. Depreciation on the leased assets are
included in depreciation expense, and are provided using the straight-line
method over the estimated useful lives of the assets.
F-8
<PAGE> 75
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
CAPITALIZED SOFTWARE
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 $0.6 million for each of the years ended December
31, 1996, 1997 and 1998, 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. Amortization starts when the product is available
for general release to customers.
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 that 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, and are recorded net of
amounts passed through to service providers. Revenues on sales of software are
recognized when an arrangement exists, the price is fixed and collectible, and
the software has been delivered.
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 Holdings, Inc. Common Stock ("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
The computation of earnings per share-basic is based on net income and the
weighted average number of common shares outstanding. The computation of
earnings per share-diluted includes the dilutive effect of outstanding preferred
stock, convertible debentures, and common stock options calculated using the
treasury stock method.
F-9
<PAGE> 76
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
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, 1997 and 1998 financial statements
have been made to conform to the 1999 presentation.
SEGMENT INFORMATION
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information"
("Statement 131"), effective for financial statements for fiscal years beginning
after December 15, 1997. Statement 131 establishes standards for the reporting
by public business enterprises of financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to shareholders. 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 because
expenses support multiple products and services. Revenues are reported
separately for network services, clearinghouse services and network usage
software applications. No segment information is provided to the chief operating
decision maker for expenses, operating income, total assets, depreciation, or
capital purchases.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". The SOP, which was adopted in 1999, requires
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. The provisions of the SOP are consistent with
Illuminet's current and past accounting policy and practice.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5, which was adopted in 1999, requires that all
start-up costs related to new operations must be expensed as incurred. Adoption
of SOP 98-5 did not have a material impact on our financial position or results
of operations.
F-10
<PAGE> 77
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Land................................................... $ 912 $ 912 $ 912
Building and leasehold improvements.................... 6,932 7,156 7,202
Equipment and furniture................................ 2,885 3,435 3,676
Network assets......................................... 38,746 51,799 55,579
Computer hardware and software......................... 18,190 21,231 22,994
-------- -------- --------
67,665 84,533 90,363
Less: Accumulated depreciation......................... (32,950) (40,786) (45,814)
-------- -------- --------
Property and equipment, net.......................... $ 34,715 $ 43,747 $ 44,549
======== ======== ========
</TABLE>
NOTE 3. LEASES
In 1998, Illuminet entered into various capital lease obligations expiring
in 2002 for network assets. The lease agreements allow Illuminet to purchase,
for a nominal value, the assets at the end of the lease term. Property and
equipment held under capital leases follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Network assets..................................... $7,490 $10,020
Less: Accumulated depreciation..................... (645) (1,463)
------ -------
Total property and equipment held under capital
leases........................................ $6,845 $ 8,557
====== =======
</TABLE>
Illuminet has entered into non-cancelable operating leases for its various
facilities, other than its Lacey headquarters site. The most significant lease
covers its Overland Park facility. Illuminet entered into a five-year lease,
beginning August 1998 for a new Overland Park facility that was constructed to
suit Illuminet's specifications. Effective January 1, 1999, the lease was
amended to a seven-year term with an option at five years to extend the term for
an additional five years. Prior to August 1998, Illuminet was located in a
different Overland Park facility under a lease that expired in August 1998.
During 1996, 1997 and 1998, rent expense was $0.3 million, $0.4 million and $0.5
million, respectively. For the six months ended June 30, 1998 and 1999, rent
expense was $0.2 million and $0.3 million, respectively.
F-11
<PAGE> 78
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments for the years ending
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1999...................................................... $ 2,199 $ 512
2000...................................................... 2,199 512
2001...................................................... 2,199 472
2002...................................................... 1,330 411
2003...................................................... -- 397
Thereafter................................................ -- 795
------- ------
Total minimum lease payments...................... 7,927 $3,099
======
Less: Amount representing interest (at 8.12%)............. (1,075)
-------
Present value of net minimum lease payments............... 6,852
Less: Current installments of obligations under capital
leases................................................. (1,706)
-------
Obligations under capital leases, less current portion.... $ 5,146
=======
</TABLE>
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Various secured notes payable to Rural Telephone
Finance Cooperative ("RTFC") with variable interest
rates, 6.10% at June 30, 1999 (6.65% at December 31,
1997 and 6.15% at December 31, 1998) payable in
quarterly installments, including interest, each
maturing at various dates ranging from August 2000,
to March 2015....................................... $11,459 $10,591 $ 9,031
Convertible redeemable subordinated debentures
("Debentures") bearing interest at 7.5%, maturing
August 2001, net of original issue discount of $0.1
million ($0.2 million at December 31, 1997 and $0.1
million at December 31, 1998)....................... 7,561 7,474 7,498
Debentures, deferred interest payable................. 1,272 989 851
------- ------- -------
20,292 19,054 17,380
Less: Current portion................................. (2,278) (3,458) (2,816)
------- ------- -------
Total long-term debt.................................. $18,014 $15,596 $14,564
======= ======= =======
</TABLE>
Additional borrowings available under the various note agreements with RTFC
aggregated $3.8 million at December 31, 1998 and June 30, 1999. 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 amortization, totaled $1.1 million at
F-12
<PAGE> 79
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
both December 31, 1997 and 1998, are carried at cost, and are included in
prepaid expenses and 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 in the case
of the dissolution of Illuminet 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 $3.3 million at December 31, 1998 and $2.2 million
at June 30, 1999.
Illuminet entered into a secured line of credit agreement with RTFC that
permits Illuminet to borrow up to $7.3 million, not to exceed 80% of eligible
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 borrowing rate
(6.70% at December 31, 1998), and contains certain covenants, the most
restrictive of which requires Illuminet to maintain a zero balance in the line
of credit for 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, 1998 and June 30, 1999.
The Debentures 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.
Each Debentures is convertible into the number of shares of Common Stock equal
to the principal amount of the Debenture at the time of conversion divided by
the market price of Common Stock at the time of conversion (as defined in the
indenture), or if no market price exists, at $11.11 per share. Debentures are
subordinated to all senior debt. Debentures were issued as part of a unit that
consisted of one Debenture and one share of Illuminet Series A Preferred Stock
("Series A Stock").
The terms of the secured loan facilities restrict the ability to declare
and pay dividends without the consent of RTFC, unless Illuminet meets minimum
net worth and cash margin tests. In addition, the terms of the Debentures
prohibit declaring dividends that exceed a formula based on net income and
proceeds received from any securities offerings.
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 (in thousands):
<TABLE>
<S> <C>
1999................................................... $ 3,458
2000................................................... 1,755
2001................................................... 8,489
2002................................................... 372
2003................................................... 408
2004 - 2008............................................ 2,718
2009 - 2013............................................ 1,631
2014 - 2015............................................ 223
-------
$19,054
=======
</TABLE>
NOTE 5. STOCKHOLDERS' EQUITY
At December 31, 1998 and June 30, 1999, Illuminet Holdings, Inc. is
authorized to issue up to 25,100,000 shares of capital stock consisting of (i)
25,000,000 shares of Common Stock, par value $.01
F-13
<PAGE> 80
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
per share, and (ii) 100,000 shares of Illuminet Holdings, Inc. Preferred Stock,
par value $.01 per share. Each share of Common Stock is entitled to one vote.
SERIES A PREFERRED STOCK
Each share of Series A Stock is entitled to 100 votes, and is convertible
into 85.12 shares of Common Stock ("Conversion Amount"), at the option of the
holder thereof at any time that the holder elects to convert a Debenture issued
as a unit with such share. Each share of Series A Stock will be convertible, at
the option of Illuminet Holdings, Inc., into Common Stock based on the
Conversion Amount, at such time that the Debenture issued as a unit with such
share is converted into shares of Common Stock. If the Debentures and accrued
interest thereon, and Series A Stock had been converted at December 31, 1998,
990,740 shares of Common Stock would have been issued. In the event of the
liquidation, dissolution or winding up of Illuminet, Series A Stock will be
entitled to a liquidation preference of $1,000 per share out of the assets of
Illuminet available for distribution to its stockholders, but before any payment
or distribution is made to holders of Common Stock or any other series of
preferred stock of Illuminet Holdings, Inc.
SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK
Series B Participating Cumulative Preference Stock ("Series B Stock") is
entitled to one vote per each one one-thousandth ("1/1,000th") share, and votes
together as a class with Common Stock on matters on which holders of Common
Stock are generally entitled to vote. Although the Series B Stock ranks superior
to Common Stock, upon liquidation, dissolution or winding up of Illuminet,
whether voluntary or involuntary, other than requiring payment of accrued and
unpaid dividends before the payout to holders of Common Stock, the only
liquidation right of the Series B Stock is that each 1/1000th of a share of
Series B Stock is entitled to receive an amount equivalent to the amount to be
distributed per whole share of Common Stock. No such shares were outstanding at
December 31, 1998.
DIVIDENDS
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 Debentures.
Dividends are not payable to Series A Stock unless dividends are declared, set
aside or paid simultaneously to holders of Common Stock. Dividends on Series B
Stock are payable as follows: (1) should Illuminet declare and pay a dividend on
Common Stock, each 1/1000th share of Series B Stock is entitled to receive the
same dividend amount paid on one whole share of Common Stock, (2) $0.01 per
whole share of Series B Stock offset by any payments made as a result of a
Common Stock dividend. No dividends have been declared to date.
SHAREHOLDER RIGHTS PLAN
On November 19, 1998, Illuminet's Board of Directors adopted a Shareholders
Rights Plan and declared a dividend, issued on November 20, 1998, of one right
for each outstanding share of Common Stock ("Right"). The Rights become
exercisable if a person or group acquires more than 20% of the outstanding
shares of Common Stock or makes a tender offer for more than 20% of the
outstanding shares of Common Stock. Upon the occurrence of such an event, each
Right entitles the holder (other than the acquiror) to purchase for $150 the
economic equivalent of shares of Common Stock, or in
F-14
<PAGE> 81
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
certain circumstances, stock of the acquiring entity, worth twice as much. The
Rights expire on December 20, 2008 unless earlier redeemed by Illuminet, and are
redeemable prior to becoming exercisable at $0.01 per Right.
TRANSACTIONS WITH STOCKHOLDER
Illuminet is party to a contract with the subsidiary of one of its
corporate stockholders that supplies Illuminet with transmission facilities in
the form of private leased lines. Such lines are leased from the corporate
stockholder at rates comparable to third-party service providers. Payments
pursuant to this contract totaled $1.1 million for the period from February 23,
1996, the Merger date, to December 31, 1996, and $1.6 million and $1.7 million
for the years ended December 31, 1997 and 1998, respectively.
NOTE 6. 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. Only non-qualified
stock options have been granted under the plan. Employee non-qualified stock
options, which are granted to key employees, 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 on grant and expire ten
years from the date of grant. As Illuminet's stock is not publicly traded, a
readily ascertainable market value is not available. Therefore, the Board of
Directors determines the estimated fair value of Common Stock.
Additional information regarding options granted and outstanding is
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997................................. -- $ --
Granted at exercise price less than fair value of Common
Stock on grant date....................................... 231,504 8.80
------- ------
Outstanding December 31, 1997 (70,004 exercisable at $8.80
weighted-average exercise price).......................... 231,504 8.80
Granted at exercise price less than fair value of Common
Stock on grant date....................................... 292,511 9.36
Granted at exercise price equal to fair value of Common
Stock on grant date....................................... 118,500 16.72
Exercised................................................... (100) 8.80
Forfeited................................................... (14,375) 8.80
------- ------
Outstanding December 31, 1998 (297,165 exercisable at $9.13
weighted-average exercise price).......................... 628,040 $10.52
======= ======
</TABLE>
F-15
<PAGE> 82
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
OUTSTANDING OPTIONS
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE REMAINING
EXERCISE PRICE NUMBER OF SHARES CONTRACTUAL LIFE (YEARS)
- -------------- ---------------- --------------------------
<S> <C> <C>
8.80$...... 252,540 8.5
9.43...... 260,000 9.0
16.72..... 115,500 8.9
-------
628,040 8.8
=======
</TABLE>
For the years ended December 31, 1997 and 1998, deferred stock-based
compensation expense for the stock options granted was $0.5 million and $0.6
million, respectively, and $0.2 million and, $0.5 million, respectively, was
recognized as stock-based compensation expense.
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
weighted-average grant date fair value of these options was estimated at the
date of grant using the Minimum Value Option Pricing Model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate.............................. 5.9% 5.4%
Dividend yield....................................... 0% 0%
Expected volatility of non-publicly traded Common
Stock.............................................. 0% 0%
Estimated option life................................ 8.54 years 8.47 years
Weighted-average grant date value for options granted
at exercise price less than fair value of Common
Stock on grant date................................ $5.59 $8.16
Weighted-average grant date value for options granted
at exercise price equal to fair value of Common
Stock on grant date................................ -- $6.17
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period; accordingly,
the 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 years
ended December 31 are summarized as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Net income -- as reported................................... $7,657 $5,293
====== ======
Net income -- pro forma..................................... $7,485 $4,796
====== ======
Earnings per share - diluted -- as reported................. $ 1.27 $ 0.88
====== ======
Earnings per share - diluted -- pro forma................... $ 1.25 $ 0.80
====== ======
</TABLE>
In August 1999, Illuminet issued employee stock options for 150,000 shares
of common stock at an exercise price of $32.00 per share. This resulted in
deferred stock-based compensation of $2.6 million, after income taxes, which
will be recognized as a noncash stock-based compensation expense over the four
year vesting period of the options.
F-16
<PAGE> 83
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
NOTE 7. 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 1996, 1997 and 1998,
contribution expense was approximately $0.8 million, $1.2 million and $1.1
million, respectively. For the six months ended June 30, 1998 and 1999,
contribution expense was $0.6 million and $1.0 million, respectively.
NOTE 8. INCOME TAXES
Components of the income tax provision (benefit) for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- ------
<S> <C> <C> <C>
Current (primarily Alternative Minimum Tax)............ $112 $ 193 $1,265
Deferred............................................... -- (869) 2,198
---- ----- ------
Total income tax provision (benefit)......... $112 $(676) $3,463
==== ===== ======
</TABLE>
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 1998, such
differences primarily related to net operating loss carryforwards, tax credit
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.
During the year ended December 31, 1997, the valuation allowance decreased
$3.1 million 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, 1998, 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, and tax credit
carryforwards of $1.4 million that expire in 2010 and 2011. 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 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate......................... $ 1,042 $ 2,373 $2,977
State income taxes, net of federal tax benefit............. -- -- 407
Utilization of net operating loss carryforward............. (1,042) (2,373) --
Alternative minimum tax.................................... 112 193 --
Reversal of valuation allowance............................ -- (869) --
Other...................................................... -- -- 79
------- ------- ------
Income tax provision (benefit)............................. $ 112 $ (676) $3,463
======= ======= ======
</TABLE>
F-17
<PAGE> 84
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
The components of the deferred tax assets as of December 31 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 4,425 $ 1,454
Tax credit carryforwards.................................. 335 1,368
Allowance for doubtful accounts........................... 462 408
Other non-deductible accruals............................. 1,430 1,437
Valuation allowance....................................... (180) (180)
------- -------
Net deferred tax assets........................... 6,472 4,487
------- -------
Deferred tax liabilities:
Excess tax over book depreciation and amortization........ (5,588) (5,801)
Other..................................................... (14) (14)
------- -------
Total deferred tax liabilities.................... (5,602) (5,815)
------- -------
Deferred tax (liability) asset, net......................... $ 870 $(1,328)
======= =======
</TABLE>
F-18
<PAGE> 85
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
NOTE 9. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share-basic
and diluted (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Numerator:
Numerator for earnings per
share-basic -- net income... $ 2,953 $ 7,657 $ 5,293 $ 2,351 $ 4,460
Effect of dilutive
securities -- Debenture
interest, net of tax........ 447 498 427 215 194
---------- ---------- ---------- ---------- ----------
Numerator for earnings per
share-diluted -- net income
after assumed conversions... $ 3,400 $ 8,155 $ 5,720 $ 2,566 $ 4,654
========== ========== ========== ========== ==========
Denominator:
Denominator for earnings per
share-
basic -- weighted-average
shares...................... 4,995,092 5,295,509 5,356,385 5,347,081 5,366,363
Weighted-average effect of
dilutive securities:
Stock options............... -- -- 137,327 134,176 188,508
Debentures.................. 787,097 882,073 796,864 807,120 771,383
Series A Stock.............. 190,095 219,083 206,784 208,629 204,969
---------- ---------- ---------- ---------- ----------
Dilutive potential common
shares.................... 977,192 1,101,156 1,140,975 1,149,925 1,164,860
---------- ---------- ---------- ---------- ----------
Denominator for earnings per
share-diluted - adjusted
weighted-average shares and
assumed conversions......... 5,972,284 6,396,665 6,497,360 6,497,006 6,531,223
========== ========== ========== ========== ==========
Earnings per share - basic....... $ 0.59 $ 1.45 $ 0.99 $ 0.44 $ 0.83
========== ========== ========== ========== ==========
Earnings per share - diluted..... $ 0.57 $ 1.27 $ 0.88 $ 0.39 $ 0.71
========== ========== ========== ========== ==========
</TABLE>
See notes 4, 5 and 6 for additional information regarding the Debentures,
Series A Stock and stock options.
Stock options to purchase 70,802 and 1,072 weighted-average shares of
common stock were outstanding during 1997 and 1998, respectively, but were not
included in the computation of diluted earnings per share because of their
anti-dilutive effect.
NOTE 10. MERGER
Illuminet was formed through a 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").
F-19
<PAGE> 86
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
In exchange for the net assets of ITN, excluding U.S. Intelco's 36%
ownership of ITN on the date of the Merger, Illuminet issued the following
consideration and incurred the following costs (in thousands):
<TABLE>
<S> <C>
Fair value of Common Stock issued........................... $5,562
Fair value of Series A Stock issued......................... 808
Direct and incremental merger costs......................... 678
------
Aggregate purchase price.................................... $7,048
======
</TABLE>
As consideration for the sale, non-dissenting ITN shareholders received
1,566,988 shares of Common Stock and 2,675 shares of Series A Stock. ITN
Debentures were converted to 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 $0.7 million during the year ended
December 31, 1996.
The aggregate purchase price was less than the fair value of the assets
acquired by $2.5 million, and accordingly, has been recorded as a reduction in
the long-lived assets. The purchase price has been allocated to the acquired net
assets of ITN as of February 23, 1996, as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 613
Accounts receivable......................................... 5,880
Other current assets........................................ 282
Deferred tax assets......................................... 992
Network assets.............................................. 12,178
Capitalized network costs................................... 4,049
Other property and equipment................................ 1,290
Other assets................................................ 1,094
Trade accounts payable and other current liabilities........ (5,561)
Amounts due dissenting shareholders......................... (738)
Long-term debt.............................................. (13,031)
--------
$ 7,048
========
</TABLE>
In 1996, Illuminet paid dissenting U.S. Intelco shareholders a total of
$0.2 million 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 (in thousands, except per share amount):
<TABLE>
<S> <C>
Revenues............................................. $41,697
Net income........................................... $ 2,854
Earnings per share - diluted......................... $ 0.52
</TABLE>
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.
F-20
<PAGE> 87
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
NOTE 11. LEGAL PROCEEDINGS
Illuminet is party to various legal proceedings arising in the ordinary
course of business. Management does not believe that those claims, individually
or combined, will have a material adverse effect on our business, financial
condition or operating results.
NOTE 12. SUBSEQUENT EVENTS
On June 21, 1999, the stockholders approved an amendment that would
automatically convert each share of Series A Stock into Common Stock upon a
public offering of Illuminet's Common Stock. As of June 30, 1999, pro forma
shares of Common Stock outstanding, assuming the conversion of all the
outstanding shares of Series A Stock (2,408 shares) into 204,969 shares of
Common Stock, is 5,571,699.
On May 26, 1999, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
Illuminet to offer its common stock to the public.
F-21
<PAGE> 88
LOGO
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $16,680
NASD filing fee............................................. 6,500
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent fees......................................... *
Miscellaneous fees and expenses............................. *
-------
Total.............................................
=======
</TABLE>
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporate Law (the "DGCL") authorizes a
court to award, or a corporation's board of directors to grant, indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities, including
reimbursement for expenses incurred, arising under the Securities Act.
As permitted by the DGCL, our Certificate of Incorporation includes a
provision that eliminates the personal liability of each of our directors for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders; (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) under Section 174 of
the DGCL regarding unlawful dividends and stock purchases; or (4) for any
transaction from which the director derived an improper personal benefit.
As permitted by the DGCL, our Certificate of Incorporation and/or our
Bylaws provide that (1) we may indemnify our directors and officers to the
fullest extent permitted by the DGCL, subject to certain very limited
exceptions; (2) we may indemnify our other employees to the extent that we
indemnify our officers and directors, unless otherwise required by law, our
Certificate of Incorporation, our Bylaws or agreements; (3) we may advance
expenses, as incurred, to our directors, officers and other employees in
connection with a legal proceeding to the fullest extent permitted by the DGCL,
subject to certain very limited exceptions; and (4) the rights conferred in our
Bylaws are not exclusive.
We carry insurance that insures our officers and directors against
liability they may incur for actions they take in their capacity as officers and
directors, excluding liability related to alleged violations of federal or state
securities laws. We intend to obtain, prior to the effective date of this
registration statement, insurance coverage for our officers and directors for
alleged securities laws violations.
Reference is made to the Underwriting Agreement contained in Exhibit 1.1
hereto, which contains provisions indemnifying our officers and directors
against certain liabilities including liabilities arising under the Securities
Act.
II-1
<PAGE> 90
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration statement,
Illuminet has not sold its securities without registration under the Securities
Act of 1993 (the "Securities Act"), except as described below.
The board of directors of the registrant adopted the 1997 Equity Incentive
Plan on October 29, 1997. As of June 30, 1999, options to acquire up to 386,030
shares of common stock were outstanding under the plan. On November 23, 1998,
Mr. Daniel E. Weiss, Vice President - Finance, Chief Financial Officer,
Secretary and Treasurer of the registrant, exercised an option to purchase 100
shares of the registrant's common stock for an aggregate consideration of $880.
On February 25, 1999, Mr. Peter Wiederspan, an employee of the registrant,
exercised an option to purchase 1,125 shares of the registrant's common stock
for an aggregate consideration of $9,900.
In addition, in January 1997, the registrant issued a total of 14,240
shares of its common stock to members of its board of directors who had also
been directors of the registrant's predecessor companies, U.S. Intelco Holdings,
Inc. and Independent Telecommunications Network, Inc., in consideration for
their services as directors.
All of the issuances of securities described in this Item 15 were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
or Rule 701 promulgated thereunder as transactions pursuant to compensatory
benefit plans and contracts relating to compensation. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the registrant or had access, through
employment or other relationships, to such information.
No underwriters were involved in the sale of the foregoing securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. See the exhibit index for the exhibits filed with this
registration statement.
(b) FINANCIAL STATEMENT SCHEDULES. Report of Ernst & Young LLP, Independent
Auditors, on Financial Statement Schedule, and Schedule II -- Valuation and
Qualifying Accounts. All other schedules have been omitted because the
information required to be set forth therein is not applicable or is shown in
the combined financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
II-2
<PAGE> 91
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lacey,
State of Washington, on 23rd of August, 1999.
ILLUMINET HOLDINGS, INC.
By: /s/ ROGER H. MOORE
------------------------------------
Name: Roger H. Moore
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Roger H. Moore, and Daniel E.
Weiss, and each of them, acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him, in any and all capacities, to sign any and all
amendments to this registration statement (including post-effective amendments
or any abbreviated registration statement and any amendments thereto filed
pursuant to Rule 462(b) increasing the number of securities for which
registration is sought) and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and with full power
of each to act alone, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as
fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his or
their substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THEODORE D. BERNS Director August 23, 1999
- -----------------------------------------------------
Theodore D. Berns
Director , 1999
- -----------------------------------------------------
Eugene L. Cole
/s/ AUBREY E. JUDY Director August 23, 1999
- -----------------------------------------------------
Aubrey E. Judy
Director , 1999
- -----------------------------------------------------
Kenneth L. Lein
/s/ RICHARD A. LUMPKIN Director August 23, 1999
- -----------------------------------------------------
Richard A. Lumpkin
/s/ JAMES S. QUARFORTH Director August 23, 1999
- -----------------------------------------------------
James S. Quarforth
</TABLE>
II-4
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ G. I. ROSS Director August 23, 1999
- -----------------------------------------------------
G. I. Ross
/s/ JAMES W. STRAND Director August 23, 1999
- -----------------------------------------------------
James W. Strand
/s/ GREGORY J. WILKINSON Director August 23, 1999
- -----------------------------------------------------
Gregory J. Wilkinson
/s/ ROGER H. MOORE Director, Chief Executive August 23, 1999
- ----------------------------------------------------- Officer (Principal Executive
Roger H. Moore Officer)
/s/ DANIEL E. WEISS Chief Financial Officer, August 23, 1999
- ----------------------------------------------------- Secretary and Treasurer
Daniel E. Weiss (Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE> 94
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS,
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Illuminet
Holdings, Inc. as of December 31, 1997 and 1998, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 12, 1999 (included elsewhere in this registration statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of Illuminet's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
February 12, 1999
S-1
<PAGE> 95
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------- ------------ ----------------------------------- ------------- -------------
ILLUMINET HOLDINGS, INC. ADDITIONS
- -------------------------- -----------------------------------
BALANCE AT CHARGED TO OTHER
BEGINNING OF CHARGED TO COSTS ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- -------------------------- ------------ ---------------- ---------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998:
Allowance for doubtful
accounts............. $1,282 $300 $-- $(449) $1,133
Year Ended December 31,
1997:
Allowance for doubtful
accounts............. $1,021 $300 -- $ (39) 1,282
Year Ended December 31,
1996:
Allowance for doubtful
accounts............. $ 169 $857 -- $ (5) $1,021
</TABLE>
S-2
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of Illuminet Holdings, Inc. as
currently in effect
3.2* Form of Amendment to Certificate of Incorporation (to be
filed with the Delaware Secretary of State prior to the
closing of the offering covered by this registration
statement)
3.3 Bylaws of Illuminet Holdings, Inc. as currently in effect
4.1 Indenture, dated as of August 15, 1989 and as supplemented
on February 12, 1996 and June 24, 1996, by and among
Illuminet Holdings, Inc., Illuminet, Inc. and UMB Bank,
N.A., as trustee, and Form of 7.5% Convertible Redeemable
Subordinated Debentures due August 15, 2001
4.2 Form of Specimen Common Stock Certificate of Illuminet
Holdings, Inc.
4.3 Rights Agreement dated as of November 20, 1998, by and
between Illuminet Holdings, Inc. and UMB Bank, N.A., as
Rights Agent, as amended on August 2, 1999
5.1* Opinion of Blackwell Sanders Peper Martin LLP, counsel to
Illuminet Holdings, Inc.
10.1 Illuminet Holdings, Inc. 1997 Equity Incentive Plan
10.2 Loan Agreement dated as of August 14, 1996, by and between
Illuminet, Inc. and Rural Telephone Finance Cooperative
10.3 Secured Revolving Line of Credit Application and Agreement
dated as of August 14, 1996, by and between Illuminet, Inc.
and Rural Telephone Finance Cooperative
10.4 Secured Intermediate-Term Equipment Financing Loan
Substitute Agreement dated as of August 14, 1996, by and
between Illuminet, Inc. and Rural Telephone Finance
Cooperative
10.5 Lease Agreement dated as of December 12, 1997, by and
between Facility Properties, L.L.C. and Illuminet, Inc.
21.1 Subsidiaries of Illuminet Holdings, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Blackwell Sanders Peper Martin LLP
24.1 Powers of Attorney (contained in the signature page to this
registration statement)
27.1 Financial Data Schedule
</TABLE>
* to be filed by amendment
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
U.S. TELNET HOLDINGS, INC.
U.S. TELNET HOLDINGS, INC., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is U.S. TELNET HOLDINGS, INC.
SECOND: The address of the registered office of the corporation (the
"Corporation") in the State of Delaware is 32 Loockerman Square, Suite L100,
Dover, County of Kent, Delaware 19904. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Forty-Five Million (45,000,000) shares of stock, of
which Fifteen Million (15,000,000) shares shall be Preferred Stock, par value
$.01 per share ("Preferred Stock"), and Thirty Million (30,000,000) shares shall
be Common Stock, par value $.01 per share ("Common Stock").
No holder of stock of the Corporation shall be entitled as such to any
preemptive right to subscribe for, purchase or receive (i) any shares of stock
of the Corporation at any time held in its treasury, or (ii) unissued shares of
stock of the Corporation, whether authorized at present or hereafter authorized,
or (iii) any issue of notes, bonds or debentures, whether or not convertible
into any class of stock of the Corporation, or (iv) any issue of warrants,
options or rights to subscribe for shares of any class of stock of the
Corporation.
The powers, designations, preferences, qualifications, limitations, and
relative rights of the shares of each class are as follows:
Subdivision A. Preferred Stock.
The Preferred Stock shall be issued from time to time in one or more
series with such distinctive serial designations and (a) may have such voting
powers, full or limited, or may be without voting powers, (b) may be subject to
redemption at such time or times and at such prices, (c) may be entitled to
receive dividends (which may be cumulative or noncumulative) at such rate or
rates, on such conditions, and at such times and payable in preference to, or in
such relation to, the dividends payable on any other class or classes or 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
<PAGE> 2
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:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Michael B. Fischer Rudnick & Wolfe
203 N. LaSalle St., Suite 1800
Chicago, Illinois 60601
</TABLE>
SIXTH: The number of directors of the Corporation which shall constitute
the entire Board shall initially be sixteen (16), but such number may be changed
from time to time to a number not less than five (5) nor more than sixteen (16)
by resolution adopted by a majority of the entire Board; provided, however, that
the number of directors constituting the entire Board shall not be decreased by
the Board of Directors below the number then in office unless such decrease
shall become effective at any annual meeting of stockholders to the extent terms
of office are then expiring. As used in this Article SIXTH, "entire Board" means
the total number of directors which the Corporation would have if there were no
vacancies. Any director or directors may be removed from office only for cause
and only by the vote of eighty percent (80%) of the voting power of all the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class. Any vacancy on the
Board of Directors that 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.
2
<PAGE> 3
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 thereat (provided that
a lawful quorum of stockholders be there represented in person or by
proxy) shall be as valid and as binding upon the Corporation and upon
all the stockholders as though it had been approved or ratified by every
stockholder of the Corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors' interest, or for
any other reason.
(d) In addition to the powers and authorities hereinbefore
or by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation; subject, nevertheless, to
the provisions of the statutes of Delaware, of this Certificate and to
any by-laws from time to time made by the stockholders; provided
however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been made.
3
<PAGE> 4
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 of TWELFTH shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director and
occurring prior to such amendment or repeal. If the Delaware General Corporation
Law is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
4
<PAGE> 5
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
DATED: August 2, 1995
----------------------------------------
<PAGE> 6
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.
----------------------------------------
Michael B. Fischer, Assistant Secretary
<PAGE> 7
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
($.01 PAR VALUE)
OF
USTN HOLDINGS, NC.
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the Delaware General Corporation Law
- --------------------------------------------------------------------------------
DESIGNATION
The designation of the series of Preferred Stock created by this Resolution
shall be the "Series A Convertible Preferred Stock" (hereinafter called this
"Series") and the number of shares constituting this Series is Four Thousand
Four Hundred and Sixteen (4,416).
DIVIDENDS
Dividends shall be declared, set aside and paid on this Series only upon
resolution of the Board of Directors of the Corporation; provided that no
dividends may be declared, set, made or paid on this Series unless dividends are
declared, set aside or paid simultaneously to holders of the common stock of the
Corporation.
LIQUIDATION PREFERENCE
In the event of voluntary or involuntary liquidation, dissolution, or winding-up
of the affairs of the Corporation, whether complete or partial, the holders of
the shares of this Series shall be entitled to and shall receive total cash
payments equal to One Thousand Dollars ($1,000.00) per share (the "Liquidation
Preference Amount") out of the assets of the Corporation available for
distribution to its stockholders, but before any payment or distribution is made
to holders of the shares of the common stock or of any other series of preferred
stock of the Corporation. If upon the occurrence of such event the assets and
property to be distributed among the holders of this Series, shall be
insufficient to permit the payment to such holders of this Series of the full
Liquidation Preference Amount, then the entire remaining assets and property of
the Corporation legally available for distribution shall be distributed ratably
among the holders of this Series.
VOTING RIGHTS
The holders of shares of this Series shall be entitled to one hundred (100)
votes per share with respect to all matters submitted to the Corporation's
shareholders for decision, and will be entitled to vote separately as a Series
with respect to the approval of the sale, lease, exchange or other disposition
of all or substantially all of the Corporation's property and assets, or the
merger or consolidation of the Corporation with or into any other corporation or
entity, if such approval is required by law.
<PAGE> 8
CONVERSION
(a) Each share of this Series shall be convertible into 85.12 shares of the
common stock, $.01 par value, of the Corporation (the "Conversion
Amount"), at the option of the holder thereof at any time that the
holder elects to convert the Corporation's 7.5 % Convertible
Subordinated Debenture due August 15, 2001 (the "Debenture") issued as a
unit with such share.
(b) Each share of this Series shall be convertible, at the option of the
Corporation, into the Conversion Amount, at any time that the Debenture
issued as a unit with such share is converted into shares of common
stock, $.0l par value, of the Corporation.
(c) In the event the corporation shall at any time subdivide the outstanding
shares of common stock, or shall issue a stock dividend on its
outstanding common stock, the Conversion Amount shall be proportionately
increased, and in case the Corporation shall at any time combine the
outstanding shares of common stock, the Conversion Amount in effect
immediately prior to such combination shall be proportionately
decreased, effective at the close of business on the date of such
subdivision, dividend or combination, as the case may be. In the event
the Corporation merges or otherwise reorganizes or consolidates with any
other corporation or corporations, the holder of any share of this
Series shall have the right to receive from any surviving corporation
preferred stock with the same or substantially identical rights,
privileges and preferences as the shares of this Series; provided,
however, that an aggregate of two-thirds of the holders of this Series
may elect not to receive such preferred stock from the surviving
corporation, in which case no holders of this Series shall be entitled
to receive such preferred stock.
(d) The holder of any share of this Series may exercise the conversion
rights as to such share by delivering to the Corporation during regular
business hours, at the principal office of the Corporation, the
certificate or certificates for the shares to be converted, duly
endorsed for transfer to the Corporation (if required by the
Corporation), and accompanied by written notice stating that the holder
elects to convert such shares. Conversion shall be deemed to have been
effective on the date when such delivery is made, and such date is
referred to herein as the Conversion Date. As promptly as practicable
thereafter, the Corporation shall issue and deliver to or upon the
written order of such holder, at such office, a certificate or
certificates for the number of shares of common stock to which such
holder is entitled. The holder shall be deemed to have become a
shareholder of common stock of record on the applicable Conversion Date
unless the transfer books of the Corporation are closed on that date, in
which event such holder shall be deemed to have become a shareholder of
common stock of record on the next succeeding date on which the transfer
books are open.
(e) In the event the Corporation elects to exercise its right to convert any
shares of this Series pursuant to paragraph (b) above, the Corporation
shall notify the holder of such shares of the Corporation's election to
convert and the number of shares to be converted. Upon receipt of such
notice the holder shall deliver to the Corporation during regular
business hours, at the principal office of the Corporation, their
certificate or certificates for the
2
<PAGE> 9
shares to be converted, duly endorsed for transfer to the Corporation
(if required by the Corporation). As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder a certificate or
certificates for the number of shares of common stock to which such
holder is entitled. The shares of this Series shall be deemed converted
as of the mailing of the notice of conversion; however, such holder
shall not be deemed to have become a shareholder of common stock of
record until his certificate or certificates for the shares to be
converted have been delivered to the Corporation. The holder shall be
deemed to have become a shareholder of common stock of record on such
delivery date unless the transfer books of the Corporation are closed on
that date; in which event such holder shall be deemed to have become a
shareholder of common stock of record on the next succeeding date on
which the transfer books are open.
(f) The Corporation shall at all times reserve and keep available, out of
its authorized but unissued common stock, solely for the purpose of
effecting the conversion of the shares of this Series, the full number
of shares of common stock deliverable upon the conversion of all shares
of this series from time to time outstanding.
(g) All shares of common stock which may be issued upon conversion of the
shares of this Series will upon issuance by the Corporation be validly
issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
TRANSFER
A holder may transfer shares of the Series only as a unit with the
Debentures issued in connection with such shares.
IN WITNESS WHEREOF, USTN Holdings, Inc. has caused this Certificate to
be signed this 9th day of October, 1995.
USTN HOLDINGS, INC.
By:
-------------------------------------
Its:
-------------------------------------
3
<PAGE> 10
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.
----------------------------------------
Greg Wilkinson, Chairman of the Board
<PAGE> 11
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:
-------------------------------------
TITLE OF OFFICER:
----------------------------------------
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/09/1997
971152906-2530006
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ILLUMINET HOLDINGS, INC.
THE UNDERSIGNED, being the Secretary of ILLUMINET HOLDINGS,
INC., a Delaware corporation, does hereby certify as follows:
FIRST: That at a meeting of the Board of Directors of Illuminet
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 setting forth the proposal at the annual meeting
of the stockholders of the 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 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 Twenty-Five Million
One Hundred Thousand (25,100,000) shares of stock, of which One
Hundred Thousand (100,000) shares shall be Preferred Stock, par
value $.01 per share ("Preferred Stock"), and Twenty-Five
Million (25,000,000) shares shall be Common Stock, par value
$.01 per share ("Common Stock")."
SECOND: That thereafter, pursuant to a resolution of its Board
of Directors, the amendment was considered at the annual meeting of the
stockholders of the corporation, which was duly called and held 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 such amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
July 1998.
----------------------------------------
Daniel E. Weiss
Secretary
<PAGE> 13
ACKNOWLEDGEMENT
STATE OF ___________________ )
) ss.
COUNTY OF __________________ )
On this ____ day of _____________, 1998, before me, the
undersigned, personally appeared Daniel E. Weiss, known personally to me to be
the Secretary of the above named corporation, that he, as such officer, being
authorized so to do on behalf of Illuminet Holdings, Inc., executed the
foregoing certificate of amendment for the purposes therein contained, by
signing the name of the corporation by himself as such officer.
In witness whereof, I have hereunto set my hand and official
seal.
----------------------------------------
Notary Public
----------------------------------------
Typed or Printed Name
----------------------------------------
County of Residence
My Commission Expires:
- ---------------------------------
(Seal)
<PAGE> 14
CERTIFICATE OF DESIGNATION
OF
ILLUMINET HOLDINGS, INC.
SERIES B
PARTICIPATING CUMULATIVE
PREFERENCE STOCK
PURSUANT TO SECTIONS 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Illuminet Holdings, Inc., a corporation organized and existing under and
by virtue of The General Corporation Law of Delaware, DOES HEREBY CERTIFY:
That at a meeting of the Board of Directors of Illuminet Holdings, Inc.
(the "Corporation") the following resolution was duly adopted creating 7,000
shares of Preference Stock, par value $.01 per share, designated as Series B
Participating Cumulative Preference Stock.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation in accordance with the
provisions of the Certificate of Incorporation, a series of Preference
Stock of the Corporation be, and it hereby is created, and the
designation and amount thereof and the relative rights, preferences and
limitations thereof are as follows:
1. Designation and Number. The designation of this series is the
"Series B Participating Cumulative Preference Stock" (hereinafter, this
"Series"). The number of shares initially constituting this Series shall be
seven thousand (7,000) shares; provided, however, that if more than a total of
7,000 shares of this Series shall be issuable upon the exercise of Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of November 20, 1998,
between the Corporation and UMB Bank, N.A., as Rights Agent (the "Rights
Agreement"), the Board of Directors of the Corporation, pursuant to Section
151(g) of the General Corporation Law of the State of Delaware, shall direct by
resolution or resolutions that a certificate be properly executed, acknowledged,
filed and recorded, in accordance with the provisions of Section 103 thereof,
providing for the total number of shares of this Series authorized to be issued
to be increased (to the extent that the Certificate of Incorporation then
permits) to the largest number of whole shares (rounded up to the nearest whole
number) issuable upon exercise of such Rights.
2. Dividends.
a. Subject to the prior and superior rights of the holders
of shares of any other series of Preference Stock or other class of
capital stock of the Corporation ranking prior
<PAGE> 15
and superior to the shares of this Series with respect to dividends, the
holders of shares of this Series shall be entitled to receive, when, as
and if declared by the Board of Directors, out of the assets of the
Corporation legally available therefor, (1) quarterly dividends payable
on the first day of each of March, June, September and December (each
such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or a fraction of a share of this Series,
in the amount of $.01 per whole share (rounded to the nearest cent) less
the amount of all cash dividends declared on this Series pursuant to the
following clause (2) since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
this Series (the total of which shall not, in any event, be less than
zero), and (2) dividends payable in cash on the payment date for each
cash dividend declared on the Common Stock in an amount per whole share
(rounded to the nearest cent) equal to the Formula Number (as
hereinafter defined) then in effect times the cash dividends then to be
paid on each share of Common Stock, par value $.01, of the Corporation
(the "Common Stock"). In addition, if the Corporation shall pay any
dividend or make any distribution on the Common Stock payable in assets,
securities or other forms of noncash consideration (other than dividends
or distributions solely in shares of Common Stock), then, in each such
case, the Corporation shall simultaneously pay or make on each
outstanding whole share of this Series B dividend or distribution in
like kind equal to the Formula Number then in effect times such dividend
or distribution on each share of the Common Stock. As used herein, the
"Formula Number" shall be 1,000; provided, however, that, if at any time
after November 20, 1998, the Corporation shall (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock or make
any distribution on the Common Stock in shares of Common Stock, (ii)
subdivide (by a stock split or otherwise) the outstanding shares of
Common Stock into a larger number of shares of Common Stock or (iii)
combine (by a reverse stock split or otherwise) the outstanding shares
of Common Stock into a smaller number of shares of Common Stock, then in
each such event the Formula Number shall be adjusted to a number
determined by multiplying the Formula Number in effect immediately prior
to such event by a fraction, the numerator of which is the number of
shares of Common Stock that are outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock
that are outstanding immediately prior to such event (and rounding the
result to the nearest whole number); and provided further, that, if at
any time after November 20, 1998, the Corporation shall issue any shares
of its capital stock in a merger, reclassification, or change of the
outstanding shares of Common Stock, then in each such event the Formula
Number shall be appropriately adjusted to reflect such merger,
reclassification or change so that each share of Preferred Stock
continues to be the economic equivalent of a Formula Number of shares of
Common Stock prior to such merger, reclassification or change.
b. The Corporation shall declare a dividend or distribution
on this Series provided in Section 2(a) immediately prior to or at the
same time it declares a dividend or distribution on the Common Stock
(other than a dividend or distribution solely in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution (other than a dividend or distribution in shares of Common
Stock) shall have been declared on the Common Stock during the period
between any Quarterly Dividend
2
<PAGE> 16
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $0.01 per share on this Series shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of
shares of this Series entitled to receive a dividend or distribution
declared thereon, which record date shall be the same as the record date
for any corresponding dividend or distribution on the Common Stock.
c. Dividends shall begin to accrue and be cumulative on
outstanding shares of this Series from and after the Quarterly Dividend
Payment Date next preceding the date of original issue of such shares of
this Series; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders
of shares of this Series entitled to receive a quarterly dividend and on
or prior to the next succeeding Quarterly Dividend Payment Date shall
begin to accrue and be cumulative from and after such Quarterly Dividend
Payment Date. Notwithstanding the foregoing, dividends on shares of this
Series which are originally issued prior to the record date for the
determination of holders of shares of this Series entitled to receive a
quarterly dividend on the first Quarterly Dividend Payment Date shall be
calculated as if cumulative from and after the last day of the fiscal
quarter next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of this Series in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
d. So long as any shares of this Series are outstanding, no
dividends or other distributions shall be declared, paid or distributed,
or set aside for payment or distribution, on the Common Stock unless, in
each case, the dividend required by this Section 2 to be declared on
this Series shall have been declared.
e. The holders of the shares of this Series shall not be
entitled to receive any dividends or other distributions except as
provided herein.
3. Liquidation Rights. In the event of the liquidation, dissolution
or winding up of the Corporation ("Liquidation"), whether voluntary or
involuntary, no distribution shall be made (1) to the holders of shares of stock
ranking junior to this Series unless prior thereto, the holders of this Series
shall have received an amount equal to the accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (x) $.0: per whole share or (y) an
aggregate amount per share equal to the Formula Number then in effect times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with this Series, except distributions
made ratably on this Series and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
If upon any Liquidation, the assets of the Corporation or proceeds
thereof distributable among the holders of shares of this Series and of any
class or series of capital stock of the Corporation ranking equally with this
Series as to distribution of assets upon Liquidation shall be insufficient to
pay in full the preferential amounts payable to such holders, then such assets
or
3
<PAGE> 17
the proceeds thereof shall be distributed among such holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full.
4. Voting Rights. The holders of shares of this Series shall have
the following voting rights:
a. Each holder of this Series shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of
this Series held of record on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, multiplied by the
maximum number of votes per share which any holder of the Common stock
or stockholders generally then have with respect to such matter
(assuming any holding period or other requirement to vote a greater
number of shares is satisfied).
b. Except as otherwise provided herein or by applicable
law, the holders of shares of this Series and the holders of shares of
Common Stock shall vote together as one class for the election of
directors of the Corporation and on all other matters submitted to a
vote of stockholders of the Corporation.
c. If, at the time of any annual meeting of stockholders
for the election of directors, the equivalent of six quarterly dividends
(whether or not consecutive) payable on any share or shares of this
Series are in default, the number of directors constituting the Board of
Directors of the Corporation shall be increased by one. In addition to
voting together with the holders of Common Stock for the election of
other directors of the Corporation, the holders of record of this
Series, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at
each subsequent annual meeting of stockholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior
thereto, to vote for the election of one director of the Corporation,
the holders of any Series being entitled to cast a number of votes per
share of this Series equal to the Formula Number. Until the default in
payments of all dividends which permitted the election of said directors
shall cease to exist, any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time,
either with or without cause, only by the affirmative vote of the
holders of the shares of this Series at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose,
and any vacancy thereby created may be filled by the vote of such
holders. If and when such default shall cease to exist, the holders of
this Series shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like
default in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may have
been elected directors pursuant to said special voting rights shall
forthwith terminate, and the number of directors constituting the Board
of Directors shall be reduced by one. The voting rights granted by this
Section 4(c) shall be in addition to any other voting rights granted to
the holders of this Series in this Section 4.
4
<PAGE> 18
d. Except as provided herein, in Section 11 or by
applicable law, holders of this Series shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for authorizing or taking any corporate action.
5. Restrictions on Certain Corporation Action.
a. Whenever quarterly dividends or other dividends or
distributions payable on this Series B provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of this Series
outstanding shall have been paid in full, the Corporation shall not
i. declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
this Series;
ii. declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with this Series, except dividends paid ratably on this Series
and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders
of all such shares are then entitled;
iii. redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up)
with this Series; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to this Series; or
iv. purchase or otherwise acquire for consideration
any shares of this Series, or any shares of stock ranking on a
parity with this Series, except in accordance with a purchase
offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective Series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
b. The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 5, purchase or otherwise acquire such
shares at such time and in such manner.
6. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in
5
<PAGE> 19
any such case, the then outstanding shares of this Series shall at the same time
be similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is exchanged or changed. In the event both this
Section 6 and Section 2 appear to apply to a transaction, this Section 6 will
control.
7. No Redemption; No Sinking Fund.
a. The shares of this Series shall not be subject to
redemption by the Corporation or at the option of any holder of this
Series; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of this Series in the open market
or by offer to any holder or holders of shares of this Series.
b. The shares of this Series shall not be subject to or
entitled to the operation of a retirement or sinking fund.
8. Ranking. This Series shall rank junior to all other series of
Preferred Stock of the Corporation, unless the Board of Directors shall
specifically determine otherwise in fixing the powers, preferences and relative,
participating, optional and other special rights of the shares of such Series
and the qualifications, limitations and restrictions thereof.
9. Fractional Shares. This Series shall be issuable upon exercise
of the Rights issued pursuant to the Rights Agreement in whole shares or in any
fraction of a share that is one one thousandth (1/1,000th) of a share or any
integral multiple of such fraction which shall entitle the holder, in proportion
to such holder's fractional shares, to receive dividends, exercise voting
rights, participate in distributions and to have the benefit of all other rights
of holders of this Series. In lieu of fractional shares, the Corporation, prior
to the first issuance of a share or a fraction of a share of this Series, may
elect (1) to make a cash payment as provided in the Rights Agreement for
fractions of a share other than one one-thousandths (1/1000ths) of a share or
any integral multiple thereof or (2) to issue depository receipts evidencing
such authorized fraction of a share of this Series pursuant to an appropriate
agreement between the Corporation and a depository selected by the Corporation;
provided that such agreement shall provide that the holders of such depository
receipts shall have all the rights, privileges and preferences to which they are
entitled as holders of this Series.
10. Reacquired Shares. Any shares of this Series purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preference Stock,
without designation as to series until such shares are once more designated as
part of a particular series by the Board of Directors pursuant to the provisions
of the Certificate of Incorporation.
11. Amendment. None of the powers, preferences and relative,
participating optional and other special rights of this Series as provided
herein shall be amended in any manner which would alter or change the powers,
preferences, rights or privileges of the holders of this Series so as to affect
them adversely without the affirmative vote of the holders of at least 66-2/3%
of the
6
<PAGE> 20
outstanding shares of this Series, voting as a separate class; provided,
however, that no such amendment approved by the holders of at least 66-2/3% of
the outstanding shares of this Series shall be deemed to apply to the powers,
preferences, rights or privileges of any holder of shares of this Series
originally issued upon exercise of a Right after the time of such approval
without the approval of such holder.
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President this 20th day of November, 1998.
ILLUMINET HOLDINGS, INC.
By:
-------------------------------------
President
Attest:
- -----------------------------------
Name:
------------------------------
Title: Secretary
STATE OF )
) ss.
COUNTY OF )
Before me, the undersigned Notary Public in and for said county and
state, this day personally appeared and , personally known to me to be the
President and Secretary, respectively, of ILLUMINET HOLDINGS, INC., and who
executed the foregoing instrument as President and Secretary, respectively, of
ILLUMINET HOLDINGS, INC. and being first duly sworn, acknowledged reading in
full and fully understanding the foregoing, acknowledged the facts therein
stated to be true and correct, and who further acknowledged the execution of the
same as the voluntary act of the Corporation.
Witness my hand and seal this 20th day of November, 1998.
----------------------------------------
Notary Public
My Commission Expires:
7
<PAGE> 21
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
($.01 PAR VALUE)
OF
ILLUMINET HOLDINGS, INC.
THE UNDERSIGNED DOES HEREBY CERTIFY that the following Resolution was
duly adopted by the Board of Directors and approved by the shareholders of
Illuminet Holdings, Inc. (the "Corporation") pursuant to Section 242 of the
General Corporation Law of the State of Delaware:
RESOLVED, that the Certificate of Designation of Series A Convertible
Preferred Stock of the Corporation filed with the Secretary of State of Delaware
be amended to add the following Subsection (h) to Section 5 thereof:
(h) Each share of this Series shall automatically be converted into
the Conversion Amount upon the closing of a firm commitment
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of common stock for the
account of the Corporation to the public.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed this 21st day of June , 1999.
ILLUMINET HOLDINGS, INC.
By:
-------------------------------------
Name: Roger H. Moore
Title: President & CEO
<PAGE> 1
EXHIBIT B
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.
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
<PAGE> 2
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.
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
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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 entities 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 Section 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 STOCKHOLDERS' 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 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.
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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 vote of a majority in interest of the stockholders, at the annual
meeting or at a special meeting called for that purpose.
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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
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.
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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.
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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 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.
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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.
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
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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.
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.
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ARTICLE VII
INDEMNIFICATION 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
determination 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 I 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 agent is proper in the circumstances
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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.
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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.
3. Article VI of the By-Laws is hereby amended and restated in its
entirety so as to read as follows:
<PAGE> 13
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.
----------------------------------------
Secretary
<PAGE> 1
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
$13,248,000
7.5% Convertible Redeemable Subordinated Debentures
due August 15, 2001
----------------------------
INDENTURE
Dated as of August 15, 1991
----------------------------
United Missouri Bank, N.A.,
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310 (a) (1) -.................................................................7.10
(a) (2)...................................................................7.10
(a) (3)...................................................................N.A.
(a) (4)...................................................................N.A.
(b)..........................................................7.08; 7.10; 12.01
(c).......................................................................7.11
311 (a).......................................................................7.11
(b).......................................................................7.11
(c).......................................................................N.A.
312 (a).......................................................................2.05
(b)......................................................................12.03
(c)......................................................................12.03
313 (a).......................................................................7.06
(b) (1)...................................................................N.A.
(b) (2)...................................................................7.06
(c)......................................................................12.02
(d).......................................................................7.06
314 (a)................................................................4.02; 12.02
(b).......................................................................N.A.
(c) (1)..................................................................12.04
(c) (2)..................................................................12.04
(c) (3)...................................................................N.A.
(d).......................................................................N.A.
(e)......................................................................12.05
(f).......................................................................4.03
315 (a)....................................................................7.01(b)
(b)................................................................7.05; 12.02
(c)....................................................................7.01(a)
(d)....................................................................7.01(c)
(e).......................................................................6.11
316(a)(last sentence)..........................................................2.09
(a)(1)(A).................................................................6.05
(a)(1)(B).................................................................6.04
(a)(2)....................................................................N.A.
(b).......................................................................6.07
317 (a)(1)....................................................................6.08
(a)(2)....................................................................6.09
(b).......................................................................2.04
318 (a)......................................................................12.01
</TABLE>
N.A. means not applicable
- ----------
* This Cross-Reference Table is not part of the Indenture
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.......................................1
SECTION 1.1 DEFINITIONS...................................................................1
SECTION 1.2 OTHER DEFINITIONS.............................................................3
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.............................4
ARTICLE 2 THE SECURITIES...................................................................4
SECTION 2.1 FORM AND DATING...............................................................4
SECTION 2.2 EXECUTION AND AUTHENTICATION..................................................4
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT..................................5
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST...........................................5
SECTION 2.5 SECURITYHOLDER LISTS..........................................................5
SECTION 2.6 TRANSFER AND EXCHANGE.........................................................5
SECTION 2.7 REPLACEMENT SECURITIES........................................................6
SECTION 2.8 OUTSTANDING SECURITIES........................................................6
SECTION 2.9 TREASURY SECURITIES...........................................................6
SECTION 2.10 TEMPORARY SECURITIES.........................................................6
SECTION 2.11 CANCELLATION.................................................................7
SECTION 2.12 DEFAULTED INTEREST...........................................................7
SECTION 2.13 UNCLAIMED PRINCIPAL AND INTEREST.............................................7
ARTICLE 3 REDEMPTION.......................................................................7
SECTION 3.1 NOTICES TO TRUSTEE............................................................7
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED........................................7
SECTION 3.3 NOTICE OF REDEMPTION..........................................................8
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION................................................8
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE...................................................8
SECTION 3.6 SECURITIES REDEEMED IN PART...................................................8
ARTICLE 4 COVENANTS........................................................................9
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 4.1 PAYMENT OF SECURITIES.........................................................9
SECTION 4.2 SEC REPORTS...................................................................9
SECTION 4.3 COMPLIANCE CERTIFICATE........................................................9
SECTION 4.4 USURY LAWS....................................................................9
SECTION 4.5 RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS.................................10
SECTION 4.6 RESTRICTIONS ON ADDITIONAL INDEBTEDNESS......................................10
SECTION 4.7 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST..............................10
SECTION 4.8 CONTINUED EXISTENCE..........................................................11
SECTION 4.9 MAINTENANCE OF PROPERTIES....................................................11
SECTION 4.10 TAXES.......................................................................12
SECTION 4.11 ORIGINAL ISSUE DISCOUNT.....................................................12
ARTICLE 5 SUCCESSORS......................................................................12
SECTION 5.1 WHEN COMPANY MAY MERGE, ETC..................................................12
ARTICLE 6 DEFAULTS AND REMEDIES...........................................................13
SECTION 6.1 EVENTS OF DEFAULT............................................................13
SECTION 6.2 ACCELERATION.................................................................14
SECTION 6.3 OTHER REMEDIES...............................................................14
SECTION 6.4 WAIVER OF PAST DEFAULTS......................................................15
SECTION 6.5 CONTROL BY MAJORITY..........................................................15
SECTION 6.6 LIMITATION ON SUITS..........................................................15
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.........................................15
SECTION 6.8 COLLECTION SUIT BY TRUSTEE...................................................16
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.............................................16
SECTION 6.10 PRIORITIES..................................................................16
SECTION 6.11 UNDERTAKING FOR COSTS.......................................................16
ARTICLE 7 TRUSTEE.........................................................................17
SECTION 7.1 DUTIES OF TRUSTEE............................................................17
SECTION 7.2 RIGHTS OF TRUSTEE............................................................18
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.................................................18
SECTION 7.4 TRUSTEE'S DISCLAIMER.........................................................18
SECTION 7.5 NOTICE OF DEFAULTS...........................................................18
SECTION 7.6 REPORTS BY TRUSTEES TO HOLDERS...............................................18
SECTION 7.7 COMPENSATION AND INDEMNITY...................................................19
SECTION 7.8 REPLACEMENT OF TRUSTEE.......................................................19
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.............................................20
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION...............................................20
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...........................20
ARTICLE 8 DISCHARGE OF INDENTURE..........................................................21
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS.........................................21
SECTION 8.2 APPLICATION OF TRUST MONEY...................................................21
SECTION 8.3 REPAYMENT TO COMPANY.........................................................21
ARTICLE 9 AMENDMENTS......................................................................22
SECTION 9.1 WITHOUT CONSENT OF HOLDERS...................................................22
SECTION 9.2 WITH CONSENT OF HOLDERS......................................................22
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT..........................................23
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS............................................23
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES........................................23
SECTION 9.6 TRUSTEE PROTECTED............................................................23
ARTICLE 10 CONVERSION.....................................................................24
SECTION 10.1 CONVERSION PRIVILEGE........................................................24
SECTION 10.2 CONVERSION PROCEDURE........................................................24
SECTION 10.3 FRACTIONAL SHARES...........................................................24
SECTION 10.4 TAXES ON CONVERSION.........................................................24
SECTION 10.5 COMPANY TO PROVIDE STOCK....................................................25
SECTION 10.6 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK......................................25
SECTION 10.7 WHEN NO ADJUSTMENT REQUIRED.................................................25
SECTION 10.8 NOTICE OF CERTAIN TRANSACTIONS..............................................26
SECTION 10.9 REORGANIZATION OF COMPANY...................................................26
SECTION 10.10 COMPANY DETERMINATION FINAL................................................26
SECTION 10.11 TRUSTEE'S DISCLAIMER.......................................................27
ARTICLE 11 SUBORDINATION..................................................................27
SECTION 11.1 AGREEMENT TO SUBORDINATE....................................................27
SECTION 11.2 CERTAIN DEFINITIONS.........................................................27
SECTION 11.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY........................................27
SECTION 11.4 DEFAULT ON SENIOR DEBT......................................................28
SECTION 11.5 ACCELERATION OF SECURITIES..................................................28
SECTION 11.6 WHEN DISTRIBUTION MUST BE PAID OVER.........................................28
SECTION 11.7 NOTICE BY COMPANY...........................................................29
SECTION 11.8 SUBROGATION.................................................................29
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 11.9 RELATIVE RIGHTS.............................................................29
SECTION 11.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY...............................29
SECTION 11.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE...................................29
SECTION 11.12 RIGHTS OF TRUSTEE AND PAYING AGENT.........................................30
ARTICLE 12 MISCELLANEOUS..................................................................30
SECTION 12.1 TRUST INDENTURE ACT CONTROLS................................................30
SECTION 12.2 NOTICES.....................................................................30
SECTION 12.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.................................30
SECTION 12.4 CERTIFICATE AND OPINIONS AS TO CONDITIONS PRECEDENT.........................30
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION...............................31
SECTION 12.6 RULES BY TRUSTEE AND AGENTS.................................................31
SECTION 12.7 LEGAL HOLIDAYS..............................................................31
SECTION 12.8 NO RECOURSE AGAINST OTHERS..................................................31
SECTION 12.9 DUPLICATE ORIGINALS.........................................................31
SECTION 12.10 VARIABLE PROVISIONS........................................................32
SECTION 12.11 GOVERNING LAW..............................................................32
SECTION 12.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..............................32
SECTION 12.13 SUCCESSORS.................................................................32
SECTION 12.14 SEVERABILITY...............................................................32
SIGNATURES . . .
EXHIBIT A . . .
</TABLE>
<PAGE> 7
THIS INDENTURE, dated as of August 15, 1991, between ILLUMINET
HOLDINGS, INC., a Delaware corporation (the "COMPANY"), and UNITED MISSOURI
BANK, N.A., as trustee (the "Trustee").
WHEREAS, the Company has duly authorized the issue of its 7.5%
convertible redeemable subordinated debentures due August 15, 2001 (the
"SECURITIES"), and to provide, among other things, for the authentication,
delivery and administration thereof, the Company has duly authorized the
execution and delivery of this Indenture;
WHEREAS, all acts and things necessary to make this Indenture
and, when duly executed by the Company and authenticated by the Trustee, the
Securities, valid and legally binding obligations of the Company according to
their terms have been done and performed, in execution of this Indenture and the
issue hereunder of the Securities have in all respects been authorized by the
Company.
NOW, THEREFORE, in consideration of the premises and the
purchases of the Securities by the holders thereof, the Company and the Trustee
mutually covenant and agree for the equal and proportionate benefit of the
respective holders from time to time of the Securities as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for purposes of this Indenture shall have the respective meanings specified in
this Section. All other terms used in this Indenture that are defined in the
Trust Indenture Act of 1939 or the definitions of which in the Securities Act of
1933 are referred to in the Trust Indenture Act of 1939, including terms defined
therein by reference to the Securities Act of 1933 (except as herein otherwise
expressly provided or unless the context otherwise clearly requires), shall have
the meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as enforced at the date of this Indenture. All accounting terms
used herein and not expressly defined shall have the meanings assigned to such
terms in accordance with generally accepted accounting principals, and the term
"generally accepted accounting principals" means such accounting principals as
are generally accepted at the time of any computation.
"AFFILIATE" means any person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company.
"AGENT" means any Registrar, Paying Agent, Conversion Agent, or
co-registrar.
"BOARD OF DIRECTORS" means the Board of Directors of the Company
or any authorized committee of the Board.
"BUSINESS DAY" means any day except for a Legal Holiday, as
defined in Section 12.7.
<PAGE> 8
"CAPITAL STOCK" means all shares, interests, participations, or
other equivalents (however designated) of corporate stocks.
"COMPANY" means the party named as such above until a successor
replaces it in accordance with Article 5 and thereafter means the successor.
"CONSOLIDATED NET INCOME" means, for, any period, the aggregate
of the Net Income of the Company and its subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person which is not a
subsidiary or is accounted for by the Company by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid to the Company or a subsidiary, and (ii) the Net Income of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded. "Net Income" of any person shall mean the
net income (loss) of such person, determined in accordance with generally
accepted accounting principles; excluding, however, from the determination of
Net Income any gain (but not loss) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to permissible leaseback
transactions) of any real property or equipment of such person, which is not
sold or otherwise disposed of in the ordinary course of business, and any gain
(but not loss) realized upon the sale or other disposition of any capital stock
of the Company or a subsidiary owned by such person.
"DEFAULT" means any event which is, or after notice or passage
of time would be, an Event of Default.
"HOLDER" or "SECURITYHOLDER" means a person in whose name a
Security is registered.
"INDENTURE" means this Indenture as amended from time to time.
"OFFICERS' CERTIFICATE" means a certificate signed by two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice-President of the Company. See Sections 12.4, 12.5 and 12.10.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is acceptable to the Trustee. The counsel may be an employee of or counsel
to the Company or the Trustee. See Sections 12.4 and 12.5.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Securities described above issued under
this Indenture in the form of Exhibit A hereto.
2
<PAGE> 9
"SUBSIDIARY" means any person of which at least a majority of
capital stock having ordinary voting power for the election of directors or
other governing body of such person is owned by the Company directly or through
one or more subsidiaries.
"TANGIBLE NET WORTH" means the consolidated equity of the
stockholders of the Company and its consolidated subsidiaries less their
consolidated Intangible Assets, all determined on a consolidated basis in
accordance with generally acceptable accounting principles. For purposes of this
definition "INTANGIBLE ASSETS" means the amount (to the extent reflected in
determining such consolidated equity of the stockholders) of (i) all write-ups
(other than write-ups resulting from foreign currency translations and write-ups
of tangible assets of a going concern business made within twelve months after
the acquisition of such business) subsequent to June 30, 1990 in the book value
of any asset owned by the Company or a consolidated subsidiary, (ii) all
investments in unconsolidated subsidiaries and in persons which are not
subsidiaries, and (iii) all unamortized debt discount and expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, organization and development expenses and other intangible items,
all of the foregoing as determined in accordance with generally accepted
accounting principles.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of execution of this Indenture.
"TRUSTEE" means the party named as such above until a successor
replaces it and thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President
or any other officer or assistant officer or other employee by the Trustee
assigned by the Trustee to administer its corporate trust matters.
SECTION 1.2 OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Bankruptcy Law"............................................... 6.1
"Common Stock"................................................. 10.1
"Conversion Agent"............................................. 2.3
"Custodian".................................................... 6.1
"Debt"......................................................... 11.2
"Event of Default"............................................. 6.1
"Legal Holiday"................................................ 12.7
"Officer"...................................................... 12.10
"Paying Agent"................................................. 2.3
"Quoted Price"................................................. 12.10
"Registrar".................................................... 2.3
"Representative"............................................... 11.2
"Senior Debt".................................................. 11.2
"U.S. Government Obligations".................................. 8.1
</TABLE>
3
<PAGE> 10
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"INDENTURE SECURITIES" means the Securities;
"INDENTURE SECURITY HOLDER" means a Securityholder;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee;
"OBLIGOR" on the securities means the Company.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
ARTICLE 2
THE SECURITIES
SECTION 2.1 FORM AND DATING. The Securities shall be
substantially in the form of Exhibit A, which is part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Security shall be dated the date of its
authentication.
SECTION 2.2 EXECUTION AND AUTHENTICATION. Two Officers shall
sign the Securities for the Company by manual or facsimile signature. The
Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
Prior to authentication, the Company will provide the Trustee
with the names and addresses of the holders of the Securities, and a certificate
from each holder stating their tax identification or social security number.
The Trustee shall authenticate Securities for original issue up
to an aggregate principal amount of $13,248,000 upon a written order of the
Company signed by two Officers. The aggregate principal amount of Securities
outstanding at any time may not exceed
4
<PAGE> 11
$13,248,000 except as provided in Section 2.7 or as may be increased by interest
which is capitalized and added to principal pursuant to paragraph 2 of the
Securities.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same right as an Agent to deal with the Company or
an Affiliate.
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT. The
Company shall maintain an office or agency where securities may be presented for
registration of transfer or for exchange ("REGISTRAR"), an office or agency
where Securities may be presented for payment ("PAYING AGENT") and an office or
agency where Securities may be presented for conversion ("CONVERSION AGENT").
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents. The
Company may change any Paying Agent, Registrar, Conversion Agent or co-registrar
without notice to any Securityholder. The term "PAYING AGENT" includes any
additional paying agent; the term "CONVERSION AGENT" includes any additional
conversion agent. The Company shall notify the Trustee of the name and address
of any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar, Paying Agent or Conversion Agent, the
Trustee shall act as such. The Company or any of its subsidiaries may act as
Conversion Agent, Paying Agent or Registrar.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST. The Company
shall require each Paying Agent other than the Trustee to agree in writing that
the Paying Agent will hold in trust for the benefit of Securityholders or the
Trustee all money held by the Paying Agent for the payment of principal or
interest on the Securities, and will notify the Trustee of any failure by the
Company in making any such payment. While any such failure continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent shall have no
further liability for the money. If the Company acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the
Securityholders all money held by it as Paying Agent.
SECTION 2.5 SECURITYHOLDER LISTS. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee on or before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders.
SECTION 2.6 TRANSFER AND EXCHANGE. Where Securities are
presented to the Registrar or a co-registrar with a request to register,
transfer or exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met. To permit registrations of
transfer and exchanges, the Company shall issue and the Trustee shall
authenticate Securities at
5
<PAGE> 12
the Registrar's request. No service charge shall be made for the registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.6, 9.5 or 10.2).
The Company shall not be required (i) to issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 15 days before the day of any selection of Securities for redemption
under Section 3.2 and ending at the close of business on such day of selection,
or (ii) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
The Securities may only be sold or otherwise transferred as a
unit with the Series A Convertible Preferred Stock issued as a unit with the
Securities.
SECTION 2.7 REPLACEMENT SECURITIES. If the Holder of a Security
claims that the Security has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Security if
the Trustee's requirements are met. If required by the Trustee or the Company,
an indemnity bond must be sufficient in the judgment of both to protect the
Company, the Trustee, any Agent or any authenticating agent from any loss which
any of them may suffer if a security is replaced. The Company and the Trustee
may charge for its expenses in replacing a Security.
SECTION 2.8 OUTSTANDING SECURITIES. The Securities outstanding
at any time are all the Securities authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.1, they cease
to be outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company
or an Affiliate holds the Security.
SECTION 2.9 TREASURY SECURITIES. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or an Affiliate
shall be considered as though they are not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which the Trustee knows are
so owned shall be so disregarded.
SECTION 2.10 TEMPORARY SECURITIES. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have
6
<PAGE> 13
variations that the company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.11 CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar, Paying Agent and
Conversion Agent shall forward to the Trustee any Securities surrendered to them
for registration of transfer, exchange, payment or conversion. The Trustee shall
cancel all Securities surrendered for registration of transfer, exchange,
payment, replacement, conversion or cancellation and shall dispose of cancelled
Securities as the Company directs. The Company may not issue new securities to
replace Securities that it has paid or that have been delivered to the Trustee
for cancellation or that any Securityholder has converted pursuant to Article
10.
SECTION 2.12 DEFAULTED INTEREST. If the Company fails to make a
payment of interest on the Securities, it shall pay such interest thereafter in
any lawful manner. It may pay such interest, plus any interest payable on it, to
the persons who are Securityholders on a subsequent special record date. The
Company shall fix the record date and payment date. At least 15 days before the
record date, the company shall mail to Securityholders a notice that states the
record date, payment date, and amount of such interest to be paid.
SECTION 2.13 UNCLAIMED PRINCIPAL AND INTEREST. The Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years.
After payment to the Company, Securityholders entitled to the money must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another person.
ARTICLE 3
REDEMPTION
SECTION 3.1 NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 6 of the Securities, it shall notify the
Trustee of the redemption date and the principal amount of Securities to be
redeemed. If the Company wants to credit against any such redemption Securities
it has not previously delivered to the Trustee for cancellation, it shall
deliver the Securities with the notice.
The company shall give the notice provided for in this Section
at least 45 days before the redemption date.
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED. If less than
all the Securities are to be redeemed, the Trustee shall select, subject to the
remainder of this Section, the Securities to be redeemed pro rata or by lot. The
Trustee shall make the selection not more than 75 days and not less than 45 days
before the redemption date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called
7
<PAGE> 14
for redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
SECTION 3.3 NOTICE OF REDEMPTION. At least 30 days but not more
than 60 days before a redemption date, the Company shall mail a notice of
redemption by first-class mail to each Holder whose Securities are to be
redeemed. At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the conversion ratio;
(4) the name and address of the Paying Agent and
Conversion Agent;
(5) that Securities called for redemption may be
converted at any time before the close of business on the fifth
business day prior to the redemption date;
(6) that Holders who want to convert Securities must
satisfy the requirements in paragraph 8 of the Securities;
(7) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(8) that interest on Securities called for
redemption ceases to accrue on and after the redemption date;
and
(9) that if any Security is being redeemed in part,
upon surrender of such Security, a new Security in the aggregate
principal amount equal to the unredeemed portion of the old
Security so surrendered shall be delivered to the Holder after
the redemption date.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date at the redemption price.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE. On or before the
redemption date, the Company shall deposit with the Paying Agent money in fully
collected funds sufficient to pay the redemption price of and accrued interest
on all Securities to be redeemed on that date. The Paying Agent shall return to
the Company any money not required for that purpose.
SECTION 3.6 SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall issue and the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
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ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES. The Company shall pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities. Principal and interest shall be considered paid on
the date due if the Paying Agent (other than the Company or a subsidiary) holds
on that date money, in fully collected funds, designated for and sufficient to
pay all principal and interest then due, and such money is not subject to any
adverse claims under bankruptcy or other law.
The Company shall pay interest on overdue principal at the rate
borne by the Securities; it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
SECTION 4.2 SEC REPORTS. The Company shall deliver to the
Trustee within 15 days after it files them with the SEC copies of the annual
reports and of the information documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The Company also
shall comply with the other provisions of TIA Section 314(a). The Company shall
timely comply with its reporting and filing obligations under the applicable
federal securities law.
SECTION 4.3 COMPLIANCE CERTIFICATE. The Company shall deliver to
the, Trustee, within 90 days after the end of each fiscal year of the Company,
an Officers' Certificate stating that a review of the activities of the Company
and its subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his knowledge the Company has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he may
have knowledge) and that to the best of his knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Securities are prohibited. See Section 12.4 and
12.5.
The Company will, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon becoming aware of (i) any
Default, Event of Default or default in the performance of any covenant,
agreement or condition contained in this Indenture or (ii) any event of default
under any other mortgage, indenture or instrument as that term is used in
Section 6.1(4), an Officers' Certificate specifying such Default, Event of
Default or default.
SECTION 4.4 USURY LAWS. The Company will not voluntarily claim
and will actively resist any attempts to claim the benefit of any usury laws
against the Holders of the Securities.
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SECTION 4.5 RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. The
Company may not:
(1) declare or pay any dividend or make any
distribution on its capital stock or to its stockholders (other
than dividends or distributions payable in its capital stock);
or
(2) purchase, redeem, or otherwise acquire or retire
for value any of its capital stock or permit any subsidiary to
do so;
if at the time of such action an Event of Default shall have occurred and be
continuing or if upon giving effect thereto the aggregate amount expended for
all such purposes subsequent to the date of execution of this Indenture shall
exceed the sum of (A) 75% of the aggregate Consolidated Net Income of the
Company accrued subsequent to June 30, 1990, (B) the aggregate net proceeds,
including cash and the fair market value of property other than cash (as
conclusively determined by the Board of Directors as evidenced by a board
resolution), received by the Company from the issue or sale subsequent to June
30, 1990 of capital stock of the Company (other than preferred stock subject to
mandatory redemption or redemption at the option of the holder) other than in
connection with the conversion of any indebtedness, and (C) the aggregate net
proceeds received by the Company subsequent to the date of execution of this
Indenture from the issue or sale of any indebtedness of the Company which has
been converted into capital stock of the Company (other than preferred stock
subject to mandatory redemption or redemption at the option of the holder);
provided, however, that these provisions will not prevent (i) the payment of any
dividend within 60 days after the date of declaration when the payment complied
with the foregoing provisions on the date of declaration, or (ii) the retirement
of any shares of the Company's capital stock by exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a subsidiary) of,
other shares of its capital stock (other than preferred stock subject to
mandatory redemption or redemption at the option of the holder).
SECTION 4.6 RESTRICTIONS ON ADDITIONAL INDEBTEDNESS. Subsequent
to the date of issuance of the Securities, the Company may not incur additional
indebtedness except for (i) indebtedness incurred for capital expenditures or
expenses and costs related to the expansion of the Company's business operations
or service capabilities through acquisition of existing businesses or services
or portions thereof, whether from affiliated or non-affiliated entities; (ii)
indebtedness incurred to refinance all or part of the Securities; (iii)
indebtedness fully secured by the assets of the Company or any affiliate of the
Company; or (iv) working capital debt.
SECTION 4.7 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. If
the Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on the Securities, segregate and
hold in trust for the benefit of the persons entitled thereto a sum sufficient
to pay the principal or interest so becoming due until such sum shall be paid to
such persons or otherwise disposed of as herein provided, and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, not later than the business day prior to each date for the payment of the
principal of or interest on the Securities, deposit in fully collected funds
with a Paying Agent a sum sufficient to pay the
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principal or interest so becoming due, such sum to be held in trust for the
benefit of persons entitled to such payments; and, unless such Paying Agent is
the Trustee, the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of or interest on the Securities in trust for the
benefit of the persons entitled thereto until such sums shall be
paid to such persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Securities) in the making
of any payment of principal or interest; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay
to the Trustee all sums so held in trust by such Paying Agent.
The Company may at any time pay, or direct any Paying Agent to
pay, to the Trustee all sums held in trust by the Company or such Paying Agent,
such sums to be held by the Trustee upon the same trusts as those upon which
such sums were held by the Company or such Paying Agent; and, upon such payment
by the Company or any Paying Agent to the Trustee, the Company or such Paying
Agent, as the case may be, shall be released from all further liability with
respect to payment to the Trustee of such money.
SECTION 4.8 CONTINUED EXISTENCE. Subject to Article 5, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its existence as a corporation.
SECTION 4.9 MAINTENANCE OF PROPERTIES. The Company shall, and
shall cause each of its subsidiaries to, maintain its properties and assets in
good working order and condition and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto unless the failure
to do so would not be adverse to the Holders.
The Company shall, and shall cause each of its subsidiaries to,
maintain with financially sound and reputable insurers such insurance as may be
required by law and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by companies similarly
situated.
The company shall, and shall cause each of its subsidiaries to,
keep true books of records and accounts in which full and correct entries will
be made of all its business transactions, in accordance with sound business
practices, and, reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally accepted accounting
principles.
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The Company shall, and shall cause each of its subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition,
financial or otherwise, of the Company and its subsidiaries taken as a whole.
SECTION 4.10 TAXES. The Company shall, and shall cause each of
its subsidiaries to, pay prior to delinquency all taxes, assessments and
governmental levies, except as contested in good faith and by appropriate
proceedings.
SECTION 4.11 ORIGINAL ISSUE DISCOUNT. Within twenty days after
the end of each calendar year, the Company will provide the Trustee with
information as to the amount of original issue discount that has accrued on the
Securities during the previous calendar year.
ARTICLE 5
SUCCESSORS
SECTION 5.1 WHEN COMPANY MAY MERGE, ETC. The Company shall not
consolidate or merge with or into, or transfer or lease all or substantially all
of its assets to, any person unless:
(1) the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which
such sale or conveyance shall have been made, assumes by
supplemental indenture all the obligations of the Company under
the Securities and this Indenture, except that it need not
assume the obligations of the Company as to conversion of
Securities if, pursuant to Section 10.9, the Company or another
person enters into a supplemental indenture obligating it to
deliver securities, cash or other assets upon conversion of
Securities;
(2) immediately after the transaction no Default or
Event of Default exists; and
(3) the corporation formed by or surviving any such
consolidation or merger, or to which such sale or conveyance
shall have been made, shall have Tangible Net Worth (immediately
after the transaction) equal to or greater than the Tangible Net
Worth of the Company (immediately preceding the transaction).
The Company shall deliver to the Trustee prior to the proposed
transaction an officers' Certificate to the foregoing effect and an opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with this Indenture.
The surviving corporation shall be the successor Company, but
the predecessor Company in the case of a transfer or lease shall not be released
from the obligation to pay the principal of and interest on the Securities.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest
on any Security when the same becomes due and payable and the
Default continues for a period of 30 days;
(2) the Company defaults in payment of the principal
of any Security when the same becomes due and payable at
maturity, upon redemption or otherwise;
(3) the Company fails to comply with any of its
other agreements or covenants in, or provisions of, the
Securities or this Indenture, other than those specified in
subparagraph (1) and (2) above, and the Default continues for
the period and after the notice specified below;
(4) an event of default occurs under any mortgage,
indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any subsidiary (or the payment
of which is guaranteed by the Company or a subsidiary), whether
such indebtedness or guarantee now exists or shall be created
hereafter, if the effect of such event of default is to cause or
permit the acceleration of such indebtedness prior to its
expressed maturity, and such event of default results in an
acceleration of a principal amount of such indebtedness which,
together with the principal amount of any such other
indebtedness so accelerated (other than as referred to in the
proviso below) aggregates $500,000 or more;
(5) a final judgment or final judgments for the
payment of money are entered by a court or courts of competent
jurisdiction against the Company or any subsidiary which remain
undischarged for a period (during which execution shall not be
effectively stayed) of 30 days, provided that the aggregate
amount of all such judgments exceeds $500,000 and the Default
continues for the period and after the notice specified below;
(6) the Company or any material subsidiary pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for
relief against it in an involuntary case,
(C) consents to the appointment of a
Custodian of it or for all or substantially all of its
property,
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(D) makes a general assignment for the
benefit of its creditors, or
(E) generally is unable to pay its debts as
the same become due; or
(7) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
material subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or
any material subsidiary for all or substantially all of
its property, or
(C) orders the liquidation of the Company or
any material subsidiary,
and the order or decree remains unstayed and in effect for 60
days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any
similar Federal or State Law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under clause (3) (other than Defaults under Section
5.1 or in connection with obligations arising pursuant to Section 10.1 which
Defaults shall be Events of Default with the notice but without the passage of
time specified in this paragraph) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Securities notify the Company of the Default and the Company does
not cure the Default within 60 days after receipt of this notice. The notice
must specify the Default, demand that it be remedied and state that the notice
is a "NOTICE OF DEFAULT."
SECTION 6.2 ACCELERATION. If an Event of Default (other than, an
Event of Default specified in clauses (6) and (7) of Section 6. 1) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the then outstanding Securities by notice to the Company
and the Trustee, may declare the principal of and accrued interest on all the
Securities to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately. If an Event of Default specified
in clauses (6) or (7) of Section 6.1 occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Securities by notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
SECTION 6.3 OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal or interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
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The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS. The Holders of a majority
in principal amount of the then outstanding Securities by notice to the Trustee
may waive an existing Default or Event of Default and its consequences except a
continuing Default or Event of Default in the payment of the principal of or
interest on any Security or a Default or Event of Default under Article 10.
SECTION 6.5 CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the then outstanding Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture, is
unduly prejudicial to the rights of other Securityholders, or would involve the
Trustee in personal liability.
SECTION 6.6 LIMITATION ON SUITS. A Securityholder may pursue a
remedy with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount
of the then outstanding securities make a request to the Trustee
to pursue the remedy;
(3) such Holder or Holders offer to the Trustee
indemnity satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of
indemnity; and
(5) during such 60-day period the Holders of a
majority in principal amount of the then outstanding Securities
do not give the Trustee a direction inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Security to receive payment of principal and interest on the Security, on
or after the respective due dates expressed in the Security, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
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Notwithstanding any other provision of this Indenture, the right
of any Holder of a Security to bring suit for the enforcement of the right to
convert the Security shall not be impaired or affected without the consent of
the Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount of principal and interest remaining unpaid on the
Securities.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may
file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property.
SECTION 6.10 PRIORITIES. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section
7.7;
Second: to holders of Senior Debt to the extent required
by Article 11;
Third: to Securityholders for amounts due and unpaid on
the Securities for principal and interest,
ratably, without preference or priority of any
kind, according to the amounts due and payable
on the Securities for principal and interest,
respectively; and
Fourth: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders.
SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by
Holders of more than 10% in principal amount of the then outstanding Securities
unless the Trustee is a defendant in such suit and then only with respect to the
costs of the Trustee.
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ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that
are specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts.
(3) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee may refuse to perform any duty or exercise
any right or power unless it receives indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree with the Company.
Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
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SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any documents believed by it to
be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on the Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or an Affiliate with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Section 7.10 and 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement in the
Securities other than its authentication.
SECTION 7.5 NOTICE OF DEFAULTS. If a Default or Event of Default
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to Securityholders a notice of the Default or Event of Default within 90
days after it occurs and becomes known to the Trustee. Except in the case of a
Default or Event of Default in payment on any Security (including any failure to
make any mandatory redemption payment required hereunder), the Trustee may
withhold the notice if and so long as the Trustee in good faith determines that
withholding the notice is in the interest of Securityholders. The Trustee shall
not be required to take notice or be deemed to have notice of any Event of
Default as set forth in Section 6.1 hereof, except failure by the Company to pay
or cause to be paid principal or interest on the debentures as the same becomes
due, unless the Trustee shall be specifically notified in writing at the address
specified in Section 12.10 hereof of such default by the Company, or the Holders
of at least twenty-five percent (25%) in principal amount of the debentures then
outstanding, and in the absence of such notice so delivered to the Trustee, the
Trustee may conclusively assume there is no default, unless the failure to take
such notice of default without any duty of independent investigation would
constitute negligence or willful misconduct on the part of the Trustee.
SECTION 7.6 REPORTS BY TRUSTEES TO HOLDERS. Within 60 days after
the reporting date stated in Section 12.5, the Trustee shall mail to
Securityholders a brief report dated as of such reporting date that complies
with TIA Section 313(a). The Trustee also shall comply with TIA Section
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA Section 313(c).
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A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which the
Securities are listed. The Company shall notify the Trustee when the Securities
are listed on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it. Such expenses
may include the reasonable compensation and out-of-pocket expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss, cost
(except for the Trustee's internal costs), or liability incurred by it except as
set forth in the next paragraph. The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The Company need not reimburse any expenses or indemnify against
any loss, cost or liability incurred by the Trustee through negligence or
willful misconduct on the part of the Trustee.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company or the Trustee may make a charge against a holder
sufficient for the reimbursement of any governmental charge required to be paid
in the event such holder fails to provide a correct taxpayer identification
number to the Trustee. Such charge may be deducted from a principal or interest
payment due to such holder.
SECTION 7.8 REPLACEMENT OF TRUSTEE. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section.
The Trustee may resign by so notifying the Company. The Holders
of a majority in principal amount of the then outstanding securities may remove
the Trustee by so notifying the Trustee and the Company. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent or
an order for relief is entered with respect to the Trustee under
any Bankruptcy Law;
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(3) a Custodian or public officer takes charge of
the Trustee or its property;
(4) the Trustee becomes incapable of acting; or
(5) The Trustee and the Company fail to agree on the
reasonableness of the fees and expenses of the Trustee and a
writing to such effect is delivered to the Trustee and signed by
the Company provided however no Event of Default has occurred
and is continuing.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, power and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to another corporation, the successor corporation
without any further act shall be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. This Indenture shall
always have a Trustee who satisfies the requirements of TIA Section 310(a)(1).
The Trustee shall always have a combined capital and surplus as stated in
Section 12.10. The Trustee is subject to TIA Section 310(b), including the
optional provision permitted by the second sentence of TIA Section 310(b)(9).
Section 12.10 lists any excluded indenture or trust agreement.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS. This Indenture
shall cease to be of further effect (except that the Company's obligations under
Section 7.7 and 8.3 shall survive) when all outstanding Securities theretofore
authenticated and issued have been delivered to the Trustee for cancellation.
In addition, the Company may terminate all of its obligations
under this Indenture if:
(1) the Securities mature within one year or all of
them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice
of redemption; and
(2) the Company irrevocably deposits in trust with
the Trustee money or U.S. Government Obligations sufficient to
pay principal and interest on the Securities to maturity or
redemption, as the case may be. The Company may make the deposit
only during the one-year period specified in subparagraph (1)
above and only if Article 11 permits it.
However, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1,
4.4, 4.6, 7.7, 7.8, 8.3, and in Article 10, shall survive until the Securities
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.7 and 8.3 shall survive.
After a deposit made pursuant to this Section 8.1, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture except for those surviving obligations
specified above.
In order to have money available on a payment date to pay
principal or interest on the Securities, the U.S. Government obligations shall
be payable as to principal or interest on or before such payment date in such
amounts as will provide the necessary money. U.S. Government Obligations shall
not be callable at the issuer's option.
"U.S. Government Obligations" means direct obligations of the
United States of America for the payment of which the full faith and credit of
the United States of America is pledged.
SECTION 8.2 APPLICATION OF TRUST MONEY. The Trustee shall hold
in trust money or U.S. Government obligations deposited with it pursuant to
Section 8.1. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal and interest on the Securities. Money and
securities so held in trust are not subject to Article 11.
SECTION 8.3 REPAYMENT TO COMPANY. The Trustee and the Paying
Agent shall promptly pay to the Company upon request any excess money or
securities held by them at any
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time. The Company's request shall specifically state the origin and amount of
any excess money requested to be returned by the Trustee.
ARTICLE 9
AMENDMENTS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend this Indenture or the Securities without the consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency
including compliance with the TIA;
(2) to comply with Sections 5.1 and 10.9;
(3) to provide for uncertificated Securities in
addition to or in place of certificated Securities; or
(4) to make any change that does not adversely
affect the legal rights hereunder of any Securityholder.
SECTION 9.2 WITH CONSENT OF HOLDERS. Subject to Section 6.7, the
Company and the Trustee may amend this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount of the
then outstanding securities. Subject to Sections 6.4 and 6.7, the Holders of
majority in principal amount of the Securities then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. However, without the consent of each Securityholder
affected, an amendment or waiver under this Section may not:
(1) reduce the amount of Securities whose Holders
must consent to an amendment;
(2) reduce the rate of or change the time for
payment of interest, including defaulted interest, on any
Security;
(3) reduce the principal of or change the fixed
maturity of any Security;
(4) make any Security payable in money other than
that stated in the Security;
(5) make any change in Section 6.4, 6.7 or 9.2
(third sentence);
(6) make any change that adversely affects the right
to convert any Security;
(7) make any change in Article 11 that adversely
affects the rights of any Securityholder; or
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(8) waive a default in the payment of the principal
of, or interest on, any Security or any Default under Article
10.
An amendment under this Section may not make any change that
adversely affects the rights under Article 11 of any holder of an issue of
Senior Debt unless the holders of the issue pursuant to its terms consent to the
change or the change is otherwise permissible.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
to this Indenture or the Securities shall be set forth in a supplemental
indenture that complies with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS. Until an
amendment or waiver becomes effective, a consent to it by a Holder of a Security
is a continuing consent by the Holder and every subsequent Holder of a Security
or portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security if the Trustee receives the notice of revocation before
the date the amendment or waiver becomes effective. An amendment or waiver
becomes effective in accordance with its terms and thereafter binds every
Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies), and only those
persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date.
After an amendment or waiver becomes effective it shall bind
every Securityholder, unless it is of the type described in any of clauses (1)
through (8) of Section 9.2. In such case, the amendment or waiver shall bind
each Holder of a Security who has consented to it and every subsequent Holder of
a Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES. The Trustee
may place an appropriate notation about an amendment or waiver on any Security
thereafter authenticated. The Company in exchange for all Securities may issue
and the Trustee shall authenticate new Securities that reflect the amendment or
waiver.
SECTION 9.6 TRUSTEE PROTECTED. The Trustee shall sign all
supplemental indentures, except that the Trustee need not sign any supplemental
indenture that adversely affects its rights.
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ARTICLE 10
CONVERSION
SECTION 10.1 CONVERSION PRIVILEGE. A Holder of a security may
convert it into Common Stock at any time during the period stated in paragraph 8
of the Securities. If an established trading market exists for the Common Stock
at the time of conversion, each Security converts into the number of common
shares equal to the principal amount owed on the Security divided by the Quoted
Price per share on the last trading day prior to the conversion date. If no
established trading market exists, each Security converts into shares of Common
Stock on a basis of 0.9 shares for each $1.00 in principal amount of the
Security.
"COMMON STOCK" means Common Stock of the Company as it exists on
the date of this Indenture or as it may be constituted from time to time.
SECTION 10.2 CONVERSION PROCEDURE. To convert a Security, a
Holder must satisfy the requirements in paragraph 8 of the Securities. The date
on which the Holder satisfies all those requirements is the conversion date. As
soon as practical, the company shall deliver through the Conversion Agent a
certificate for the number of full shares of Common Stock issuable upon the
conversion and a check for any fractional share. The person in whose name the
certificate is registered shall be treated as a stockholder of record on and
after the conversion date.
Upon conversion, the Company will pay to the Holder in cash the
amount of any accrued but unpaid interest to the conversion date.
If a Holder converts more than one Security at the same time,
the number of full shares issuable upon the conversion shall be based on the
total principal amount of the Securities converted.
If the last day on which a Security may be converted is a Legal
Holiday in a place where a Conversion Agent is located, the Security may be
surrendered to that Conversion Agent on the next succeeding day that is not a
Legal Holiday.
SECTION 10.3 FRACTIONAL SHARES. The Company will not issue a
fractional share of Common Stock upon conversion of a Security. Instead the
Company will deliver its check for the current market value of the fractional
share. The current market price of a share of Common Stock is the Quoted Price
of the Common Stock on the last trading day prior to the conversion date. In the
absence of such a quotation, the Company shall determine the current market
price in good faith as it considers appropriate.
SECTION 10.4 TAXES ON CONVERSION. If a Holder of a Security
converts it, the Company shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of shares of Common Stock upon the conversion.
However, the Holder shall pay any such tax which is due because the shares are
issued in a name other than the Holder's name.
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SECTION 10.5 COMPANY TO PROVIDE STOCK. The Company has reserved
and will continue to reserve out of its authorized but unissued Common Stock or
its Common Stock held in treasury enough shares of Common Stock to permit the
conversion of the Securities in full.
All shares of Common Stock which may be issued upon conversion
of the Securities shall be fully paid and non-assessable.
The Company will endeavor to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
Securities and will endeavor to list such shares on each national securities
exchange, automated quotation system or other national trading market on which
the Common Stock may be listed.
SECTION 10.6 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the
Company:
(1) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(3) combines its outstanding shares of Common Stock
into a smaller number of shares;
(4) makes a distribution on its Common Stock in
shares of its capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock
any shares of its capital stock;
then the conversion privilege and the conversion ratio in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted may receive the number of shares of capital stock of the
Company which he would have owned immediately following such action if he had
converted the Security immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted conversion ratio
between the classes of capital stock. After such allocation, the conversion
privilege and the conversion ratio of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Article.
SECTION 10.7 WHEN NO ADJUSTMENT REQUIRED. No adjustment need be
made for a transaction referred to in Section 10.6 if Securityholders are to
participate in the transaction
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on a basis and with notice that the Board of Directors
determines to be fair and appropriate in light of the basis and
notice on which holders of Common Stock participate in the
transaction.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
To the extent the Securities become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
SECTION 10.8 NOTICE OF CERTAIN TRANSACTIONS. If:
(1) the Company takes any action that would require
an adjustment in the conversion ratio pursuant to Section 10.6
and if the Company does not let Securityholders participate
pursuant to Section 10.7;
(2) the Company takes any action that would require
a supplemental indenture pursuant to Section 10.9; or
(3) there is a liquidation or dissolution of the
Company,
the Company shall mail to Securityholders a notice stating the
proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution. The
Company shall mail the notice at least 15 days before such date. Failure
to mail the notice or any defect in it shall not affect the validity of
the transaction.
SECTION 10.9 REORGANIZATION OF COMPANY. If the Company is a
party to a merger which reclassifies or changes its outstanding Common Stock,
upon consummation of such transaction, the Securities shall automatically become
convertible into, the kind and amount of securities, cash or other assets which
the Holder of a Security would have owned immediately after the consolidation,
merger, transfer or lease if the Holder had converted the Security immediately
before the effective date of the transaction. Concurrently with the consummation
of such transaction, the person obligated to issue securities or deliver cash or
other assets upon conversion of the Securities (if other than the Company),
shall enter into a supplemental indenture so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Article. The successor Company shall mail to
Securityholders a notice describing the supplemental indenture.
If the issuer of securities deliverable upon conversion of
Securities under the supplemental indenture is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental indenture.
If this Section applies, Section 10.6 does not apply.
SECTION 10.10 COMPANY DETERMINATION FINAL. Any determination
that the Company or the Board of Directors must make pursuant to Section 10.3,
10.6 or 10.7 is conclusive.
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SECTION 10.11 TRUSTEE'S DISCLAIMER. The Trustee has no duty or
authority to determine when an adjustment under this Article should be made, how
it should be made or what it should be. The Trustee has no duty or authority to
determine whether any provisions of a supplemental indenture under Section 10.9
are correct. The Trustee makes no representation as to the validity or value of
any securities or assets issued upon conversion of Securities. The Trustee shall
not be responsible for the Company's failure to comply with this Article. Each
Conversion Agent other than the Company shall have the same protection under
this Section as the Trustee.
ARTICLE 11
SUBORDINATION
SECTION 11.1 AGREEMENT TO SUBORDINATE. The Company agrees, and
each Securityholder by accepting a Security agrees, that the indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article, to the prior payments in full of all
Senior Debt, and that the subordination is for the benefit of the holders of
Senior Debt.
SECTION 11.2 CERTAIN DEFINITIONS. "DEBT" means any indebtedness,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of the Company or any
Affiliate or only to a portion thereof), or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if and to the
extent such indebtedness would appear as a liability upon a balance sheet of the
Company or an Affiliate prepared on a consolidated basis in accordance with
generally accepted accounting principles.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative for an issue of Senior Debt.
"SENIOR DEBT" means all Debt (present or future) created,
incurred, assumed or guaranteed by the Company or an Affiliate (and all
renewals, extensions or refunding thereof), unless the instrument under which
such Debt is created, incurred, assumed or guaranteed expressly provides that
such Debt is not senior or superior in right of payment to the Securities.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not
include any Debt of the Company to any of its subsidiaries.
SECTION 11.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceedings relating to the Company or its property:
(1) holders of Senior Debt shall be entitled to
receive a payment in full in cash of the principal of and
interest (including interest accruing after the commencement of
any such proceeding) to the date of payment on the Senior Debt
before Securityholders shall be entitled to receive any payment
of principal or of interest on Securities; and
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(2) until the Senior Debt is paid in full in cash,
any distribution to which Securityholders would be entitled but
for this Article shall be made to holders of Senior Debt as
their interest may appear, except that Securityholders may
receive securities that are subordinated to Senior Debt to be at
least the same extent as the Securities.
SECTION 11.4 DEFAULT ON SENIOR DEBT. Upon the maturity of any
Senior Debt by lapse of time, acceleration or otherwise, all such Senior Debt
shall first be paid in full, or such payment duly provided for in cash or in a
manner satisfactory to the holders of such Senior Debt, before any payment is
made by the Company or any person acting on behalf of the Company on account of
the principal of or interest on the Securities.
The Company may not pay principal of or interest on the
Securities and may not acquire any Securities for cash or property other than
capital stock of the Company if:
(1) a default on Senior Debt occurs and is
continuing that permits holders of such Senior Debt to
accelerate its maturity, and
(2) the default is the subject of judicial
proceedings or the Company receives a notice of the default from
a person who may give it pursuant to Section 11.12. If the
Company receives any such notice, a similar notice received
within nine months thereafter relating to the same default on
the same issue of Senior Debt shall not be effective for
purposes of this Section.
The Company may resume payments on the Securities and may
acquire them when:
(A) the default is cured or waived, or
(B) 120 days pass after the notice is given
if the default is not the subject of judicial
proceedings,
if this Article otherwise permits the payment or acquisition at that time.
SECTION 11.5 ACCELERATION OF SECURITIES. If payment of the
Securities is accelerated because of an Event of Default, the Company shall
promptly notify holders of Senior Debt of the acceleration. The Company may pay
the Securities when 120 days pass after the acceleration occurs if this Article
permits the payment at this time.
SECTION 11.6 WHEN DISTRIBUTION MUST BE PAID OVER. In the event
that the Company shall make any payment to the Trustee on account of the
principal of or interest on the Securities at a time when such payment is
prohibited by Section 11.4, such payment shall be held by the Trustee, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Debt (pro rata as to each of such holders on the basis of the
respective amounts of Senior Debt held by them) or their Representative or the
trustee under the indenture or other agreement (if any) pursuant to which Senior
Debt may have been issued, as their respective interests may appear, for
application to the payment of all Senior Debt remaining unpaid to the
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extent necessary to pay all Senior Debt in full in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt.
If a distribution is made to Securityholders that because of
this Article should not have been made to them, the Securityholders who receive
the distribution shall hold it in trust for holders of Senior Debt and pay it
over to them as their interests may appear.
SECTION 11.7 NOTICE BY COMPANY. The Company shall promptly
notify the Trustee and the Paying Agent of any facts known to the Company that
would cause a payment of principal of or interest on the Securities to violate
this Article, but failure to give such notice shall not affect the subordination
of the Securities to the Senior Debt provided in this Article. Nothing in this
Article 11 shall apply to claim of, or payments to, the Trustee under or
pursuant to Section 7.7.
SECTION 11.8 SUBROGATION. After all Senior Debt is paid in full
and until the Securities are paid in full, Securityholders shall be subrogated
to the rights of holders of Senior Debt to receive distributions applicable to
Senior Debt to the extent that distributions otherwise payable to the
Securityholders have been applied to the payment of Senior Debt. A distribution
made under this Article to holders of Senior Debt which otherwise would have
been made to Securityholders is not, as between the Company and Securityholders,
a payment by the Company on Senior Debt.
SECTION 11.9 RELATIVE RIGHTS. This Article defines the relative
rights of Securityholders and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and
Securityholders, the obligation of the Company, which is
absolute and to pay principal of and interest on the Securities
in accordance with their terms;
(2) affect the relative rights of Securityholders
and creditors of the Company other than holders of Senior Debt;
or
(3) prevent the Trustee or any Securityholder from
exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders of Senior Debt to
receive distributions otherwise payable to Securityholders.
If the Company fails because of this Article to pay principal of
or interest on a Security on the due date, the failure is still a Default or
Event of Default.
SECTION 11.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No
right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 11.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever
a distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative.
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SECTION 11.12 RIGHTS OF TRUSTEE AND PAYING AGENT. The Trustee or
Paying Agent may continue to make payments on the Securities until it receives
notice of facts that would cause a payment of principal of or interest on the
Securities to violate this Article. Only the Company, a Representative or a
holder of an issue of Senior Debt that has no Representative may give the
notice, on which notice the Trustee may rely.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 TRUST INDENTURE ACT CONTROLS. If any provision of
this Indenture limits, qualifies, or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 12.2 NOTICES. Any notice or communication by the Company
or the Trustee to the other is duly given if in writing and delivered in person
or mailed by registered or certified mail to the other's address stated in
Section 12.10. The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed
by first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
A notice or communication sent to the Trustee or the Company is
duly given upon receipt by the other party within the time prescribed.
A notice or communication sent to a Securityholder, if mailed in
the manner provided above within the time prescribed, is duly given, whether or
not the Securityholder receives it.
If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
All notices or communications shall be in writing.
SECTION 12.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 12.4 CERTIFICATE AND OPINIONS AS TO CONDITIONS
PRECEDENT. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
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(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied
with.
The first certificate pursuant to Section 4.3 will be for the
fiscal year ending June 30, 1992.
The reporting date for Section 7.6 is September 15 of each year.
The first reporting date is September 15, 1991.
SECTION 12.6 RULES BY TRUSTEE AND AGENTS. The Trustee may make
reasonable rules for action by or a meeting of Securityholders. The Registrar,
Paying Agent or Conversion Agent may make reasonable rules and set reasonable
requirements for its functions.
SECTION 12.7 LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a
Sunday or a day on which the Trustee or any Paying Agent is not required to be
open. If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
SECTION 12.8 NO RECOURSE AGAINST OTHERS. All liability described
in the Securities of any director, officer, employee or stockholder, as such, of
the Company is waived and released.
SECTION 12.9 DUPLICATE ORIGINALS. The parties may sign any
number of copies of this Indenture. One signed copy is enough to prove this
Indenture.
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SECTION 12.10 VARIABLE PROVISIONS. "OFFICER" means Chairman of
the Board, the President, any Vice President, the Treasurer, the Secretary, any
Assistant Treasurer or any Assistant Secretary of the Company.
The Company initially appoints the Trustee as Conversion Agent,
Paying Agent, Registrar and Authenticating Agent.
The Trustee shall always have a combined capital and surplus of
at least $100,000,000 as set forth in its most recent published annual report of
condition.
In Article 10, the "QUOTED PRICE" of the Common Stock is the
last reported sales price of the Common Stock as reported on the New York Stock
Exchange, or if the Common Stock is listed on another securities exchange, the
last reported sales price of the Common Stock on such exchange which shall be
for consolidated trading if applicable to such exchange, or, if not so listed,
the last reported sales price of the Common Stock as reported by NASDAQ,
National Market System, or if not so listed or reported, the last reported bid
price of the Common Stock.
The Company's address is:
Illuminet Holdings, Inc.
P.O. Box 8
4501 Intelco Loop, S.E.
Lacey, WA 98503
The Trustee's address is:
United Missouri Bank, N.A.
Attention: Corporate Trust Department
928 Grand
Kansas City, Missouri 64106
SECTION 12.11 GOVERNING LAW. The internal laws of the State of
Missouri shall govern this Indenture and the Securities.
SECTION 12.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 12.13 SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 12.14 SEVERABILITY. In case any provision of this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
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SIGNATURES
Dated: as of August 15, 1991 Independent Telecommunications
Network, Inc.
By:
-------------------------------------
Attest:
- ------------------------------------
Dated: as of August 15, 1991 United Missouri Bank, N.A.,
as Trustee
By:
-------------------------------------
Attest:
- ------------------------------------
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EXHIBIT A
(FACE OF DEBENTURE)
ILLUMINET HOLDINGS, INC.
7.5% CONVERTIBLE SUBORDINATED DEBENTURE
DUE AUGUST 15, 2001
No. $__________
ILLUMINET HOLDINGS, INC., a Delaware corporation (the
"COMPANY"), for value received, hereby promises to pay to
___________________________________________, or registered assigns, the
principal sum of _____________________________________ Dollars on August 15,
2001, with interest accruing annually and payable in arrears, beginning on
August 15, 1995, on the 20th Business Day following the last day of each
calendar quarter to holders of record on such quarter ending date.
This Debenture has original issue discount. The amount of
original issue discount for this Debenture is $________________. For purposes of
computing amounts of original issue discount income on this Debenture, the
"issue date" of the Debenture is ______________, 1991, and the "yield to
maturity" of the Debenture is _____________%. The "yield to maturity" of the
Debenture was computed based on the fact the Company will use the
_________________ method to determine the amount of original issue discount
accruing in the short "accrual period" beginning ______________, 1991 and ending
_______________, 1991. Using the ____________ method, $_____________ of original
issue discount income will accrue in such short "accrual period."
Reference is hereby made to the further provisions of this
Debenture on the reverse hereof, which provisions have the same effect as if set
forth at this place.
This is one of the Debentures
referred to in the within mentioned Indenture:
Dated:
UNITED MISSOURI BANK, N.A., ILLUMINET HOLDINGS, INC.
AS TRUSTEE NETWORK, INC.
By: By:
------------------------------- -------------------------------------
Authorized Signature
OR
as Authenticating Agent
By:
------------------------------- [Seal]
Authorized Signature
A-1
<PAGE> 41
(BACK OF DEBENTURE)
---------------------------------------
7.5% CONVERTIBLE REDEEMABLE SUBORDINATED DEBENTURE
DUE AUGUST 15, 2001
1. INTEREST. (The Company promises to pay interest on the
principal amount of this Debenture (the "Principal") at the rate per annum shown
above (the "INTEREST RATE"). The Company will pay interest quarterly in arrears
on the twentieth (20th) Business Day (an "INTEREST PAYMENT DATE") following the
last day of each calendar quarter (the "INTEREST RECORD DATE"), beginning with
the fourth quarter of 1995, to holders of record on the Interest Record Date.
Interest on the Debenture will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2. ACCRUAL AND CAPITALIZATION OF INTEREST. Except in the
event of redemption or conversion, interest will accrue but will not be paid on
the Principal until the first Interest Payment Date in 1995. The amount of
interest which has accrued from the date of issuance to August 15, 1995 (the
"DEFERRED INTEREST") will be paid ratably on each Interest Payment Date over the
remaining term of the Debentures beginning on the first Interest Payment Date.
Interest will accrue on the Deferred Interest at the Interest Rate from the date
of accrual and will continue to accrue until all Deferred Interest has been
paid. Such additional interest will also be paid ratably on each Interest
Payment Date over the term of the Debentures beginning on the first Interest
Payment Date.
In the event the Debenture is converted by the holder or called
for redemption by the Company, all accrued interest to the conversion or
redemption date, unpaid Deferred Interest, and interest on the Deferred Interest
to the conversion or redemption date, shall be paid in cash to the holder of the
Debenture converted or redeemed.
With respect to any Interest Payment Date, the Company may, at
its option, elect to add to the Principal (i) all accrued interest from the
previous Interest Payment Date, (ii) the portion of the Deferred Interest due
for payment on such Interest Payment Date, and (iii) that portion of the
interest on the Deferred Interest due for payment on such Interest Payment Date,
plus a premium of 10% of the aggregate of all amounts so elected to be added to
Principal amount. The Company will notify the holders of the Debentures of such
election no later than ten (10) days prior to the scheduled Interest Payment
Date. Any holder of any Debenture may elect with respect to any Interest Payment
Date to add to the Principal all accrued interest from the previous Interest
Payment Date, unpaid Deferred Interest and interest on the Deferred Interest,
without a premium. The holder will make such election by the receipt of written
notice by the Company and to the Paying Agent no later than fifteen (15) days
prior to the scheduled interest Payment Date.
A-2
<PAGE> 42
3. METHOD OF PAYMENT. The Company will pay interest on the
Debentures (except defaulted interest) to the persons who are registered holders
of Debentures at the close of business on the Record Date for the next Interest
Payment Date even though Debentures are cancelled after the Record Date and on
or before the Interest Payment Date. Holders must surrender the Debentures to
the Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and interest by check payable in such money. It may mail an interest
check to the holder's registered address.
4. PAYING AGENT, REGISTRAR, CONVERSION AGENT. The Trustee
will act as Conversion Agent, Paying Agent and Registrar. The Company may change
any Paying Agent, Registrar, Conversion Agent or co-registrar without notice.
The Company may act in any such capacity.
5. INDENTURE. The Company issued the Debentures under an
Indenture dated as of August 15, 1991 ("Indenture") between the Company and the
Trustee. The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the Indenture.
The Debentures are subject to and qualified by all such terms, certain of which
are summarized hereon, and Debentureholders are referred to the Indenture and
such Act for a statement of such terms. The Debentures are unsecured general
obligations of the Company limited to $13,248,000.00 in aggregate principal
amount (subject to the provisions of Paragraph 2, above).
6. OPTIONAL REDEMPTION. The Company may redeem all or any
part of the Debentures at any time or some of them from time to time at
principal amount plus accrued interest to the redemption date.
7. NOTICE OF REDEMPTION. Notice of Redemption will be
mailed at least thirty (30) days but not more than sixty (60) days before the
redemption date to each holder of Debentures to be redeemed at his registered
address. Debentures in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. On and after the redemption date interest
ceases to accrue on Debentures or portions of them called for redemption.
If this Debenture is redeemed subsequent to an Interest Record
Date and on or prior to the subsequent Interest Payment Date, then any accrued
interest to such Interest Payment Date will be paid to the person in whose name
this Debenture is registered at the close of business on such Record Date.
8. CONVERSION BY HOLDER. A holder of this Debenture may
convert it into Common Stock of the Company at any time before the close of
business on August 15, 2001. If the Debenture is called for redemption, the
holder may convert it at any time before the close of business on the fifth
(5th) Business Day prior to the redemption date. The initial conversion ratio is
as set forth in Section 10.1 of the Indenture. On conversion, the Company will
pay in cash any accrued but unpaid interest to the conversion date. The Company
will deliver a check for any fractional share.
A-3
<PAGE> 43
To convert a Debenture a holder must (1) complete and sign the
conversion notice on the back of the Debenture, (2) surrender the Debenture to a
Conversion Agent, (3) furnish appropriate endorsements and transfer documents if
required by the Registrar or Conversion Agent, and (4) pay any transfer or
similar tax, if required. A holder may convert a portion of a Debenture if the
portion is $1,000 or an integral multiple of $1,000.
If the Company is a party to a consolidation or merger or a
transfer or lease of all or substantially all of its assets, the right to
convert a Debenture into Common Stock may be changed into a right to convert it
into securities, cash or other assets of the Company or another.
9. SUBORDINATION. The Debentures are subordinated to Senior
Debt, which is any debt of the Company or an Affiliate outstanding on the date
of the Indenture or Debt thereafter created, incurred, assumed or guaranteed by
the Company or an Affiliate and all renewals, extensions and refundings thereof
except Debt that expressly provides that it is not senior or superior in right
of payment to the Debentures. Debt is any indebtedness, contingent or otherwise,
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of the Company or any subsidiary or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or representing the balance deferred and unpaid of the
purchase price of any property or interest therein, except any such balance that
constitutes a trade payable, if, and to the extent such indebtedness would
appear as a liability upon a balance sheet of the Company or an Affiliate
prepared on a consolidated basis in accordance with generally accepted
accounting principles. To the extent provided in the Indenture, Senior Debt must
be paid before the Debentures may be paid. The Company agrees, and each
Debentureholder by accepting a Debenture agrees, to the subordination and
authorizes the Trustee to give it effect.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Debentures are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Debentures may be registered and Debentures
may be exchanged as provided in the Indenture. The Registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Debenture or portion of a Debenture selected for redemption. Also, it need not
exchange or register the transfer of any Debentures for a period of fifteen (15)
days before a selection of Debentures to be redeemed. A Debenture may not be
transferred independently of the shares of Series A Convertible Preferred Stock
which were originally issued as a unit with the Debentures.
11. PERSONS DEEMED OWNERS. The registered holder of a
Debenture may be treated as its owner for all purposes.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions,
the Indenture or the Debentures may be amended with the consent of the holders
of at least a majority in principal amount of the then outstanding Debentures,
and any existing default may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Debentures. Without the
consent of any Debentureholder, the Indenture or the Debentures may be amended
to cure any ambiguity, defect or inconsistency, to provide for assumption of
Company obligations to Debentureholders or to make any change that does not
adversely affect the rights of any Debentureholders.
A-4
<PAGE> 44
13. DEFAULTS AND REMEDIES. An Event of Default is: default
for 30 days in payment of interest on the Debentures; default in payment of
principal on them; failure by the Company for 60 days after notice to it to
comply with any of its other agreements in the Indenture or the Debentures;
certain defaults under and accelerations prior to maturity of other
indebtedness; certain final judgments which remain undischarged; and certain
events of bankruptcy or insolvency. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Debentures may declare all the Debentures to be due and
payable immediately, except that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Debentures become
due and payable without further action or notice. Debentureholders may not
enforce the Indenture or the Debentures except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it seeks to enforce the
Indenture or the Debentures. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Debentures may direct the
Trustee in his exercise of any trust or power. The Trustee may withhold from
Debentureholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interest. The Company must furnish an annual compliance certificate to the
Trustee.
14. TRUSTEE DEALINGS WITH THE COMPANY. United Missouri Bank,
N.A., the Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from, and perform services for the Company or
its Affiliates, and may otherwise deal with the Company or its Affiliates, as if
it were not Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Debentures or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Debentureholder, by accepting a Debenture, waives and releases
all such persons from all such liability. The waiver and release are part of the
consideration for the issue of the Debentures.
16. AUTHENTICATION. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
The Company will furnish to any Debentureholder upon written request and without
charge a copy of the Indenture, which has in it the text of this Debenture in
larger type. Terms used herein which are defined in the Indenture shall have the
respective meanings assigned to them in the Indenture. Requests may be made to:
Treasurer, Illuminet Holdings, Inc., P.O. Box 8, 4501 Intelco Loop, S.E., Lacey,
Washington 98503.
A-5
<PAGE> 45
- ------------------------------------ ------------------------------------
ASSIGNMENT CONVERSION NOTICE
To assign this Debenture, fill in To convert his Debenture into
the Common form below: Stock of the Company, check the
box:
I or we assign and transfer this
Debenture to ------------------
--------------------------------
------------------
--------------------------------
To convert only part of this
Debenture, state the amount:
(Insert assignee's soc. sec. or
tax I.D. no.) ------------------
$____________.__
-------------------------------- ------------------
-------------------------------- If you want the stock certificate
made out in another person's
-------------------------------- name, fill in the form below:
-------------------------------- ------------------
(Print or type assignee's name,
address and zip code) and ------------------
irrevocably appoint
(insert other person's soc. sec.
-------------------------------- or tax I.D. no.)
agent to transfer this Debenture ------------------------------------
on the books of the Company. The
agent may substitute another to ------------------------------------
act for him.
------------------------------------
------------------------------------
(Print or type other person's
name, address and zip code)
- --------------------------------------------------------------------------------
Date:
--------------------- ---------------------------------------
Debenture Holder
By:
-------------------------------------
Authorized Agent
(Sign exactly as your name appears on the other side of this Debenture)
GUARANTEE OF SIGNATURES(S)
Authorized signature:
------------------------------------
Name:
----------------------------------------------------
Address:
--------------------------------------------------
Area Code & Telephone No.:
--------------------------------
Date:
-----------------------------------------------------
- --------------------------------------------------------------------------------
A-6
<PAGE> 46
================================================================================
----------------------------
FIRST SUPPLEMENTAL INDENTURE
----------------------------
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
AND
USTN HOLDINGS, INC.
AND
USTN SERVICES, INC.
AND
UMB BANK, N.A., TRUSTEE
Dated as of February 12, 1996
----------------------------
SUPPLEMENTAL TO INDENTURE
DATED AUGUST 15, 1991
================================================================================
<PAGE> 47
FIRST SUPPLEMENTAL INDENTURE, dated as of February 12, 1996
(the"Supplemental Indenture"), between INDEPENDENT TELECOMMUNICATIONS NETWORK,
INC., a Delaware corporation (the "Company"), USTN HOLDINGS, INC. (f/k/a U.S.
TelNet Holdings, Inc.), a Delaware corporation ("Holdings"), USTN SERVICES, INC.
(f/k/a U.S. TelNet Services, Inc.), a Delaware corporation ("Services"), and UMB
BANK, N.A. (f/k/a United Missouri Bank, N.A.), as Trustee (the "Trustee"), to an
Indenture dated as of August 15, 1991 (the "Indenture"), between the Company and
the Trustee.
WHEREAS, the Company has heretofore executed and delivered the Indenture
to the Trustee for the authentication, delivery and administration of the
Company's $13,248,000 principal amount 7.5% convertible redeemable subordinated
debentures due August 15, 2001 (the "Securities") issued pursuant to the
Indenture; and
WHEREAS, Section 5.1 of the Indenture provides in part that the
corporation surviving any merger to which the Company is a party (if such
surviving corporation is not the Company) shall enter into a supplemental
indenture assuming the obligations of the Company under the Indenture (except
for obligations as to conversion of the Securities if a supplemental indenture
is entered into pursuant to Section 10.9 of the Indenture); and
WHEREAS, Section 10.9 of the Indenture provides, among other things,
that if the Company is a party to a merger which reclassifies or changes its
outstanding common stock, upon consummation of the transaction the Securities
shall automatically become convertible into the kind and amount of securities,
cash or other assets which the Holder (as defined in the Indenture) of a
Security would have owned immediately after the merger if the Holder had
converted the Security immediately before the effective date of the merger; and
WHEREAS, Section 10.9 of the Indenture also provides that concurrently
with the consummation of the merger, the person obligated to issue securities or
deliver cash or other assets upon conversion of the Securities shall enter into
a supplemental indenture so providing and further providing for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in Article 10 of the Indenture; and
WHEREAS, the Company, on August 3, 1995, entered into an Agreement and
Plan of Merger (the "Merger Agreement") by and among the Company, U.S. Intelco
Holdings, Inc., a Washington corporation ("USIH"), Holdings and Services, under
which the Company and USIH shall be merged with and into Services (the
"Merger"); and
WHEREAS, the Company, the Trustee, Holdings and Services desire to
execute this Supplemental Indenture for the purpose of complying with the
provisions of Sections 5.1 and 10.9 of the Indenture and the Company has
requested and does hereby request the Trustee to join with the Company, Holdings
and Services in the execution and delivery of this Supplemental Indenture; and
WHEREAS, all acts and things necessary to make this Supplemental
Indenture, when duly executed and delivered, a valid, binding and legal
instrument in accordance with its terms and for the purposes herein expressed,
have been done and performed by the parties hereto; and
<PAGE> 48
the execution and delivery of this Supplemental Indenture have been in all
respects duly authorized by said parties;
NOW, THEREFORE, in consideration of the premises and other
consideration, the receipt of which is hereby acknowledged, the Company, the
Trustee, Holdings and Services mutually covenant and agree, for the equal and
proportionate benefit of the respective Holders from time to time of the
Securities, as follows:
ARTICLE I
DEFINITIONS
The use of the terms and expressions herein is in accordance with the
definitions, uses and constructions contained in the Indenture and the
Securities.
ARTICLE II
ASSUMPTION OF RIGHTS AND OBLIGATIONS
At the Effective Time of the Merger (as defined in the Merger Agreement)
and pursuant to this Supplemental Indenture and the Merger Agreement: (a)
Services shall assume the rights and obligations of the Company as set forth in
the Indenture except for obligations of the Company as to conversion of the
Securities and (b) Holdings shall assume the rights and obligations of the
Company as to conversion of the Securities. From and after the Effective Time,
all references in the Indenture to (i) "Securities" shall mean Holdings
Securities (as defined below), (ii) the "Company" shall mean Services, (iii)
"Common Stock" shall mean Holdings Common Stock (as defined below) and (iv)
"Series A Convertible Preferred Stock" shall mean Holdings Series A Preferred
Stock as it exists as of the Effective Time or as it may be constituted from
time to time.
ARTICLE III
CONVERSION
Pursuant to the terms and conditions of the Merger Agreement, each
Security outstanding as of the Effective Time that is not converted into
Holdings Common Stock at the election of the Holder thereof will be
automatically converted into a 7.5% convertible redeemable subordinated
debenture due August 15, 2001 of Holdings (a "Holdings Security") with the same
rights and obligations as set forth for Securities in the Indenture, except that
Section 10.1 of the Indenture is amended and restated in its entirety as
follows:
Section 10.1 Conversion Privilege. A Holdings Security may be
converted by the Holder thereof into ninety (90) shares of Holdings
Common Stock for each One Thousand Dollars ($1,000) in principal amount
of such Holdings Security at any time during the period set forth in
paragraph 8 of the Holdings Securities.
"Holdings Common Stock" means Common Stock of Holdings as it
exists as of the Effective Time or as it may be constituted from time to
time.
- 2 -
<PAGE> 49
ARTICLE IV
THE TRUSTEE
The Trustee shall not be responsible in any manner whatsoever for, or in
respect of, the validity or sufficiency of this Supplemental Indenture or the
due execution hereof by the Company and Holdings, or for, or in respect of, the
recitals and statements contained herein, all of which recitals and statements
are made solely by the Company and Holdings.
No duties, responsibilities or liabilities are assumed, or shall be
construed to be assumed, by the Trustee by reason of this Supplemental Indenture
other than as set forth in the Indenture; and this Supplemental Indenture is
executed and accepted on behalf of the Trustee, subject to all the terms and
conditions set forth in the Indenture, as fully to all intents as if this
Supplemental Indenture were a part of and set forth in the Indenture.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 Execution Of Supplemental Indenture. Except insofar as
herein expressly provided, all the provisions, definitions, terms and conditions
of the Indenture, as supplemented and amended, shall be deemed to be
incorporated in, and made a part of, this Supplemental Indenture; and the
Indenture as supplemented and amended by this Supplemental Indenture is in all
respects ratified and confirmed; and the Indenture, as supplemented and amended
by this Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 5.2 Conflict With Trust Indenture Act. If any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
which is required to be included in this Supplemental Indenture by any of the
provisions of the Trust Indenture Act, as amended from time to time, the
required provision shall control.
SECTION 5.3 Benefits Of Supplemental Indenture. Nothing in this
Supplemental Indenture is intended, or shall be construed, to give to any person
or corporation, other than the parties hereto and the Securityholders, any legal
or equitable right, remedy or claim under or in respect of this Supplemental
Indenture, or under any covenant, condition or provision herein contained, all
the covenants, conditions and provisions of this Supplemental Indenture being
intended to be, and being, for the sole and exclusive benefit of the parties
hereto and of the Securityholders.
SECTION 5.4 Successors And Assigns. All covenants, stipulations and
agreements in this Supplemental Indenture contained by or on behalf of Holdings
shall bind and (subject to the provisions of the Indenture, as supplemented and
amended from time to time) inure to the benefit of its successors and assigns,
whether so expressed or not.
SECTION 5.5 Separability Clause. In case any provision in this
Supplemental Indenture or in the Holdings Securities shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
- 3 -
<PAGE> 50
SECTION 5.6 Effect Of Headings. The headings of the several Articles of
this Supplemental Indenture and the Sections thereof are inserted for
convenience of reference, and shall not be deemed to be a part hereof.
SECTION 5.7 Execution And Counterparts. This Supplemental Indenture may
be executed in any number of counterparts, and each of such counterparts when so
executed shall be deemed to be an original; but all such counterparts shall
together constitute but one and the same instrument.
SECTION 5.8 Governing Law. The internal laws of the state of Missouri
shall govern this Supplemental Indenture and the Holdings Securities.
[Signature page follows]
- 4 -
<PAGE> 51
IN WITNESS WHEREOF, the Company and Holdings have each caused this
Supplemental Indenture to be executed by its Chairman of the Board or its
President or one of its Vice Presidents and its corporate seal to be hereunto
affixed, duly attested by its Secretary or one of its Assistant Secretaries, and
UMB Bank, N.A., as Trustee as aforesaid, has caused the same to be executed by
its President or one of its Vice Presidents and its corporate seal to be
hereunto affixed, duly attested by its Secretary or one of its Assistant
Secretaries, as of the day and year first above written.
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
(Corporate Seal)
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Name:
Title: Secretary
USTN HOLDINGS, INC.
(Corporate Seal)
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Name:
Title: Secretary
- 5 -
<PAGE> 52
USTN SERVICES, INC.
(Corporate Seal)
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Name:
Title: Secretary
UMB BANK, N.A., as Trustee
(Corporate Seal)
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Name:
Title: Assistant Secretary
- 6 -
<PAGE> 53
STATE OF )
) ss.
COUNTY OF )
On this ___ day of February, 1996, before me appeared _________________,
to me personally known, who, being by me duly sworn, did say that he is
_____________________ of Independent Telecommunications Network, Inc., a
corporation described in and which executed the foregoing instrument, and that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed on behalf of said
corporation by authority of its board of directors, and said _________________
acknowledged said instrument to be the free act and deed of said corporation.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- --------------------------
- 7 -
<PAGE> 54
STATE OF )
) ss.
COUNTY OF )
On this ______ day of February, 1996, before me appeared ______, to me
personally known, who, being by me duly sworn, did say that he is ____________
of USTN Holdings, Inc., a corporation described in and which executed the
foregoing instrument, and that the seal affixed to the foregoing instrument is
the corporate seal of said corporation, and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
said ____________ acknowledged said instrument to be the free act and deed of
said corporation.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- --------------------------
STATE OF )
) ss.
COUNTY OF )
On this ________ day of February, 1996, before me appeared
_____________, to me personally known, who, being by me duly sworn, did say that
he is _____________ of USTN Services, Inc., a corporation described in and which
executed the foregoing instrument, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed on behalf of said corporation by authority of its board of
directors, and said ___________________________ acknowledged said instrument to
be the free act and deed of said corporation.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- --------------------------
- 8 -
<PAGE> 55
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
On this _________ day of February, 1996, before me appeared
_______________________ to me personally known, who, being by me duly sworn, did
say that he is _______________________ of UMB Bank, N.A., a
_______________________ described in and which executed the foregoing
instrument, and that the seal affixed to the foregoing instrument is the
association seal of said national banking association, and that said instrument
was signed and sealed on behalf of said _____________________ by authority of
its board of directors, and said _____________________ acknowledged said
instrument to be the free act and deed of said
__________________________________.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- --------------------------
- 9 -
<PAGE> 56
----------
SECOND SUPPLEMENTAL INDENTURE
----------
USTN HOLDINGS, INC.
AND
USTN SERVICES, INC.
AND
UMB BANK, N.A., TRUSTEE
Dated as of June , 1996
----------
SUPPLEMENTAL TO INDENTURE
DATED AUGUST 15, 1991
<PAGE> 57
SECOND SUPPLEMENTAL INDENTURE, dated as of June , 1996 (the
"Supplemental Indenture"), between USTN HOLDINGS, INC., a Delaware corporation
("Holdings"), USTN SERVICES, INC., a Delaware corporation ("Services"), and UMB
BANK, N.A. (f/k/a United Missouri Bank, N.A.), as Trustee (the "Trustee"), to an
Indenture dated as of August 15, 1991, between Independent Telecommunications
Network, Inc. and the Trustee.
WHEREAS, Section 2.6 of the Indenture provides that the Securities may
only be sold or otherwise transferred together with the shares of Series A
Convertible Preferred Stock (the "Series A Stock") issued as a unit with the
Securities; and
WHEREAS, the Trustee, Holdings and Services desire to permit holders of
the Securities to transfer the Securities without the Series A Stock issued as a
unit with such Securities when the separation of the Securities from the Series
A Stock resulted from an involuntary event; and
WHEREAS, Section 2.6 of the Indenture does not adequately address the
situation when the occurrence of an involuntary event results in the separation
of the Securities from the Series A Stock; and
WHEREAS, Section 9.1 of the Indenture permits an amendment of the
Indenture without the consent of any Securityholder to cure any ambiguity,
defect or inconsistency in the Indenture; and
WHEREAS, all acts and things necessary to make this Supplemental
Indenture, when duly executed and delivered, a valid, binding and legal
instrument in accordance with its terms and for the purposes herein expressed,
have been done and performed by the parties hereto; and the execution and
delivery of this Supplemental Indenture have been in all respects duly
authorized by said parties;
NOW, THEREFORE, in consideration of the premises and other
consideration, the receipt of which is hereby acknowledged, the Trustee,
Holdings and Services mutually covenant and agree, for the equal and
proportionate benefit of the respective Holders from time to time of the
Securities, as follows:
ARTICLE I
DEFINITIONS
The third paragraph of Section 2.6 of the Indenture is hereby deleted
and replaced in its entirety with the following language:
- 2 -
<PAGE> 58
"The Securities may only be sold or otherwise transferred as a unit with
the Series A Stock issued as a unit with the Securities; provided,
however, that, if Securities held by a Securityholder are separated from
the Series A Stock due to the redemption of the Series A Stock by the
Company, the cancellation of Series A Stock by operation of law or the
occurrence of any event that is involuntary on the part of the
Securityholder (as determined by Holdings and Services in their
discretion), then such Securityholder (and any transferee of the
Securities) shall be permitted to transfer such Securities without the
Series A Stock issued as a unit with such Securities upon written notice
to the Trustee, Holdings and Services." Prior to the authentication of
any Security, the Company and Holdings shall provide the Trustee with
written certification of the transferability of such Security pursuant
to this Section.
ARTICLE II
THE TRUSTEE
The Trustee shall not be responsible in any manner whatsoever for, or in
respect of, the validity or sufficiency of this Supplemental Indenture or the
due execution hereof by Holdings or Services, or for, or in respect of, the
recitals and statements contained herein, all of which recitals and statements
are made solely by Holdings and Services.
No duties, responsibilities or liabilities are assumed, or shall be
construed to be assumed, by the Trustee by reason of this Supplemental Indenture
other than as set forth in the Indenture; and this Supplemental Indenture is
executed and accepted on behalf of the Trustee, subject to all the terms and
conditions set forth in the Indenture, as fully to all intents as if this
Supplemental Indenture were a part of and set forth in the Indenture.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 EXECUTION OF SUPPLEMENTAL INDENTURE. Except insofar as
herein expressly provided, all the provisions, definitions, terms and conditions
of the Indenture, as supplemented and amended, shall be deemed to be
incorporated in, and made a part of, this Supplemental Indenture; and the
Indenture as supplemented and amended by this Supplemental Indenture is in all
respects ratified and confirmed; and the Indenture, as supplemented and amended
by this Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 3.2 CONFLICT WITH TRUST INDENTURE ACT. If any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
which is required to be included in this Supplemental Indenture by any of the
provisions of the Trust Indenture Act, as amended from time to time, the
required provision shall control.
- 3 -
<PAGE> 59
SECTION 3.3 BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this
Supplemental Indenture is intended, or shall be construed, to give to any person
or corporation, other than the parties hereto and the Securityholders, any legal
or equitable right, remedy or claim under or in respect of this Supplemental
Indenture, or under any covenant, condition or provision herein contained, all
the covenants, conditions and provisions of this Supplemental Indenture being
intended to be, and being, for the sole and exclusive benefit of the parties
hereto and of the Securityholders.
SECTION 3.4 SUCCESSORS AND ASSIGNS. All covenants, stipulations and
agreements in this Supplemental Indenture contained by or on behalf of Holdings
or Services shall bind and (subject to the provisions of the Indenture, as
supplemented and amended from time to time) inure to the benefit of its
successors and assigns, whether so expressed or not.
SECTION 3.5 SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 3.6 EFFECT OF HEADINGS. The headings of the several Articles of
this Supplemental Indenture and the Sections thereof are inserted for
convenience of reference, and shall not be deemed to be a part hereof.
SECTION 3.7 EXECUTION AND COUNTERPARTS. This Supplemental Indenture may
be executed in any number of counterparts, and each of such counterparts when so
executed shall be deemed to be an original; but all such counterparts shall
together constitute but one and the same instrument.
SECTION 3.8 GOVERNING LAW. The internal laws of the state of Missouri
shall govern this Supplemental Indenture.
IN WITNESS WHEREOF, Holdings and Services have each caused this
Supplemental Indenture to be executed by its Chairman of the Board or its
President or one of its Vice Presidents and its corporate seal to be hereunto
affixed, duly attested by its Secretary or one of its Assistant Secretaries, and
UMB Bank, N.A., as Trustee as aforesaid, has caused the same to be executed by
its President or one of its Vice Presidents and its corporate seal to be
hereunto affixed, duly attested by its Secretary or one of its Assistant
Secretaries, as of the day and year first above written.
- 4 -
<PAGE> 60
USTN HOLDINGS, INC.
(Corporate Seal)
By:
-----------------------------
Name:
Title:
ATTEST:
- ----------------------------------------
Name:
Title: Secretary
USTN SERVICES, INC.
(Corporate Seal)
By:
-----------------------------
Name:
Title:
ATTEST:
- ----------------------------------------
Name:
Title: Secretary
- 5 -
<PAGE> 61
UMB BANK, N.A., AS TRUSTEE
(Corporate Seal)
By:
-----------------------------
Name:
Title:
ATTEST:
- --------------------------------
Name:
Title: Assistant Secretary
- 6 -
<PAGE> 62
STATE OF ______________ )
) ss.
COUNTY OF ____________ )
On this ____ day of __________, 1996, before me appeared
_____________________, to me personally known, who, being by me duly sworn, did
say that he is _________ of USTN Holdings, Inc., a corporation described in and
which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors, and said _______________________ acknowledged said
instrument to be the free act and deed of said corporation.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
_______________________
STATE OF ______________ )
) ss.
COUNTY OF ____________ )
On this ____ day of __________, 1996, before me appeared
_____________________, to me personally known, who, being by me duly sworn, did
say that he is _________ of USTN Services, Inc., a corporation described in and
which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors, and said _______________________ acknowledged said
instrument to be the free act and deed of said corporation.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- ----------------------
- 7 -
<PAGE> 63
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
On this ____ day of ______, 1996, before me appeared ____________, to me
personally known, who, being by me duly sworn, did say that he is
________________ of UMB Bank, N.A., a _________________________ described in and
which executed the foregoing instrument, and that the seal affixed to the
foregoing instrument is the association seal of said national banking
association, and that said instrument was signed and sealed on behalf of said
____________________________ by authority of its board of directors, and said
____________ acknowledged said instrument to be the free act and deed of said
- ----------------------------.
(Notarial Seal)
----------------------------------------
Notary Public
My Commission Expires:
- ----------------------
- 8 -
<PAGE> 1
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
[LOGO]
ILLUMINET HOLDINGS, INC.
PREFERRED STOCK 100,000 SHARES COMMON STOCK 25,000,000 SHARES
PAR VALUE $.01 EACH PAR VALUE $.01 EACH
This Certifies that _____________________________________________________ is the
registered holder of ____________________________________________________ Shares
SHARES OF THE COMMON STOCK OF ILLUMINET HOLDING, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 18th day of August A.D. 1999
______________________________ [SEAL] _______________________________
President & CEO Assistant Secretary
<PAGE> 2
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT--.......Custodian.......
TEN ENT -- as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act...................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above
list.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________
_____________________________________
................................................................................
................................................................................
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
................................................................................
................................................................................
..........................................................................Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint ....................................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named Corpora-
tion with full power of substitution in the premises.
Dated ,________________
__________________________
In presence of
________________________
<PAGE> 1
RIGHTS AGREEMENT
dated as of
November 20, 1998
between
ILLUMINET HOLDINGS, INC.
and
UMB Bank, N.A.,
as Rights Agent
<PAGE> 2
RIGHTS AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS.....................................................1
1.1 Certain Definitions............................................................1
ARTICLE II THE RIGHTS..................................................................6
2.1 Legend on Common Stock Certificates............................................6
2.2 Exercise of Rights; Separation of Rights.......................................6
2.3 Adjustments to Purchase Price; Number of Rights................................8
2.4 Date on Which Exercise is Effective............................................9
2.5 Execution, Authentication, Delivery and Dating of Rights Certificates..........10
2.6 Registration, Registration of Transfer and Exchange............................10
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates......................11
2.8 Persons Deemed Owners..........................................................12
2.9 Delivery and Cancellation of Certificates......................................12
2.10 Agreement of Rights Holders....................................................12
ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS.............13
3.1 Flip-in........................................................................13
3.2 Flip-over......................................................................15
ARTICLE IV THE RIGHTS AGENT............................................................15
4.1 General........................................................................15
4.2 Merger or Consolidation or Change of Name of Rights Agent......................16
4.3 Duties of Rights Agent.........................................................16
4.4 Change of Rights Agent.........................................................19
ARTICLE V MISCELLANEOUS................................................................19
5.1 Redemption.....................................................................19
5.2 Expiration.....................................................................20
5.3 Issuance of New Rights Certificates............................................20
5.4 Supplements and Amendments.....................................................20
5.5 Fractional Shares..............................................................21
5.6 Rights of Action...............................................................21
5.7 Holder of Rights Not Deemed a Stockholder......................................21
5.8 Notice of Proposed Actions.....................................................21
5.9 Notices........................................................................22
5.10 Suspension of Exercisability...................................................22
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.11 Costs of Enforcement...........................................................22
5.12 Successors.....................................................................23
5.13 Benefits of this Agreement.....................................................23
5.14 Determination and Actions by the Board of Directors, etc.......................23
5.15 Descriptive Headings...........................................................23
5.16 Governing Law..................................................................23
5.17 Counterparts...................................................................23
5.18 Severability...................................................................23
</TABLE>
EXHIBIT A
Form of Rights Certificate
(Together with Form of
Election to Exercise)
EXHIBIT B
Form of Certificate of Designation
of Series B Participating Cumulative Preference Stock
3
<PAGE> 4
RIGHTS AGREEMENT
RIGHTS AGREEMENT dated as of November 20, 1998 between Illuminet
Holdings, Inc., a Delaware corporation (the "Company"), and UMB Bank, N.A., as
Rights Agent (the "Rights Agent", which term shall include any successor Rights
Agent hereunder).
WITNESSETH:
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
par value $.01 per share, of the Company (the "Common Stock") outstanding at the
Close of Business (as hereinafter defined) on November 20, 1998 (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereafter be adjusted pursuant to the provisions of this Rights Agreement) with
respect to each share of Common Stock that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date (as such terms are hereinafter defined). Each Right shall
initially represent the right to purchase one one-thousandths (1/1000ths) of a
share of Series B Participating Cumulative Preference Stock, $.01 par value, of
the Company (the "Preference Stock"), having the powers, rights and preferences
set forth in the Certificate of Designation attached as Exhibit B.
NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who is a Beneficial
Owner of 20% or more of the outstanding shares of Common Stock;
provided, however, that the term "Acquiring Person" shall not
include any Person (i) who is the Beneficial Owner of 20% or
more of the outstanding shares of Common Stock on the date of
this Agreement or who shall become the Beneficial Owner of 20%
or more of the outstanding shares of Common Stock solely as a
result of an acquisition by the Company of shares of Common
Stock, until such time hereafter or thereafter as any of such
Persons shall become the Beneficial Owner (other than by means
of a stock dividend or stock split) of any additional shares of
Common Stock, (ii) who is the Beneficial Owner of 20% or more of
the outstanding shares of Common Stock but who acquired
Beneficial Ownership of shares of Common Stock without any plan
or intention to seek or affect control of the Company, if such
Person promptly enters into an irrevocable commitment promptly
to divest, and thereafter promptly divests (without exercising
or retaining any power, including voting, with respect to such
shares), sufficient shares of Common Stock (or securities
convertible into, exchangeable into or exercisable for Common
Stock) so that such Person ceases to be the Beneficial Owner of
20% or more of the outstanding shares of Common Stock or (iii)
who Beneficially Owns shares of
<PAGE> 5
Common Stock consisting solely of one or more of (A) shares of
Common Stock Beneficially Owned pursuant to the grant or
exercise of an option granted to such Person by the Company in
connection with an agreement to merge with, or acquire, the
Company entered into prior to a Flip-in Date, (B) shares of
Common Stock (or securities convertible into, exchangeable into
or exercisable for Common Stock) Beneficially Owned by such
Person or its Affiliates or Associates at the time of grant of
such option, (C) shares of Common Stock (or securities
convertible into, exchangeable into or exercisable for Common
Stock) acquired by Affiliates or Associates of such Person after
the time of such grant which, in the aggregate, amount to less
than 1% of the outstanding shares of Common Stock or (D) shares
of Common Stock (or securities convertible into, exchangeable
into or exercisable for Common Stock) which are held by such
Person in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity, that are beneficially
owned by third persons who are not Affiliates or Associates of
such Person or acting together with such Person to hold such
shares, or which are held by such Person in respect of a debt
previously contracted. In addition, the Company, any
wholly-owned Subsidiary of the Company and any employee stock
ownership or other employee benefit plan of the Company or a
wholly-owned Subsidiary of the Company shall not be an Acquiring
Person.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities
Exchange Act of 1934, as such Rule is in effect on the date of
this Agreement.
A Person shall be deemed the "Beneficial Owner", and to have
"Beneficial Ownership" of, and to "Beneficially Own", any
securities as to which such Person or any of such Person's
Affiliates or Associates is or may be deemed to be the
beneficial owner of pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act, as such Rules are in effect on the date
of this Agreement, as well as any securities as to which such
Person or any of such Person's Affiliates or Associates has the
right to become Beneficial owner (whether such right is
exercisable immediately or only after the passage of time or the
occurrence of conditions) pursuant to any agreement, arrangement
or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner", or to have "Beneficial
Ownership" of, or to "Beneficially Own", any security (i) solely
because such security has been tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered security is
accepted for payment or exchange or (ii) solely because such
Person or any of such Person's Affiliates or Associates has or
shares the power to vote or direct the voting of such security
pursuant to a revocable proxy given in response to a public
proxy or consent solicitation made to more than ten holders of
shares of a class of stock of the Company registered under
Section 12 of the Securities Exchange Act of 1934 and pursuant
to, and in accordance with, the applicable rules and regulations
under the Securities Exchange Act of 1934, except if such power
(or the
2
<PAGE> 6
arrangements relating thereto) is then reportable under Item 6
of Schedule 13D under the Securities Exchange Act of 1934 (or
any similar provision of a comparable or successor report).
Notwithstanding the foregoing, no officer or director of the
Company shall be deemed to Beneficially Own any securities of
any other Person (i) by virtue of any actions such officer or
director takes in such capacity as an officer or director, or
(ii) by virtue of holding such position of officer or director.
For purposes of this Agreement, in determining the percentage of
the outstanding shares of Common Stock with respect to which a
Person is the Beneficial owner, all shares as to which such
Person is deemed the Beneficial owner shall be deemed
outstanding.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in Kansas City, Missouri
are generally authorized or obligated by law or executive order
to close.
"Close of Business" on any given date shall mean 4:00 p.m.,
Kansas City, Missouri time on such date (or, if such date is not
a Business Day, 4:00 p.m., Kansas City, Missouri time on the
next succeeding Business Day).
"Common Stock" shall mean the shares of Common Stock of the
Company.
"Distribution Date" shall mean the close of business on the
earlier of (i) the tenth Business Day (or such later date as the
Board of Directors of the Company may from time to time fix by
resolution adopted prior to the Distribution Date that would
otherwise have occurred) after the date on which any Person
commences a tender or exchange offer which, if consummated,
would result in such Person's becoming an Acquiring Person and
(ii) the Flip-in Date; provided, that if any tender or exchange
offer referred to in clause (i) of this paragraph is canceled,
terminated or otherwise withdrawn prior to the Distribution Date
without the purchase of any shares of Common Stock pursuant
thereto, such offer shall be deemed, for purposes of this
paragraph, never to have been made.
"Exchange Time" shall mean the time at which the right to
exercise the Rights shall terminate pursuant to Section 3.1(c)
hereof.
"Expiration Time" shall mean the earliest of (i) the Exchange
Time, (ii) the Redemption Time, (iii) the Close of Business on
the 10th anniversary of the date of this Rights Agreement, and
(iv) pursuant to an agreement entered into prior to a Flip-in
Date, upon the merger of the Company into another corporation or
with another corporation in which all shares of Common Stock are
either converted into cash and/or securities of another
corporation or, with respect to treasury shares and shares owned
by the other party to the merger or its affiliates, canceled.
"Flip-in Date" shall mean the tenth business day after any
Shares Acquisition Date or such earlier or later date as the
Board of Directors of the Company may
3
<PAGE> 7
from time to time fix by resolution adopted prior to the Flip-in
Date that would otherwise have occurred.
"Flip-over Entity," for purposes of Section 3.2, shall mean (i)
in the case of a Flip-over Transaction or Event described in
clause (i) of the definition thereof, the Person issuing any
securities into which shares of Common Stock are being converted
or exchanged and, if no such securities are being issued, the
other party to such Flip-over Transaction or Event and (ii) in
the case of a Flip-over Transaction or Event referred to in
clause (ii) of the definition thereof, the Person receiving the
greatest portion of the assets or earning power being
transferred in such Flip-over Transaction or Event, provided in
all cases if such Person is a subsidiary of a corporation, the
parent corporation shall be the Flip-over Entity.
"Flip-over Stock" shall mean the capital stock (or similar
equity interest) with the greatest voting power in respect of
the election of directors (or other persons similarly
responsible for direction of the business and affairs) of the
Flip-over Entity.
"Flip-over Transaction or Event" shall mean a transaction or
series of transactions after a Flip-in Date in which, directly
or indirectly, (i) the Company shall consolidate or merge or
participate in a share exchange with any other Person if, at the
time of the consolidation, merger or share exchange or at the
time the Company enters into any agreement with respect to any
such consolidation, merger or share exchange, the Acquiring
Person "controls" the Board of Directors of the Company and
either (A) any term of or arrangement concerning the treatment
of shares of capital stock in such consolidation, merger or
share exchange relating to the Acquiring Person is not identical
to the terms and arrangements relating to other holders of the
Common Stock or (B) the Person with whom the transaction or
series of transactions occurs is the Acquiring Person or an
Affiliate or Associate of the Acquiring Person or (ii) the
Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer) assets (A)
aggregating more than 50% of the assets (measured by either book
value or fair market value) or (B) generating more than 50% of
the operating income or cash flow of the Company and its
Subsidiaries (taken as a whole) to any Person (other than the
Company or one or more of its wholly owned Subsidiaries) or to
two or more such Persons which are Affiliates or Associates or
otherwise acting in concert, if, at the time of the entry by the
Company (or any such Subsidiary) into an agreement with respect
to such sale or transfer of assets, the Acquiring Person
"controls" the Board of Directors of the Company. An Acquiring
Person shall be deemed to "control" the Company's Board of
Directors when, following a Flip-in Date, the persons who were
directors of the Company before the Flip-in Date shall cease to
constitute a majority of the Company's Board of Directors.
"Market Price" per share of any securities on any date shall
mean the average of the daily closing prices per share of such
securities (determined as described below) on each of the 20
consecutive Trading Days through and including the
4
<PAGE> 8
Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events
described in Section 2.3 hereof shall have caused the closing
prices used to determine the Market Price on any Trading Days
during such period of 20 Trading Days not to be fully comparable
with the closing price on such date, each such closing price so
used shall be appropriately adjusted in order to make it fully
comparable with the closing price on such date. The closing
price per share of any securities on any date shall be the last
reported sale price, regular way, or, in case no such sale takes
place or is quoted on such date, the average of the closing bid
and asked prices, regular way, for each share of such
securities, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange, Inc. or, if the securities are not listed or admitted
to trading on the New York Stock Exchange, Inc., as reported in
the principal consolidated transaction reporting system with
respect to securities listed on the principal national
securities exchange on which the securities are listed or
admitted to trading or, if the securities are not listed or
admitted to trading on any national securities exchange, as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or,
if on any such date the securities are not listed or admitted to
trading on any national securities exchange or quoted by any
such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in the securities selected by the Board of Directors of
the Company; provided, however, that if on any such date the
securities are not listed or admitted to trading on a national
securities exchange or traded in the over-the-counter market,
the closing price per share of such securities on such date
shall mean the fair value per share of securities on such date
as determined in good faith by the Board of Directors of the
Company, after consultation with a nationally recognized
investment banking firm, and set forth in a certificate
delivered to the Rights Agent.
"Person" shall mean any individual, firm, partnership,
association, group (as such term is used in Rule 13d-5 under the
Securities Exchange Act of 1934, as such Rule is in effect on
the date of this Agreement), corporation or other entity.
"Preference Stock" shall mean the Series B Participating
Cumulative Preference Stock of the Company having the rights,
powers and preferences set forth in the Certificate of
Designation attached as Exhibit B hereto.
"Purchase Price" shall mean, as of any date, the price at which
a holder may purchase the securities issuable upon exercise of
one whole Right. Until adjustment thereof in accordance with the
terms hereof, the Purchase Price shall equal $150.00.
"Redemption Price" shall mean an amount equal to $0.01.
"Redemption Time" shall mean the time at which the right to
exercise the Rights shall terminate pursuant to Section 5.1
hereof.
5
<PAGE> 9
"Shares Acquisition Date" shall mean the first date of public
announcement by the Company (by any means) that an Acquiring
Person has become such.
"Subsidiary" of any specified Person shall mean any corporation
or other entity of which a majority of the voting power of the
equity securities or a majority of the equity interest is
Beneficially Owned, directly or indirectly, by such Person.
"Trading Day," when used with respect to any securities, shall
mean a day on which the New York Stock Exchange, Inc. is open
for the transaction of business or, if such securities are not
listed or admitted to trading on the New York Stock Exchange,
Inc., a day on which the principal national securities exchange
on which such securities are listed or admitted to trading is
open for the transaction of business or, if such securities are
not listed or admitted to trading on any national securities
exchange, a Business Day.
ARTICLE II
THE RIGHTS
2.1 LEGEND ON COMMON STOCK CERTIFICATES. Prior to the earliest of
the Distribution Date, the Redemption Date or the Expiration Date, certificates
for Common Stock shall evidence one Right for each share of Common Stock
represented thereby and shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement between
Illuminet Holdings, Inc. (the "Company") and UMB Bank, N.A., as
Rights Agent, dated as of November 20, 1998 (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal
executive offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights may be
redeemed, may expire, or may be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge within
five days after receipt of a written request therefor. Under
certain circumstances, Rights issued to, or which are or were
Beneficially Owned by, Acquiring Persons or their Affiliates or
Associates (as such terms are defined in the Rights Agreement)
and any subsequent holder of such Rights may become null and
void.
Certificates representing shares of Common Stock issued and outstanding at the
Record Date or issued after the Record Date without the foregoing legend shall
evidence one Right for each share of Common Stock evidenced thereby
notwithstanding the absence of the foregoing legend and the transfer of any of
such certificates representing shares of Common Stock shall also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates.
2.2 EXERCISE OF RIGHTS; SEPARATION OF RIGHTS.
6
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(a) Subject to Sections 3.1, 5.1, 5.10 and 5.11 and subject
to adjustment as herein set forth, each Right will entitle the holder
thereof, after the Distribution Date and prior to the Expiration Time,
to purchase, for the Purchase Price, one one-thousandth (1/1000) of a
share of Preference Stock.
(b) Until the Distribution Date, (i) no Right may be
exercised and (ii) each Right will be evidenced by the certificate for
the associated share of Common Stock and will be transferable only
together with, and will be transferred by a transfer of, such associated
share.
(c) Subject to this Section 2.2 and to Sections 3.1, 5.1,
5.10 and 5.11, after the Distribution Date and prior to the Expiration
Time, the Rights (i) may be exercised and (ii) may be transferred
independent of shares of Common Stock. Promptly following the
Distribution Date, the Rights Agent will mail by first class mail at the
Company's expense to each holder of record of Common Stock at such
holder's address as shown by the records of the Company (the Company
hereby agreeing to furnish copies of records of each holder, its
address, tax payer identification number and number of shares held to
the Rights Agent for this purpose), as of the Distribution Date (other
than any Person whose Rights have become void pursuant to Section
3.1(b)), (x) a certificate (a "Rights Certificate") in substantially the
form of Exhibit A hereto appropriately completed, representing the
number of Rights held by such holder at the Distribution Date and having
such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and
as are not inconsistent with the provisions of this Agreement, or as may
be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any national
securities exchange or quotation system on which the Rights may from
time to time be listed or traded, or to conform to usage, and (y) a
disclosure statement describing the Rights.
(d) Subject to Sections 3.1, 5.1, 5.10 and 5.11, Rights may
be exercised on any Business Day after the Distribution Date and prior
to the Expiration Time by submitting to the Rights Agent the Rights
Certificate evidencing such Rights with an Election to Exercise (an
"Election to Exercise") substantially in the form attached to the Rights
Certificate duly completed, accompanied by payment in cash, or by
certified or official bank check or money order payable to the order of
the Company, of a sum equal to the Purchase Price multiplied by the
number of Rights being exercised and a sum sufficient to cover any
transfer tax or charge which may be payable in respect of any transfer
involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares or depositary receipts
(or both) in a name other than that of the holder of the Rights being
exercised.
(e) Upon receipt of a Rights Certificate, with an Election
to Exercise accompanied by payment as set forth in Section 2.2(d), and
subject to Sections 3.1, 5.1, 5.10 and 5.11, the Rights Agent will
thereupon promptly (i) (A) requisition from the Company or its transfer
agent stock certificates evidencing such number of shares of Preference
Stock (the Company hereby irrevocably authorizing its transfer agents to
comply with all such requisitions) and (B) requisition from the
depositary selected by the
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Company depositary receipts representing the fractional shares to be
purchased or if the Company elects pursuant to Section 5.5 not to issue
certificates representing fractional shares, requisition from the
Company the amount of cash to be paid in lieu of fractional shares in
accordance with Section 5.5 and (ii) after receipt of such certificates,
depositary receipts and/or cash, deliver the same by first class mail to
or upon the order of the registered holder of such Rights Certificate,
registered (in the case of certificates or depositary receipts) in such
name or names as may be designated by such holder.
(f) In case the holder of any Rights shall exercise less
than all the Rights evidenced by such holder's Rights Certificate, a new
Rights Certificate evidencing the Rights remaining unexercised will be
issued by the Rights Agent to such holder or to such holder's duly
authorized assigns.
(g) The Company covenants and agrees that it will (i) take
all such action as may be necessary to ensure that all shares delivered
upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price),
be duly and validly authorized, executed, issued and delivered and fully
paid and nonassessable; (ii) take all such action as may be necessary to
comply with any applicable requirements of the Securities Act of 1933,
the Securities Exchange Act of 1934, and the rules and regulations
thereunder, and any other applicable law, rule or regulation, in
connection with the issuance of any shares upon exercise of Rights; and
(iii) pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the original
issuance or delivery of the Rights Certificates or of any shares issued
upon the exercise of Rights, provided that the holder of the Rights, and
not the Company, shall be required to pay any transfer tax or charge
which may be payable in respect of any transfer involved in the transfer
or delivery of Rights Certificates or the issuance or delivery of
certificates for shares in a name other than that of the holder of the
Rights being transferred or exercised.
2.3 ADJUSTMENTS TO PURCHASE PRICE; NUMBER OF RIGHTS.
(a) In the event the Company shall at any time after the
date hereof and prior to the Distribution Date (i) declare or pay a
dividend on Common Stock payable in Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock
into a smaller number of shares of Common Stock, (x) the Purchase Price
in effect after such adjustment will be equal to the Purchase Price in
effect immediately prior to such adjustment divided by the number of
shares of Common Stock (the "Expansion Factor") that a holder of one
share of Common Stock immediately prior to such dividend, subdivision or
combination would hold thereafter as a result thereof and (y) each Right
held prior to such adjustment will become that number of Rights equal to
the Expansion Factor, and the adjusted number of Rights will be deemed
to be distributed among the shares of Common Stock with respect to which
the original Rights were associated (if they remain outstanding) and the
shares issued in respect of such dividend, subdivision or combination,
so that each such share of Common Stock will have exactly one Right
associated with it. Each adjustment made pursuant to this paragraph
shall be made as of the payment or effective date for the applicable
dividend, subdivision or combination.
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In the event the Company shall at any time after the date hereof
and prior to the Distribution Date issue any shares of Common Stock
otherwise than in a transaction referred to in the preceding paragraph,
each such share of Common Stock so issued shall automatically have one
new Right associated with it, which Right shall be evidenced by the
certificate representing such share. To the extent provided in Section
5.3, Rights shall be issued by the Company in respect of shares of
Common Stock that are issued or sold by the Company after the
Distribution Date.
(b) In the event the Company shall at any time after the
date hereof and prior to the Distribution Date issue or distribute any
securities or assets in respect of, in lieu of or in exchange for Common
Stock (other than pursuant to a regular periodic cash dividend or a
dividend paid solely in Common Stock) whether by dividend, in a
reclassification or recapitalization (including any such transaction
involving a merger, consolidation or share exchange), or otherwise, the
Company shall make such adjustments, if any, in the Purchase Price,
number of Rights and/or securities or other property purchasable upon
exercise of Rights as the Board of Directors of the Company, in its sole
discretion, may deem to be appropriate under the circumstances in order
to adequately protect the interests of the holders of Rights generally,
the Company shall give prompt written notice of any such event to the
Rights Agent, and the Company and the Rights Agent shall amend this
Agreement as necessary to provide for such adjustments.
(c) Each adjustment to the Purchase Price made pursuant to
this Section 2.3 shall be calculated to the nearest cent. Whenever an
adjustment to the Purchase Price is made pursuant to this Section 2.3,
the Company shall (i) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such
adjustment and (ii) promptly file with the Rights Agent and with each
transfer agent for the Common Stock a copy of such certificate.
(d) Rights Certificates shall represent the securities
purchasable under the terms of this Agreement, including any adjustment
or change in the securities purchasable upon exercise of the Rights,
even though such Rights Certificates may continue to express the
securities purchasable at the time of issuance of the initial Rights
Certificates.
2.4 DATE ON WHICH EXERCISE IS EFFECTIVE. Each person in whose name
any certificate for shares of Preference Stock is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
the shares represented thereby on the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
for such shares of Preference Stock (and any applicable taxes and other
governmental charges payable by the exercising holder hereunder) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares of Preference Stock on,
and such certificate shall be dated, the next succeeding Business Day on which
the stock transfer books of the Company are open.
2.5 Execution, Authentication, Delivery and Dating of Rights
Certificates.
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(a) The Rights Certificates shall be executed on behalf of
the Company by its Chairman of the Board, its Chief Executive Officer,
its President, any of its Vice Presidents or its Treasurer, under its
corporate seal reproduced thereon attested by its Secretary or any of
its Assistant Secretaries. The signature of any of these officers on the
Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures
of individuals who were at any time the proper officers of the Company
shall bind the Company, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the countersignature and
delivery of such Rights Certificates.
Promptly after the Distribution Date, the Company will notify
the Rights Agent of such Distribution Date and will deliver Rights
Certificates executed by the Company to the Rights Agent for
countersignature, and, subject to Section 3.1(b), the Rights Agent shall
manually countersign and deliver such Rights Certificates to the holders
of the Rights pursuant to Section 2.2(c) hereof. No Rights Certificate
shall be valid for any purpose unless manually countersigned by the
Rights Agent.
(b) Each Rights Certificate shall be dated the date of
countersignature thereof.
2.6 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) After the Distribution Date, the Company will cause to
be kept a register (the "Rights Register") in which, subject to such
reasonable regulations as it may prescribe, the Company will provide for
the registration and transfer of Rights. The Rights Agent is hereby
appointed "Rights Registrar" for the purpose of maintaining the Rights
Register for the Company and registering Rights and transfers of Rights
after the Distribution Date as herein provided. In the event that the
Rights Agent shall cease to be the Rights Registrar, the Rights Agent
will have the right to examine the Rights Register at all reasonable
times after the Distribution Date.
After the Distribution Date and prior to the Expiration Time,
upon surrender for registration of transfer or exchange of any Rights
Certificate, and subject to the provisions of Sections 2.6(c) and (d),
the Company will execute, and the Rights Agent will countersign and
deliver, in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's instructions, one or
more new Rights Certificates evidencing the same aggregate number of
Rights as did the Rights Certificate so surrendered.
(b) Except as otherwise provided in Section 3.1(b), all
Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be the valid obligations of the Company, and such
Rights shall be entitled to the same benefits under this Agreement as
the Rights surrendered upon such registration of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the Rights Agent
or if the Rights Agent shall cease to be the Rights Registrar, in form
satisfactory to the Company, as the case may be, duly executed by the
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<PAGE> 14
holder thereof or such holder's attorney duly authorized in writing. As
a condition to the issuance of any new Rights Certificate under this
Section 2.6, the Company or the Rights Agent may require the payment of
a sum sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto.
(d) The Company and the Rights Agent shall not be required
to register the transfer or exchange of any Rights after such Rights
have become void under Section 3.1(b), been exchanged under Section
3.1(c) or been redeemed or terminated under Section 5.1.
2.7 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES.
(a) If any mutilated Rights Certificate is surrendered to
the Rights Agent prior to the Expiration Time, then, subject to Sections
3.1(b), 3.1(c) and 5.1, the Company shall execute and the Rights Agent
shall countersign and deliver in exchange therefor a new Rights
Certificate evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(b) If there shall be delivered to the Rights Agent prior to
the Expiration Time (i) evidence to its satisfaction of the destruction,
loss or theft of any Rights Certificate and (ii) such security or
indemnity as may be required by it to save the Company and the Rights
Agent and any of their agents harmless, then, subject to Sections
3.1(b), 3.1(c) and 5.1 and in the absence of notice to the Rights Agent
that such Rights Certificate has been acquired by a bona fide purchaser,
the Company shall execute and the Rights Agent shall countersign and
deliver, in lieu of any such destroyed, lost or stolen Rights
Certificate, a new Rights Certificate evidencing the same number of
Rights as did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Company or the Rights Agent may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any
other expenses (including without limitation the fees and expenses of
the attorneys and indemnity bond premiums) connected therewith.
(d) Every new Rights Certificate issued pursuant to this
Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate
shall evidence an original additional contractual obligation of the
Company, whether or not the destroyed, lost or stolen Rights Certificate
shall be at any time enforceable by anyone, and, subject to Section
3.1(b), shall be entitled to all the benefits of this Agreement equally
and proportionately with any and all other Rights duly issued hereunder.
2.8. PERSONS DEEMED OWNERS. Prior to due presentment of a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person in whose
name such Rights Certificate is registered on the Rights Register (or, prior to
the Distribution Date, such Common Stock certificate is registered on the books
of the Company) is registered as the absolute owner thereof and of the Rights
evidenced
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thereby for all purposes whatsoever, including the payment of the Redemption
Price and neither the Company nor the Rights Agent shall be affected by any
notice to the contrary. As used in this Agreement, unless the context otherwise
requires, the term "holder" of any Rights shall mean the registered holder of
such Rights (or, prior to the Distribution Date, the associated shares of Common
Stock).
2.9. DELIVERY AND CANCELLATION OF CERTIFICATES. All Rights
Certificates surrendered upon exercise or for registration of transfer or
exchange shall, if surrendered to any person other than the Rights Agent, be
delivered to the Rights Agent and, in any case, shall be promptly cancelled by
the Rights Agent. The Company may at any time deliver to the Rights Agent for
cancellation any Rights Certificates previously countersigned and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Rights Certificates so delivered shall be promptly cancelled by the Rights
Agent. No Rights Certificates shall be countersigned in lieu of or in exchange
for any Rights Certificates cancelled as provided in this Section 2.9, except as
expressly permitted by this Agreement. The Rights Agent shall destroy all
cancelled Rights Certificates in accordance with applicable law.
2.10 AGREEMENT OF RIGHTS HOLDERS. Every holder of Rights by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of Rights that:
(a) prior to the Distribution Date, each Right will be
transferable only together with, and will be transferred by a transfer
of, the associated share of Common Stock;
(b) after the Distribution Date, the Rights Certificates
will be transferable only on the Rights Register as provided herein;
(c) prior to due presentment of a Rights Certificate (or,
prior to the Distribution Date, the associated Common Stock certificate)
for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person
in whose name the Rights Certificate (or, prior to the Distribution
Date, the associated Common Stock certificate) is registered on the
Rights Register as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, and neither the Company
nor the Rights Agent shall be affected by any notice to the contrary;
(d) Rights beneficially owned by certain Persons will, under
the circumstances set forth in Section 3.1(b), become void; and
(e) this Agreement may be supplemented or amended from time
to time pursuant to Section 2.3(b) or 5.4 hereof.
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ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 FLIP-IN.
(a) In the event that prior to the Expiration Time a Flip-in
Date shall occur, except as provided in this Section 3.1, each Right
shall constitute the right to purchase from the Company, upon exercise
thereof in accordance with the terms hereof (but subject to Sections
5.10 and 5.11), that number of shares of Common Stock having an
aggregate Market Price on the Shares Acquisition Date equal to twice the
Purchase Price for an amount in cash equal to the Purchase Price (such
right to be appropriately adjusted in order to protect the interests of
the holders of Rights generally in the event that on or after such
Shares Acquisition Date an event of a type analogous to any of the
events described in Section 2.3(a) or (b) shall have occurred with
respect to the Common Stock).
(b) Notwithstanding the foregoing, any Rights that are or
were Beneficially Owned on or after the Shares Acquisition Date by an
Acquiring Person or an Affiliate or Associate thereof or by any
transferee, direct or indirect, of any of the foregoing shall become
void and any holder of such Rights (including transferees) shall
thereafter have no right to exercise or transfer such Rights under any
provision of this Agreement. If any Rights Certificate is presented for
assignment or exercise and the Person presenting the same will not
complete the certification set forth at the end of the form of
assignment or notice of election to exercise and provide such additional
evidence of the identity of the Beneficial Owner and its Affiliates and
Associates (or former Beneficial Owners and their Affiliates and
Associates) as the Company shall reasonably request, then the Company
and the Rights Agent shall be entitled conclusively to deem the
Beneficial Owner thereof to be an Acquiring Person or an Affiliate or
Associate thereof or a transferee of any of the foregoing and
accordingly will deem the Rights evidenced thereby to be void and not
transferable or exercisable.
(c) The Board of Directors of the Company may, at its
option, at any time after a Flip-in Date and prior to the time that an
Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding shares of Common Stock, elect to exchange all (but not less
than all) the then outstanding Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 3.1(b)) for
shares of Common Stock at an exchange ratio of one share of Common Stock
per Right, appropriately adjusted in order to protect the interests of
holders of Rights generally in the event that after the Distribution
Date an event of a type analogous to any of the events described in
Section 2.3(a) or (b) shall have occurred with respect to the Common
Stock (such exchange ratio, as adjusted from time to time, being
hereinafter referred to as the "Exchange Ratio").
Immediately upon the action of the Board of Directors of the
Company electing to exchange the Rights, without any further action and
without any notice, the right to exercise the Rights will terminate and
each Right (other than Rights that have become void pursuant to Section
3.1(b)) will thereafter represent only the right to receive a number of
shares of Common Stock equal to the Exchange Ratio. Promptly after the
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<PAGE> 17
action of the Board of Directors electing to exchange the Rights, the
Company shall give notice thereof (specifying the steps to be taken to
receive shares of Common Stock in exchange for Rights) to the Rights
Agent and the holders of the Rights (other than Rights that have become
void pursuant to Section 3.1(b)) outstanding immediately prior thereto
by mailing such notice in accordance with Section 5.9.
Each Person in whose name any certificate for shares of Common
Stock is issued upon the exchange of Rights pursuant to this Section
3.1(c) or Section 3.1(d) shall for all purposes be deemed to have become
the holder of record of the shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of any
applicable taxes and other governmental charges payable by the holder
was made; provided, however, that if the date of such surrender and
payment is a date upon which the stock transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of
such shares on, and such certificate shall be dated, the next succeeding
Business Day on which the stock transfer books of the Company are open.
(d) Whenever the Company shall become obligated under
Section 3.1(a) or (c) to issue shares of Common Stock upon exercise of
or in exchange for Rights, the Company, at its option, may substitute
therefor shares of Preference Stock, at a ratio of one one-thousandth
(1/1000) of a share of Preference Stock for each share of Common Stock
so issuable.
(e) In the event that there shall not be sufficient treasury
shares or authorized but unissued shares of Common Stock or Preference
Stock of the Company to permit the exercise or exchange in full of the
Rights in accordance with Section 3.1(a) or (c), the Company shall
either (i) call a meeting of stockholders seeking approval to cause
sufficient additional shares to be authorized (provided that if such
approval is not obtained the Company will take the action specified in
clause (ii) of this sentence) or (ii) take such action as shall be
necessary to ensure and provide, to the extent permitted by applicable
law and any agreements or instruments in effect on the Shares
Acquisition Date to which it is a party, that each Right shall
thereafter constitute the right to receive, (x) at the Company's option,
either (A) in return for the Purchase Price, debt or equity securities
or other assets (or a combination thereof) having a fair value equal to
twice the Purchase Price, or (B) without payment of consideration
(except as otherwise required by applicable law), debt or equity
securities or other assets (or a combination thereof) having a fair
value equal to the Purchase Price, or (y) if the Board of Directors of
the Company elects to exchange the Rights in accordance with Section
3.1(c), debt or equity securities or other assets (or a combination
thereof) having a fair value equal to the product of the Market Price of
a share of Common Stock on the Flip-in Date times the Exchange Ratio in
effect on the Flip-in Date, where in any case set forth in (x) or (y)
above the fair value of such debt or equity securities or other assets
shall be as determined in good faith by the Board of Directors of the
Company, after consultation with a nationally recognized investment
banking firm.
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3.2. FLIP-OVER.
(a) Prior to the Expiration Time, the Company shall not
enter into any agreement with respect to, consummate or permit to occur
any Flip-over Transaction or Event unless and until it shall have
entered into a supplemental agreement with the Flip-over Entity, for the
benefit of the holders of the Rights, providing that, upon consummation
or occurrence of the Flip-over Transaction or Event (i) each Right shall
thereafter constitute the right to purchase from the Flip-over Entity,
upon exercise thereof in accordance with the terms hereof, that number
of shares of Flip-over Stock of the Flip-over Entity having an aggregate
Market Price on the date of consummation or occurrence of such Flip-over
Transaction or Event equal to twice the Purchase Price for an amount in
cash equal to the Purchase Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights
generally in the event that after such date of consummation or
occurrence of an event of a type analogous to any of the events
described in Section 2.3(a) or (b) shall have occurred with respect to
the Flip-over Stock) and (ii) the Flip-over Entity shall thereafter be
liable for, and shall assume, by virtue of such Flip-over Transaction or
Event and such supplemental agreement, all the obligations and duties of
the Company pursuant to this Agreement. The provisions of this Section
3.2 shall apply to successive Flip-over Transactions or Events.
(b) Prior to the Expiration Time, unless the Rights will be
redeemed pursuant to Section 5.1 hereof in connection therewith, the
Company shall not enter into any agreement with respect to, consummate
or permit to occur any Flip-over Transaction or Event if at the time
thereof there are any rights, warrants or securities outstanding or any
other arrangements, agreements or instruments that would eliminate or
otherwise diminish in any material respect the benefits intended to be
afforded by this Rights Agreement to the holders of Rights upon
consummation of such transaction.
ARTICLE IV
THE RIGHTS AGENT
4.1 GENERAL.
(a) The Company hereby appoints the Rights Agent to act as
agent for the Company in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The
Company agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand
of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted to be done by the Rights
Agent in connection with the acceptance and administration of this
Agreement, including without limitation the costs and expenses of
defending against any claim of liability. The indemnity provided for
herein shall survive the expiration or redemption of the Rights and the
termination of this Agreement.
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(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by
it in connection with its administration of this Agreement in reliance
upon any certificate for securities purchasable upon exercise of Rights,
Rights Certificate, certificate for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement,
or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the
proper person or persons.
4.2. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent is
a party, or any corporation succeeding to the stockholder services
business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section
4.4 hereof. In case at the time such successor Rights Agent succeeds to
the agency created by this Agreement any of the Rights Certificates have
been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates have not been countersigned, any
successor Rights Agent may countersign such Rights Certificates in the
name of the successor Rights Agent; and in all such cases such Rights
Certificates will have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates
shall not have been countersigned, the Rights Agent may countersign such
Rights Certificates either in its prior name or in its changed name; and
in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
4.3 DUTIES OF RIGHTS AGENT. The Rights Agent undertakes only the
specific duties and obligations expressly imposed by this Agreement and no
implied duties or obligations shall be read into this Agreement against the
Rights Agent, upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Rights Agent or the Company), and the opinion
of such counsel will be full and complete authorization and protection
to the Rights Agent as to any action taken or omitted by it in good
faith and in accordance with such opinion.
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(b) Whenever in the performance of its duties under this
Agreement the Rights Agent deems it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed
by a person believed by the Rights Agent to be the Chairman of the
Board, the Chief Executive Officer, the President or any Vice President
and by the Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate will be
full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent will be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or
in the certificates for securities purchasable upon exercise of Rights
or the Rights Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are
and will be deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due authorization, execution and delivery hereof by
the Rights Agent) or in respect of the validity or execution of any
certificate for securities purchasable upon exercise of Rights or Rights
Certificate (except its countersignature thereof), nor will it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor will it be
responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 3.1(b) hereof)
or any adjustment required under the provisions of Section 2.3, 3.1 or
3.2 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of
Rights after receipt of the certificate contemplated by Section 2.3
describing any such adjustment); nor will it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any securities purchasable upon exercise of Rights or any
Rights or as to whether any securities purchasable upon exercise of
Rights will, when issued, be duly and validly authorized, executed,
issued and delivered and fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged
and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the
carrying out or performing by the Rights Agent of the provisions of this
Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any person believed by the
17
<PAGE> 21
Rights Agent to be the Chairman of the Board, the Chief Executive
Officer, the President or any Vice President or the Secretary or any
Assistant Secretary or the Treasurer of the Company, and to apply to
such persons for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such person or for any
delay in acting while waiting for such instructions.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in Common Stock,
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and
freely as though it were not Rights Agent under this Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent will not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss to
the Company resulting from any such act, default, neglect or misconduct,
provided reasonable care was exercised in the selection and continued
employment thereof.
(j) The Rights Agent shall have no responsibility to the
Company, any holders of Rights or any other securities of the Company
for interest or earnings on any monies held by the Rights Agent pursuant
to this Agreement.
(k) The Rights Agent shall not be required to take notice or
be deemed to have notice of any event or condition hereunder, including,
but not limited to, a Distribution Date, a Redemption Date, any
adjustment of the Purchase Price, the Preference Stock or the Common
Stock, the existence of an Acquiring Person or a Beneficial Owner or any
other event or condition that may require action by the Rights Agent,
unless the Rights Agent shall be specifically notified in writing of
such event or condition by the Company, and all notices or other
requirements required by this Agreement to be delivered to the Rights
Agent must, in order to be effective, be received at the principal
office of the Rights Agent, and in the absence of such notice so
delivered, the Rights Agent may conclusively assume no such event or
condition exists.
4.4 CHANGE OF RIGHTS AGENT. The Rights Agent may resign and be
discharged from its duties under this Agreement upon 90 days' notice (or such
lesser notice as is acceptable to the Company) in writing mailed to the Company
and to each transfer agent of Common Stock by registered or certified mail. The
Company may remove the Rights Agent upon 30 days' notice in writing, mailed to
the Rights Agent and to each transfer agent of the Common Stock by registered or
certified mail. If the Rights Agent should resign or be removed or otherwise
become incapable of acting, the Company will appoint a successor to the Rights
Agent. If the Company fails to make such appointment within a period of 30 days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Rights Agent or by the holder of
any Rights (which holder shall, with such notice, submit such
18
<PAGE> 22
holder's Rights Certificate for inspection by the Company), then the holder of
any Rights or the resigning or removed Rights Agent may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any other State of the United States, in good standing, which is authorized
under such laws to exercise the powers of the Rights Agent contemplated by this
Agreement and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000. After appointment, the
successor Rights Agent will be vested with the same powers, rights, protections,
immunities, duties and responsibilities as if it had been originally named as
Rights Agent without further act or deed and the duties and obligations of the
predecessor Rights Agent hereunder shall cease and terminate; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company will file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock. Failure to give any notice provided for in this Section 4.4,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
ARTICLE V
MISCELLANEOUS
5.1 REDEMPTION.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the Close of Business on the Flip-in Date,
elect to redeem all (but not less than all) the then outstanding Rights
at the Redemption Price and the Company, at its option, may pay the
Redemption Price either in cash or shares of Common Stock or other
securities of the Company deemed by the Board of Directors, in the
exercise of its sole discretion, to be at least equivalent in value to
the Redemption Price.
(b) Immediately upon the action of the Board of Directors of
the Company electing to redeem the Rights (or, if the resolution of the
Board of Directors electing to redeem the Rights states that the
redemption will not be effective until the occurrence of a specified
future time or event, upon the occurrence of such future time or event),
without any further action and without any notice, the right to exercise
the Rights will terminate and each Right will thereafter represent only
the right to receive the Redemption Price in cash or securities, as
determined by the Board of Directors. Promptly after the Rights are
redeemed, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such
notice in accordance with Section 5.9.
5.2. EXPIRATION. The Rights and this Agreement shall expire at the
Expiration Time and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1 or 5.1 hereof.
19
<PAGE> 23
5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock by the Company
following the Distribution Date and prior to the Expiration Time pursuant to the
terms of securities convertible or redeemable into shares of Common Stock or to
options, in each case issued or granted prior to, and outstanding at, the
Distribution Date, the Company shall issue to the holders of such shares of
Common Stock, Rights Certificates representing the appropriate number of Rights
in connection with the issuance or sale of such shares of Common Stock;
provided, however, in each case, (i) no such Rights Certificate shall be issued,
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or to the Person to whom such Rights Certificates would be issued,
(ii) no such Rights Certificates shall be issued if, and to the extent that,
appropriate adjustment shall have otherwise been made in lieu of the issuance
thereof, and (iii) the Company shall have no obligation to distribute Rights
Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring
Person or any transferee of any of the foregoing.
5.4 SUPPLEMENTS AND AMENDMENTS. The Company and the Rights Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) prior to the Distribution
Date, to change or supplement the provisions hereunder which the Company may
deem necessary or desirable, or (iv) following the Distribution Date, to change
or supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates. Upon the delivery of a certificate from an
appropriate officer of the Company, upon which the Rights Agent is entitled to
rely, which states that the proposed supplement or amendment is in compliance
with the terms of this Section 5.4, the Rights Agent shall execute such
supplement or amendment unless the Rights Agent shall have determined in good
faith that such supplement or amendment would adversely affect its interests
under this Agreement. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the holders
of Common Stock.
5.5 FRACTIONAL SHARES. If the Company elects not to issue
certificates representing fractional shares upon exercise or redemption of
Rights, the Company shall, in lieu thereof, in the sole discretion of the Board
of Directors, either (a) evidence such fractional shares by depositary receipts
issued pursuant to an appropriate agreement between the Company and a depositary
selected by it, providing that each holder of a depositary receipt shall have
all of the rights, privileges and preferences to which such holder would be
entitled as a beneficial owner of such fractional share, or (b) sell such shares
on behalf of the holders of Rights and pay to the registered holder of such
Rights the appropriate fraction of the price per share received upon such sale.
5.6 RIGHTS OF ACTION. Subject to the terms of this Agreement
(including Section 3.1(b)), rights of action in respect of this Agreement, other
than rights of action vested
20
<PAGE> 24
solely in the Rights Agent, are vested in the respective holders of the Rights;
and any holder of any Rights, without the consent of the Rights Agent or of the
holder of any other Rights, may, on such holder's own behalf and for such
holder's own benefit and the benefit of other holders of Rights, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise such
holder's Rights in the manner provided in such holder's Rights Certificate and
in this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.
5.7 HOLDER OF RIGHTS NOT DEEMED A STOCKHOLDER. No holder, as such,
of any Rights shall be entitled to vote, receive dividends or be deemed for any
purpose the holder of shares or any other securities which may at any time be
issuable on the exercise of such Rights, nor shall anything contained herein or
in any Rights Certificate be construed to confer upon the holder of any Rights,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
5.8 NOTICE OF PROPOSED ACTIONS. In case the Company shall propose
after the Distribution Date and prior to the Expiration Time (i) to effect or
permit occurrence of any Flip-over Transaction or Event or (ii) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Right, in accordance with Section 5.9
hereof, a notice of such proposed action, which shall specify the date on which
such Flip-over Transaction or Event, liquidation, dissolution, or winding up is
to take place, and such notice shall be so given at least 20 Business Days prior
to the date of the taking of such proposed action.
5.9 NOTICES. Notices or demands authorized or required by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
to or on the Company shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Illuminet Holdings, Inc.
4501 Intelco Loop S.E.
P.O. Box 2909
Olympia, WA 98507
Attention: Secretary
Any notice or demand authorized or required by this Agreement to be given or
made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or received by registered or
certified mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
21
<PAGE> 25
UMB Bank, N.A., as Rights Agent
928 Grand Avenue
P.O. Box 419692
Kansas City, MO 64141-6692
Attention: Corporate Trust Department
Notices or demands authorized or required by this Agreement to be given or made
by the Company or the Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the Rights Register or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice to any holder which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Failure to give a notice pursuant to the
provisions of this Agreement shall not affect the validity of any action taken
hereunder.
5.10 SUSPENSION OF EXERCISABILITY. To the extent that the Company
determines in good faith that some action will or need be taken pursuant to
Section 3.1 or to comply with federal or state securities laws, the Company may
suspend the exercisability of the Rights for a reasonable period in order to
take such action or comply with such laws. In the event of any such suspension,
the Company shall issue as promptly as practicable a public announcement stating
that the exercisability or exchangeability of the Rights has been temporarily
suspended. Notice thereof pursuant to Section 5.9 shall not be required.
5.11 COSTS OF ENFORCEMENT. The Company agrees that if the Company or
any other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
5.12 SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
5.13 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.
5.14 DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the
22
<PAGE> 26
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board of Directors of the Company to any liability to the holders of
the Rights.
5.15 DESCRIPTIVE HEADINGS. Descriptive headings appear herein for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
5.16 GOVERNING LAW. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE
AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY
WITHIN SUCH STATE.
5.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.18 SEVERABILITY. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
23
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ILLUMINET HOLDINGS, INC.
By:
-------------------------------------
Name:
----------------------------------
Title:
----------------------------------
UMB BANK, N.A., AS RIGHTS AGENT
By:
-------------------------------------
Name:
----------------------------------
Title:
----------------------------------
24
<PAGE> 28
EXHIBIT A
[FORM OF RIGHTS CERTIFICATE]
Certificate No. ________ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR
ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID.
RIGHTS CERTIFICATE
ILLUMINET HOLDINGS, INC.
This certifies that _________________, or registered assigns, is the
registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of November 20, 1998 (as amended
from time to time, the "Rights Agreement"), between Illuminet Holdings, Inc., a
Delaware corporation (the "Company"), and UMB Bank, N.A., as Rights Agent (the
"Rights Agent", which term shall include any successor Rights Agent under the
Rights Agreement), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
the Close of Business (as such term is defined in the Rights Agreement) on
______________, one one-thousandth of a fully paid share of Series B
Participating Cumulative Preference Stock, $.01 par value (the "Preference
Stock"), of the Company (subject to adjustment as provided in the Rights
Agreement) at the Purchase Price referred to below, upon presentation and
surrender of this Rights Certificate with the Form of Election to Exercise duly
executed at the principal office of the Rights Agent in Kansas City, Missouri.
The Purchase Price shall initially be $150.00 per Right and shall be subject to
adjustment in certain events as provided in the Rights Agreement.
<PAGE> 29
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other than the Company or securities or assets of the
Company other than Preference Stock, all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
reference is hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Rights Agent, the
Company and the holders of the Rights Certificates. Copies of the Rights
Agreement are on file at the principal office of the Company and are available
without cost upon written request.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
evidencing an aggregate number of Rights equal to the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right evidenced
by this Certificate may be (a) redeemed by the Company under certain
circumstances, at its option, at a redemption price of $0.01 per Right or (b)
exchanged by the Company under certain circumstances, at its option, for one
share of Common Stock or one one-thousandth of a share of Preference Stock per
Right (or, in certain cases, other securities or assets of the Company), subject
in each case to adjustment in certain events as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of any securities
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed
2
<PAGE> 30
to confer upon the holder hereof, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised or exchanged as
provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
3
<PAGE> 31
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
ATTEST: ILLUMINET HOLDINGS, INC.
By
-------------------------------------
Secretary
Countersigned:
Date:
---------------------------
UMB BANK, N.A., as Rights Agent
By:
-----------------------------
Authorized Signature
4
<PAGE> 32
[FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer this Rights Certificate.)
FOR VALUE RECEIVED _________________ hereby sells, assigns and transfers
unto ________________ (Please print name and address of transferee) this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________ Attorney, to transfer
the within-named Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated:
---------------------------
Signature Guaranteed:
---------------------------------------
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee Medallion program), pursuant to
SEC Rule 17Ad-15.
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
shares of Common Stock, that the Rights evidenced by this Rights Certificate are
not, and, to the
<PAGE> 33
knowledge of the undersigned, have never been, Beneficially Owned by an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported assignment, the Company will deem the Beneficial
Owner of the Rights evidenced by the enclosed Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.
[To be attached to each Rights Certificate]
2
<PAGE> 34
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: ILLUMINET HOLDINGS, INC.
The undersigned hereby irrevocably elects to exercise __________ whole
Rights represented by the attached Rights Certificate to purchase the shares of
Preference Stock issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:
Address:
--------------------------------------
Social Security or Other Taxpayer
Identification Number:
------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
Address:
--------------------------------------
Social Security or Other Taxpayer
Identification Number:
-----------------------
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return.
Dated:
--------------------------
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
<PAGE> 35
Signature Guarantee:
---------------------------
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee Medallion program), pursuant to
SEC Rule 17Ad-15.
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and shares of Common Stock, that the Rights evidenced by the attached
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement).
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
2
<PAGE> 36
EXHIBIT B
FORM OF
CERTIFICATE OF DESIGNATION
OF
ILLUMINET HOLDINGS, INC.
SERIES B
PARTICIPATING CUMULATIVE
PREFERENCE STOCK
PURSUANT TO SECTIONS 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Illuminet Holdings, Inc., a corporation organized and existing under and
by virtue of The General Corporation Law of Delaware, DOES HEREBY CERTIFY:
That at a meeting of the Board of Directors of Illuminet Holdings, Inc.
(the "Corporation") the following resolution was duly adopted creating 7,000
shares of Preference Stock, par value $.01 per share, designated as Series B
Participating Cumulative Preference Stock.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation in accordance with
the provisions of the Certificate of Incorporation, a series of
Preference Stock of the Corporation be, and it hereby is
created, and the designation and amount thereof and the relative
rights, preferences and limitations thereof are as follows:
1. Designation and Number. The designation of this series is the
"Series B Participating Cumulative Preference Stock" (hereinafter, this
"Series"). The number of shares initially constituting this Series shall be
seven thousand (7,000) shares; provided, however, that, if more than a total of
7,000 shares of this Series shall be issuable upon the exercise of Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of November 20, 1998,
between the Corporation and UMB Bank, N.A., as Rights Agent (the "Rights
Agreement"), the Board of Directors of the Corporation, pursuant to Section
151(g) of the General Corporation Law of the State of Delaware, shall direct by
resolution or resolutions that a certificate be properly executed, acknowledged,
filed and recorded, in accordance with the provisions of Section 103 thereof,
providing for the total number of shares of this Series authorized to be issued
to be increased (to the extent that the Certificate of Incorporation then
permits) to the largest number of whole shares (rounded up to the nearest whole
number) issuable upon exercise of such Rights.
2. Dividends.
a. Subject to the prior and superior rights of the holders
of shares of any other series of Preference Stock or other class of
capital stock of the Corporation ranking prior and superior to the
shares of this Series with respect to dividends, the holders of
<PAGE> 37
shares of this Series shall be entitled to receive, when, as and if
declared by the Board of Directors, out of the assets of the Corporation
legally available therefor, (1) quarterly dividends payable on the first
day of each of March, June, September and December (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of
a share or a fraction of a share of this Series, in the amount of $.01
per whole share (rounded to the nearest cent) less the amount of all
cash dividends declared on this Series pursuant to the following clause
(2) since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of this Series (the
total of which shall not, in any event, be less than zero), and (2)
dividends payable in cash on the payment date for each cash dividend
declared on the Common Stock in an amount per whole share (rounded to
the nearest cent) equal to the Formula Number (as hereinafter defined)
then in effect times the cash dividends then to be paid on each share of
Common Stock, par value $.01, of the Corporation (the "Common Stock").
In addition, if the Corporation shall pay any dividend or make any
distribution on the Common Stock payable in assets, securities or other
forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each outstanding whole
share of this Series B dividend or distribution in like kind equal to
the Formula Number then in effect times such dividend or distribution on
each share of the Common Stock. As used herein, the "Formula Number"
shall be 1,000; provided, however, that, if at any time after November
20, 1998, the Corporation shall (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock or make any distribution
on the Common Stock in shares of Common Stock, (ii) subdivide (by a
stock split or otherwise) the outstanding shares of Common Stock into a
larger number of shares of Common Stock or (iii) combine (by a reverse
stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then in each such event the
Formula Number shall be adjusted to a number determined by multiplying
the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of Common Stock
that are outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that are outstanding
immediately prior to such event (and rounding the result to the nearest
whole number); and provided further, that, if at any time after November
20, 1998, the Corporation shall issue any shares of its capital stock in
a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be
appropriately adjusted to reflect such merger, reclassification or
change so that each share of Preferred Stock continues to be the
economic equivalent of a Formula Number of shares of Common Stock prior
to such merger, reclassification or change.
b. The Corporation shall declare a dividend or distribution
on this Series provided in Section 2(a) immediately prior to or at the
same time it declares a dividend or distribution on the Common Stock
(other than a dividend or distribution solely in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution (other than a dividend or distribution in shares of Common
Stock) shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of
2
<PAGE> 38
$0.01 per share on this Series shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Board of Directors may
fix a record date for the determination of holders of shares of this
Series entitled to receive a dividend or distribution declared thereon,
which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Stock.
c. Dividends shall begin to accrue and be cumulative on
outstanding shares of this Series from and after the Quarterly Dividend
Payment Date next preceding the date of original issue of such shares of
this Series; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders
of shares of this Series entitled to receive a quarterly dividend and on
or prior to the next succeeding Quarterly Dividend Payment Date shall
begin to accrue and be cumulative from and after such Quarterly Dividend
Payment Date. Notwithstanding the foregoing, dividends on shares of this
Series which are originally issued prior to the record date for the
determination of holders of shares of this Series entitled to receive a
quarterly dividend on the first Quarterly Dividend Payment Date shall be
calculated as if cumulative from and after the last day of the fiscal
quarter next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of this Series in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
d. So long as any shares of this Series are outstanding, no
dividends or other distributions shall be declared, paid or distributed,
or set aside for payment or distribution, on the Common Stock unless, in
each case, the dividend required by this Section 2 to be declared on
this Series shall have been declared.
e. The holders of the shares of this Series shall not be
entitled to receive any dividends or other distributions except as
provided herein.
3. Liquidation Rights. In the event of the liquidation, dissolution
or winding up of the Corporation ("Liquidation"), whether voluntary or
involuntary, no distribution shall be made (1) to the holders of shares of stock
ranking junior to this Series unless, prior thereto, the holders of this Series
shall have received an amount equal to the accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (x) $.01 per whole share or (y) an
aggregate amount per share equal to the Formula Number then in effect times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with this Series, except distributions
made ratably on this Series and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
If upon any Liquidation, the assets of the Corporation or proceeds
thereof distributable among the holders of shares of this Series and of any
class or series of capital stock of the Corporation ranking equally with this
Series as to distribution of assets upon Liquidation shall be insufficient to
pay in full the preferential amounts payable to such holders, then such assets
or the proceeds thereof shall be distributed among such holders ratably in
accordance with the
3
<PAGE> 39
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full.
4. Voting Rights. The holders of shares of this Series shall have
the following voting rights:
a. Each holder of this Series shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of
this Series held of record on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, multiplied by the
maximum number of votes per share which any holder of the Common Stock
or stockholders generally then have with respect to such matter
(assuming any holding period or other requirement to vote a greater
number of shares is satisfied).
b. Except as otherwise provided herein or by applicable
law, the holders of shares of this Series and the holders of shares of
Common Stock shall vote together as one class for the election of
directors of the Corporation and on all other matters submitted to a
vote of stockholders of the Corporation.
c. If, at the time of any annual meeting of stockholders
for the election of directors, the equivalent of six quarterly dividends
(whether or not consecutive) payable on any share or shares of this
Series are in default, the number of directors constituting the Board of
Directors of the Corporation shall be increased by one. In addition to
voting together with the holders of Common Stock for the election of
other directors of the Corporation, the holders of record of this
Series, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at
each subsequent annual meeting of stockholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior
thereto, to vote for the election of one director of the Corporation,
the holders of any Series being entitled to cast a number of votes per
share of this Series equal to the Formula Number. Until the default in
payments of all dividends which permitted the election of said directors
shall cease to exist, any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time,
either with or without cause, only by the affirmative vote of the
holders of the shares of this Series at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose,
and any vacancy thereby created may be filled by the vote of such
holders. If and when such default shall cease to exist, the holders of
this Series shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like
default in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may have
been elected directors pursuant to said special voting rights shall
forthwith terminate, and the number of directors constituting the Board
of Directors shall be reduced by one. The voting rights granted by this
Section 4(c) shall be in addition to any other voting rights granted to
the holders of this Series in this Section 4.
4
<PAGE> 40
d. Except as provided herein, in Section 11 or by
applicable law, holders of this Series shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for authorizing or taking any corporate action.
5. Restrictions on Certain Corporation Action.
a. Whenever quarterly dividends or other dividends or
distributions payable on this Series Bs provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of this Series
outstanding shall have been paid in full, the Corporation shall not
i. declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
this Series;
ii. declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with this Series, except dividends paid ratably on this Series
and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders
of all such shares are then entitled;
iii. redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up)
with this Series; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to this Series; or
iv. purchase or otherwise acquire for consideration
any shares of this Series, or any shares of stock ranking on a
parity with this Series, except in accordance with a purchase
offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective Series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
b. The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 5, purchase or otherwise acquire such
shares at such time and in such manner.
6. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in
5
<PAGE> 41
any such case, the then outstanding shares of this Series shall at the same time
be similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is exchanged or changed. In the event both this
Section 6 and Section 2 appear to apply to a transaction, this Section 6 will
control.
7. No Redemption; No Sinking Fund.
a. The shares of this Series shall not be subject to
redemption by the Corporation or at the option of any holder of this
Series; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of this Series in the open market
or by offer to any holder or holders of shares of this Series.
b. The shares of this Series shall not be subject to or
entitled to the operation of a retirement or sinking fund.
8. Ranking. This Series shall rank junior to all other series of
Preferred Stock of the Corporation, unless the Board of Directors shall
specifically determine otherwise in fixing the powers, preferences and relative,
participating, optional and other special rights of the shares of such Series
and the qualifications, limitations and restrictions thereof.
9. Fractional Shares. This Series shall be issuable upon exercise
of the Rights issued pursuant to the Rights Agreement in whole shares or in any
fraction of a share that is one one thousandths (1/1,000ths) of a share or any
integral multiple of such fraction which shall entitle the holder, in proportion
to such holder's fractional shares, to receive dividends, exercise voting
rights, participate in distributions and to have the benefit of all other rights
of holders of this Series. In lieu of fractional shares, the Corporation, prior
to the first issuance of a share or a fraction of a share of this Series, may
elect (1) to make a cash payment as provided in the Rights Agreement for
fractions of a share other than one one-thousandths (1/1,000ths) of a share or
any integral multiple thereof or (2) to issue depository receipts evidencing
such authorized fraction of a share of this Series pursuant to an appropriate
agreement between the Corporation and a depository selected by the Corporation;
provided that such agreement shall provide that the holders of such depository
receipts shall have all the rights, privileges and preferences to which they are
entitled as holders of this Series.
10. Reacquired Shares. Any shares of this Series purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preference Stock,
without designation as to series until such shares are once more designated as
part of a particular series by the Board of Directors pursuant to the provisions
of the Certificate of Incorporation.
11. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of this Series as provided
herein shall be amended in any manner which would alter or change the powers,
preferences, rights or privileges of the holders of this Series so as to affect
them adversely without the affirmative vote of the holders of at least 66-2/3%
of the
6
<PAGE> 42
outstanding shares of this Series, voting as a separate class; provided,
however, that no such amendment approved by the holders of at least 66-2/3% of
the outstanding shares of this Series shall be deemed to apply to the powers,
preferences, rights or privileges of any holder of shares of this Series
originally issued upon exercise of a Right after the time of such approval
without the approval of such holder.
7
<PAGE> 43
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President this ___ day of November, 1998.
ILLUMINET HOLDINGS, INC.
By:
-------------------------------------
President
Attest:
- ------------------------------------
Name:
-------------------------------
Title: Secretary
STATE OF )
) ss.
COUNTY OF )
Before me, the undersigned Notary Public in and for said county and
state, this day personally appeared and , personally known to me
to be the President and Secretary, respectively, of ILLUMINET HOLDINGS, INC.,
and who executed the foregoing instrument as President and Secretary,
respectively, of ILLUMINET HOLDINGS, INC. and being first duly sworn,
acknowledged reading in full and fully understanding the foregoing, acknowledged
the facts therein stated to be true and correct, and who further acknowledged
the execution of the same as the voluntary act of the Corporation.
Witness my hand and seal this __________ day of ________________,
_______.
Notary Public
My Commission Expires:
- ----------------------------
8
<PAGE> 44
FIRST AMENDMENT TO RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made and
entered into this 2nd day of August, 1999 between Illuminet Holdings, Inc., a
Delaware corporation (the "Company"), and UMB Bank, N.A., as Rights Agent (the
"Rights Agent").
WHEREAS, the Company and the Rights Agent previously entered into a
Rights Agreement dated November 20, 1998 (the "Agreement"); and
WHEREAS, the Company and the Rights Agent now wish to change and
supplement the Agreement in accordance with Section 5.4 therein.
NOW, THEREFORE, in consideration of the premises and the respective
agreements set forth in this Agreement, the parties hereby agree as follows:
1. The definition of "Aquiring Person" in Section 1.1 is hereby amended
to read as follows:
"Acquiring Person" shall mean any Person who, without the Prior Written
Approval of the Company, is a Beneficial Owner of 20% or more of the
outstanding shares of Common Stock; provided, however, that the term
"Acquiring Person" shall not include any Person (i) who is the
Beneficial Owner of 20% or more of the outstanding shares of Common
Stock on the date of this Agreement or who shall become the Beneficial
Owner of 20% or more of the outstanding shares of Common Stock solely
as a result of an acquisition by the Company of shares of Common Stock,
until such time hereafter or thereafter as any of such Persons shall
become the Beneficial Owner (other than by means of a stock dividend or
stock split) of any additional shares of Common Stock, (ii) who is the
Beneficial Owner of 20% or more of the outstanding shares of Common
Stock but who acquired Beneficial Ownership of shares of Common Stock
without any plan or intention to seek or affect control of the Company,
if such Person promptly enters into an irrevocable commitment promptly
to divest, and thereafter promptly divests (without exercising or
retaining any power, including voting, with respect to such shares),
sufficient shares of Common Stock (or securities convertible into,
exchangeable into or exercisable for Common Stock) so that such Person
ceases to be the Beneficial Owner of 20% or more of the outstanding
shares of Common Stock or (iii) who Beneficially Owns shares of Common
Stock consisting solely of one or more of (A) shares of Common Stock
Beneficially Owned pursuant to the grant or exercise of an option
granted to such Person by the Company in connection with an agreement
to merge with, or acquire, the Company entered into prior to a Flip-in
Date, (B) shares of Common Stock (or securities convertible into,
exchangeable into or exercisable for Common Stock) Beneficially Owned
by such Person or its Affiliates or Associates at the time of grant of
such option, (C) shares of Common Stock (or securities convertible
into, exchangeable into or exercisable for Common Stock) acquired by
Affiliates or Associates of such Person after the time of such grant
<PAGE> 45
which, in the aggregate, amount to less than 1% of the outstanding
shares of Common Stock or (D) shares of Common Stock (or securities
convertible into, exchangeable into or exercisable for Common Stock)
which are held by such Person in trust accounts, managed accounts and
the like or otherwise held in a fiduciary capacity, that are
beneficially owned by third persons who are not Affiliates or
Associates of such Person or acting together with such Person to hold
such shares, or which are held by such Person in respect of a debt
previously contracted. In addition, the Company, any wholly-owned
Subsidiary of the Company and any employee stock ownership or other
employee benefit plan of the Company or a wholly-owned Subsidiary of
the Company shall not be an Acquiring Person.
2. Section 1.1 of the Agreement is further amended by adding the
following definition thereto:
"Prior Written Approval" shall mean the prior express written consent
of the Company to any Person becoming an Acquiring Person, executed on
behalf of the Company by a duly authorized officer of the Company
following express approval by action of the Board of Directors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ILLUMINET HOLDINGS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
UMB BANK, N.A., as Rights Agent
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE> 1
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.
<PAGE> 2
"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.
-2-
<PAGE> 3
"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.
-3-
<PAGE> 4
"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).
-4-
<PAGE> 5
"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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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.
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
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Tandem SAR), any Shares subject to such Award thereafter shall be available to
be the subject of an Award.
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.
4.7 Adjustments upon Merger or Asset Sale. In the event of a merger of
the Company with or into another corporation, or the sale of substantially all
of the assets of the Company, the Board of Directors, in its discretion, may
require the successor corporation to either (i) assume each outstanding Award or
(ii) substitute an equivalent award by the successor corporation or a Parent or
Subsidiary of the successor corporation. If an Award is not assumed or
substituted in the event of a merger or sale of assets, the Award shall fully
vest and become immediately exercisable and the Committee shall notify the
Participant that the Award shall be exercisable for a period of twenty-five (25)
days from the date of such notice, and the Award shall terminate upon the
expiration of such period unless exercised. For the purposes of this paragraph,
the Award shall be considered assumed if, following the merger or sale of
assets, the Award confers the right to purchase or receive, for each Share
subject to the Award immediately prior to the merger or sale of assets, equal
consideration (whether stock, cash, or other securities or property) as received
in the merger or sale of assets by holders of each Share of common stock held on
the effective date of the transaction (and if holders of Shares were offered a
choice of consideration,
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the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation or its
Parent, the Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Award, for
each Share subject to the award, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of common stock in the merger or sale of
assets.
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.
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
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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 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.
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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 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.
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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.
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.
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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.
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
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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.
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.
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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 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
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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.
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.
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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
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).
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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 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.
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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, 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
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<PAGE> 19
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.
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).
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<PAGE> 20
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
Amended April 29, 1998
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<PAGE> 21
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 either all or 50% of 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.
3. Restriction on Exercise After Termination. Notwithstanding the
foregoing provisions of paragraph 2 or any other provision of this Award
Agreement, the exercise of the Option after termination of employment shall be
subject to satisfaction of the conditions precedent that the Grantee neither (a)
takes other employment or renders services to others
<PAGE> 22
without the written consent of the Company nor (b) conducts himself or herself
in a manner adversely affecting the Company.
4. Acceleration. Notwithstanding the foregoing provisions of
paragraph 2, if an event described in Section 12 of the Plan (a "Change in
Control") shall occur before the fourth anniversary of the Date of Grant, this
Option shall become exercisable as to all Shares subject hereto on the date of
such Change in Control.
5. 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.
6. Transfer 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 5, 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.
7. 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.
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<PAGE> 23
7.01 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.
8. 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.
9. 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.
10. 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
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<PAGE> 24
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.
11. Transferability of Shares; Company Repurchase Option.
11.01 No Transfer.
(a) Except as otherwise provided herein, 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.
(b) In no event shall the Grantee transfer, directly or
indirectly, any of his Shares acquired pursuant to this
Award Agreement to any customer, supplier or competitor
of the Company or any of its Affiliates.
11.02 Repurchase Option. Upon Grantee's Termination of Service
and for thirty days thereafter, 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").
11.03 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 15 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.
11.04 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.
12. No Conflict. In the event of a conflict between this Award
Agreement and the Plan, the provisions of the Plan shall govern.
13. Governing Law. This Award shall be governed under the laws of
the State of Delaware.
ILLUMINET HOLDINGS, INC.
By:
-------------------------------------
Title:
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<PAGE> 25
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
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<PAGE> 1
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of August 14 , 1996, by and between
ILLUMINET, INC., a Delaware corporation ("Borrower"), and RURAL TELEPHONE
FINANCE COOPERATIVE, a South Dakota cooperative association ("Lender").
RECITALS
WHEREAS, Borrower is the surviving corporation of a merger between
Independent Telecommunications Network, Inc. ("ITN") and US Intelco Holdings,
Inc. (the resulting entity of a merger between US Intelco Holdings, Inc.
("USIH") and US Intelco Networks, Inc. ("USIN");
WHEREAS, Lender previously had made several loans to ITN, USIH and USIN
(collectively the "Predecessor Entities"), as are more fully described in
Schedule 1 hereto;
WHEREAS, Borrower has agreed to assume, pay, discharge, satisfy and
observe all of the liabilities, duties and obligations owed by the Predecessor
Entities to Lender;
WHEREAS, Borrower has requested the extension of the aforesaid loans as
well as an additional loan in the amount of $3,894,737.00;
WHEREAS, Lender is willing to make the extension of loans, as well as
the new loan upon the terms and conditions set forth in this Agreement;
WHEREAS, this Agreement is made in substitution of and in lieu of the
original loan agreements ("Original Agreements") made between the Predecessor
Entities and Lender as are more fully described in Schedule 1 hereto; and
WHEREAS, this Agreement shall not be, nor deemed to be, a novation of
the indebtedness evidenced by the Original Agreements.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"ADJUSTMENT DATE" shall mean a date or dates, determined by the Lender,
after the date of the initial Advance to the Maturity Date.
"ADVANCE" shall mean an advance as defined in Section 2.02.
"BUSINESS DAY" shall mean any day that Lender is open for business.
<PAGE> 2
"CASH MARGINS" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"CERTIFIED" shall mean that the information, statement, schedule, report
or other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"CLOSING" shall mean the first date on which funds are advanced to
Borrower pursuant to each Note issued hereunder.
"COLLATERAL" shall mean the Mortgaged Property, as such term is defined
in the Mortgage, and all proceeds, cash and non-cash, including insurance
proceeds, of the foregoing, whether in the possession of Borrower or any other
person.
"COMMITMENT" shall have the meaning set forth in Schedule 1 hereto.
"DEBT SERVICE COVERAGE RATIO" or "DSC" for any year shall mean (a) total
net income or margins plus depreciation, amortization, and interest on long-term
debt for such year, divided by (b) principal and interest on long-term debt
payable in such year, as calculated on a consolidated basis for the Borrower and
all its Subsidiaries.
"EVENT OF DEFAULT" shall mean any of the events described in Section 8
hereof.
"FIXED RATE" shall mean the interest rate per annum provided for in
Section 2.03(b)(ii) of this Agreement.
"INDEBTEDNESS" shall include all items which would properly be included
in the liability section of a balance sheet or in a footnote to a financial
statement, in accordance with generally accepted accounting principles,
including, without limitation, contingent liabilities.
"LEASES" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate are in excess of
$100,000 other than such equipment leases which are in form and substance
substantially in conformity with lease agreements in general use in Borrower's
industry by companies of size and character similar to Borrower.
"LIEN" shall mean any statutory or common law consensual or
non-consensual mortgage, pledge, security interest, encumbrance, lien, right of
set-off, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease transaction in
the nature thereof and any secured transaction under the Uniform Commercial Code
of any jurisdiction.
"LOAN" shall mean the loan or loans by the Lender to Borrower, pursuant
to this Agreement and the Note, in an aggregate principal amount not to exceed
the Commitment.
"MATURITY DATE" shall mean the maturity date defined in the Note.
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<PAGE> 3
"MINIMUM NET WORTH TEST" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty (40) percent. Equity shall be determined by subtracting
total liabilities from total assets.
"MORTGAGE" shall mean the mortgage and security agreement described in
Schedule 1.
"NET WORTH" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"NOTE" shall mean the Note or Notes executed and delivered by Borrower
at or prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements, substitutions and extensions thereof.
"OBLIGATIONS" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, and the Other Agreements, all present
and future obligations of Borrower to the Lender for the payment of money under
this Agreement, the Note, and the Other Agreements, extending to all principal
amounts, interest, late charges and all other charges and sums, as well as all
costs and expenses payable by Borrower under this Agreement, the Note, and the
Other Agreements, and any and all other present and future monetary liabilities
of Borrower to the Lender, whether direct or indirect, contingent or
noncontingent, matured or unmatured, accrued or not accrued, related or
unrelated to this Agreement, whether or not of the same character or class as
Borrower's obligations under this Agreement and the Note, whether or not secured
under any other document, instrument or statutory or common law provision, as
well as all renewals, refinancings, consolidations, recastings and extensions of
any of the foregoing.
"ORIGINAL AGREEMENTS" shall mean the original loan agreements referred
to in Schedule 1 hereto.
"OTHER AGREEMENTS" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower, executed and/or delivered pursuant to this Agreement or guaranteeing,
securing or in any other manner relating to any of the Obligations, including
the instruments and documents referred to in Subsection 5.2 hereof.
"PAYMENT DATE" shall mean the last day of each of the months referred to
in Schedule 1 hereto.
"PAYMENT NOTICE" shall mean the notice furnished to the Borrower at
least quarterly indicating the precise amount of principal and/or interest due
on the next ensuing Payment Date, such notice to be sent to the Borrower at
least ten (10) days before such Payment Date.
"PERSON" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and departments
thereof, and every other entity of every kind.
3
<PAGE> 4
"PREDECESSOR ENTITIES" shall have the meaning as prescribed in the
second WHEREAS clause of the Recitals hereto.
"SUBORDINATED CAPITAL CERTIFICATE" OR "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"SUBSIDIARY" at any time means any entity which is at the time
beneficially owned or controlled directly or indirectly by the Borrower, by one
or more such entities or by the Borrower and one or more such entities.
"TERMINATION DATE" shall mean that date which is two (2) year(s) from
the date hereof.
"VARIABLE RATE" shall mean the variable rate established by the Lender
from time to time for loans similarly classified pursuant to lender's policies
and procedures then in effect.
2. LOAN
2.01 LOAN. The Lender agrees to make the Loan to Borrower subject to
all of the terms and conditions of this Agreement and the Other Agreements.
2.02 ADVANCES. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Herndon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date the Lender may stop
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03 PAYMENT, AMORTIZATION AND INTEREST RATE
(a) Payment. The Borrower shall pay on each Payment Date quarterly
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid, any
balance of the principal amount and interest accrued thereon and all other
amounts due hereunder shall be due and payable on the Maturity Date. Payment of
principal hereunder shall commence after the first full quarter following the
initial Advance of funds as set forth in Schedule 1 and on each subsequent
Payment Date until the Maturity Date or such earlier date as all amounts due
hereunder and on account of the Note shall have been paid in full. Payment of
interest hereunder is due on each Payment Date in which a principal balance is
outstanding. Principal will be amortized in accordance with the method stated in
Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of principal,
one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect
on the Adjustment Date; or
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<PAGE> 5
(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate program
to another, the interest rate then in effect for the elected
program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment, or permit
the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate. Each Advance shall be initially made at the
Variable Rate. Interest shall be computed from the actual number of days elapsed
on the basis of a year of 365 days until the first Payment Date following the
initial Advance. Thereafter, interest shall continue to be computed for the
actual number of days elapsed on the basis of a year of 365 days unless a Fixed
Rate is applicable to the Loan, in which case interest shall be computed on the
basis of a 30-day month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it
shall apply until the Maturity Date, except as provided herein
below.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate
as is available and in effect for loans similarly classified
pursuant to Lender's policies and procedures then in effect at
the time of the election shall apply to such Advance until the
Adjustment Date. Upon notice given by the Borrower five Business
Days prior to such Adjustment Date, Borrower may elect to reset
the interest rate to such Fixed Rate as is available and in
effect at the time of such Adjustment Date. Such reset Fixed
Rate shall apply to that portion of the outstanding principal
balance of the Loan elected to have a Fixed Rate from the
Adjustment Date until a new Adjustment Date or the Maturity
Date. If Borrower does not elect to reset the Fixed Rate, the
Variable Rate shall apply to the outstanding principal balance
of the Loan that had been bearing interest at the Fixed Rate
prior to such Adjustment Date, from such Adjustment Date to the
Maturity Date.
(iii) Conversion to Different Interest Program.
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
herein, the Borrower may convert from the Variable Rate to the
Fixed Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender
offers a Fixed Rate at such time for similarly classified loans.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
Fixed Rate to the Variable Rate only on an Adjustment Date.
2.04 PREPAYMENT. In the event the Borrower prepays all or part of the
Loan, the Borrower shall pay such prepayment fee as the Lender may prescribe
from time to time in its
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policies in connection with any prepayment of the Loan. All prepayments shall be
accompanied by payment of accrued and unpaid interest on the amount of and to
the date of the prepayment. All prepayments shall be applied first to fees,
second to the payment of accrued and unpaid interest, and then to the unpaid
balance of the principal amount of the Loan. If the Loan bears interest at the
Variable Rate the Borrower may prepay the Loan or any portion thereof, as the
case may be, at any time subject to the terms hereof and said prepayment fee
shall be in an amount established by Lender on a cost basis and shall not exceed
fifty (50) basis points times the amount being prepaid. If the Loan bears
interest at the Fixed Rate, the Borrower may prepay the Loan only on an
Adjustment Date or such other date as may be agreed upon by the parties hereto.
2.05 SUBORDINATED CAPITAL CERTIFICATE. The Borrower shall purchase
SCCs corresponding to each Note, as is more fully prescribed in Schedule 1
hereto. Unless otherwise requested in writing by the Borrower prior to the
initial Advance and approved by the Lender, the Borrower agrees to purchase SCCs
either (1) with each Advance in the amount of five percent (5%) or ten percent
(10%) of each such Advance (as specified in Schedule 1), and each such SCC shall
be paid for with proceeds of such Advance, or (2) by making payments with
Borrower's own funds in twenty equal quarterly installments, commencing with the
first full quarter following the initial Advance. If the Borrower elects to pay
for SCCs other than from Loan funds, the amount of the Commitment will be
correspondingly reduced by said amount when the SCCs are fully paid. If the
Borrower obtains Advances hereunder other than for the purpose of purchasing
SCCs and fails to pay for the SCCs, then the Lender may make Advances for the
account of the Borrower to purchase the SCCs. The Lender agrees to deliver the
SCCs on or about the date on which the SCCs have been paid for in full. The SCCs
shall bear no interest and shall mature in accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has entered into the Mortgage pledging and granting to the Lender, and
Borrower hereby grants to Lender, a prior and continuing security interest in
the Collateral that may be secured by the Mortgage that shall continually exist
until all Obligations have been paid in full. If reasonably required by the
Lender at any time, Borrower shall make notations, satisfactory to the Lender,
on its books and records disclosing the existence of the Lender's security
interest in the Collateral. Borrower agrees that, with respect to the
Collateral, which is subject to Article 9 of the Uniform Commercial Code, the
Lender shall have, but not be limited to, all the rights and remedies of a
secured party under the Uniform Commercial Code. The Lender shall have no
liability or duty, either before or after the occurrence of an Event of Default
hereunder, on account of loss of or damage to, or to collect or enforce any of
its rights against, the Collateral, or to preserve any rights against account
debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents
and warrants to the Lender as of the date of this Agreement that:
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4.01 GOOD STANDING. Borrower is a corporation duly organized validly
existing and in good standing under the laws of the state of its incorporation,
has the power to own its property and to carry on its business, is duly
qualified to do business, and is in good standing in each jurisdiction in which
the transaction of its business makes such qualification necessary.
4.02 AUTHORITY. Borrower has corporate power and authority to enter
into this Agreement and the Mortgage, to make the borrowing hereunder, to
execute and deliver all documents and instruments required hereunder and to
incur and perform the obligations provided for herein, in the Mortgage, and in
the Note, all of which have been duly authorized by all necessary and proper
corporate and other action, and no consent or approval of any person, including,
without limitation, stockholders and members of Borrower and any public
authority or regulatory body, which has not been obtained is required as a
condition to the validity or enforceability hereof or thereof.
4.03 BINDING AGREEMENT. This Agreement has been duly and properly
executed by Borrower, constitutes the valid and legally binding obligation of
Borrower and is fully enforceable against Borrower in accordance with its terms,
subject only to laws affecting the rights of creditors generally, the exercise
of judicial discretion in accordance with general principles of equity or
because waivers of statutory or common law rights or remedies may be limited.
4.04 NO CONFLICTING AGREEMENTS. The execution, delivery of and
performance by Borrower of this Agreement, the Mortgage and the Note, and the
transactions contemplated hereby or thereby, will not: (a) violate any provision
of law, any order, rule or regulation of any court or other agency of
government, any award of any arbitrator, the charter or by-laws of Borrower, or
any indenture, contract, agreement, mortgage, deed of trust or other instrument
to which Borrower is a party or by which it or any of its property is bound; or
(b) be in conflict with, result in a breach of or constitute (with due notice
and/or lapse of time) a default under, any such award, indenture, contract,
agreement, mortgage, deed of trust or other instrument, or result in the
creation or imposition of any Lien (other than contemplated hereby) upon any of
the property or assets of Borrower.
4.05 LITIGATION. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may reasonably be expected to result in
any material adverse change in the business, operations, prospects, properties
or assets or in the condition, financial or otherwise, of Borrower, and Borrower
is not, to its knowledge, in default with respect to any judgment, order, writ,
injunction, decree, rule or regulation of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would reasonably be expected to have
a material adverse effect on Borrower.
4.06 FINANCIAL CONDITION. The financial statements of Borrower as at
the date set forth in Schedule 1 hereto, heretofore delivered to the Lender, are
complete and correct, fairly present the financial condition of Borrower and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. There are no liabilities of
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Borrower, direct or indirect, fixed or contingent, as of the date of such
statements which are not reflected therein. There has been no material adverse
change in the financial condition or operations of the Borrower from that set
forth in said financial statements except changes previously disclosed in
writing to the Lender prior to the date hereof.
4.07 TAXES. Borrower has paid or caused to be paid all federal, state
and local taxes to the extent that such taxes have become due, unless the
Borrower is contesting in good faith any such tax. Borrower has filed or caused
to be filed all federal, state and local tax returns which are required to be
filed by Borrower.
4.08 TITLE TO PROPERTIES. Borrower has good and marketable title to
all of its real properties and owns all of its other properties and assets free
and clear of any liens.
4.09 LICENSES AND PERMITS. Borrower has duly obtained and now holds
all licenses, permits, certifications, approvals and the like necessary to own
and operate its property and business that are required by federal, state and
local laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect.
4.10 SUBSIDIARIES. Borrower has no Subsidiaries other than
Subsidiaries heretofore disclosed to the Lender, or hereafter formed or acquired
with the prior written consent of the Lender.
4.11 CERTAIN INDEBTEDNESS. There is no Indebtedness of Borrower owing
to any employee, officer, stockholder or director of the board of Borrower other
than accrued salaries, commissions and the like and any Indebtedness
subordinated to the Obligations pursuant hereto.
4.12 LOCATION OF OFFICE. The chief place of business of the Borrower
and the office where its records concerning accounts and contract rights are
kept is identified in Schedule 1 hereto.
4.13 REQUIRED APPROVALS. No license, consent, permit or approval of
any governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lender's enforcement of
certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries
providing benefits for employees of Borrower or such Subsidiary covered by Title
IV of the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereto ("ERISA"), is in compliance with ERISA in all material
respects, and no material liability to the Pension Benefit Guaranty Corporation
("PBGC") or to a multiemployer plan has been, or is expected by Borrower or its
Subsidiaries to be, incurred by Borrower or such Subsidiary.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to
Borrower hereunder unless, as of the date of Closing, each of the following
conditions precedent shall be satisfied as provided below:
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5.01 LEGAL MATTERS. All legal matters incident to the consummation of
the transactions hereby contemplated shall be satisfactory to counsel for the
Lender and to such local counsel as counsel for the Lender may retain.
5.02 DOCUMENTS. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all
such corporate documents and proceedings of the Borrower
authorizing the transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing
such legal matters as the Lender or its counsel shall
reasonably require.
(d) The Borrower shall have (i) executed the Mortgage; (ii)
if any real property is owned by Borrower, recorded a
valid and binding Mortgage granting Lender a first lien
in all real property owned by Borrower; (iii) filed
financing statements in all jurisdictions necessary to
provide Lender a first priority, perfected security
interest in all Collateral which may be perfected by the
filing of financing statements; and (iv) delivered such
other documents as are necessary to create or continue a
perfected security interest in favor of the Lender in
the Collateral.
5.03 GOVERNMENT APPROVALS. The Borrower shall have furnished to the
Lender true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note and the Mortgage.
5.04 REPRESENTATIONS, WARRANTIES AND MATERIAL CHANGE. At Closing and
at the date of every subsequent Advance hereunder, all covenants,
representations and warranties set forth in this Agreement shall be true and
correct in all material respects on and as of such time with the same effect as
though such covenants, representations and warranties had been made on and as of
such date; no Event of Default specified in Section 8 and no event which, with
the lapse of time or the notice and lapse of time specified in Section 8 would
become such an Event of Default, shall have occurred and be continuing or will
have occurred after giving effect to the Advance on the books of the Borrower;
there shall have occurred no material adverse change in the business or
condition, financial or otherwise, of the Borrower; and nothing shall have
occurred which in the reasonable opinion of the Lender materially and adversely
affects the Borrower's ability to meet its obligations hereunder.
5.05 MORTGAGE FILING. Within ten (10) days of acquiring any real
property, the Borrower shall cause the Mortgage to be duly recorded as a first
mortgage on all real property and the Mortgage or other appropriate
documentation shall have been duly filed, recorded or indexed as a security
interest in personal property wherever the Lender shall have reasonably
requested, all in accordance with applicable law, and the Borrower shall have
caused satisfactory evidence thereof to be furnished to the Lender.
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5.06 SPECIAL CONDITIONS. At Closing and at the time of every
subsequent Advance hereunder, the Lender and its counsel shall be fully
satisfied that the Borrower has complied and will continue to comply with any
special conditions identified in Schedule 1 hereto.
5.07 REQUISITIONS. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an account
as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01 MEMBERSHIP. Remain or an affiliate thereof will remain, a member
in good standing of the Lender.
6.02 FINANCIAL STATEMENTS AND OTHER INFORMATION. Furnish to the
Lender: (a) financial statements as required by the Mortgage; (b) such other
information, reports or statements concerning the operations, business affairs
and/or financial condition of Borrower as the Lender may reasonably request from
time to time; and (c) promptly upon their becoming available information, in
form and substance satisfactory to Lender, notification of any and all changes
or modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03 FINANCIAL RATIOS. Subject to applicable laws and rules and
orders of regulatory bodies, and to events which in the reasonable judgment of
the Lender are beyond the control of the Borrower, so operate and manage its
business as to achieve DSC of not less than 1.25, said ratio being determined by
averaging each of the two highest annual ratios during the three most recent
fiscal years.
6.04 ANNUAL CERTIFICATE. Within one hundred twenty (120) days after
the close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager or similar senior presiding officer
stating that to the best of said person's knowledge, the Borrower has fulfilled
all of its Obligations under this Agreement, the Note, and the Mortgage
throughout such year or, if there has been a default in the fulfillment of any
such Obligations, specifying each such default known to said person and the
nature and status thereof.
6.05 USE OF PROCEEDS. Use Advances made hereunder and under the Note
only for the purpose identified in Schedule 1 hereto and for the payment of the
costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06 SPECIAL AFFIRMATIVE COVENANTS. During the term hereof, Lender
and its counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
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7. NEGATIVE COVENANTS.
7.01 NOTICE. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without giving written notice to the
Lender thirty (30) days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change
location of the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
7.02 CONSENT. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without the prior written consent of
the Lender:
(a) Control. Alter or permit alteration of control of the
Borrower. Control shall be as defined by regulations for
telephone companies issued by the Federal Communications
Commission ("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
(c) Additional Indebtedness. Borrow money on a secured basis
from any other lender or incur any additional secured
indebtedness; borrow money or incur any unsecured
indebtedness in excess of five percent of total assets;
or enter into or allow any of its Subsidiaries to enter
into any Leases, unless at that time Borrower meets the
Minimum Net Worth Test. If Borrower meets the Minimum
net Worth Test, then Borrower may incur additional
indebtedness or enter into Leases (or allow any of its
Subsidiaries to enter into Leases) without prior written
approval of Lender provided the Borrower meets the
Minimum Net Worth Test after incurring such additional
indebtedness or entering into such Leases; provided,
further, however, Borrower must give at least thirty
(30) days written notice to Lender prior to incurring
any additional indebtedness or entering into such
Leases.
7.03 DIVIDENDS AND OTHER CASH DISTRIBUTIONS. The Borrower will not,
in any one calendar year, without the prior approval in writing of the Lender
(i) declare or pay any dividends or make any other distribution to its
stockholders with respect to its capital stock; (ii) purchase or redeem or
retire any of its capital stock; or (iii) pay any management fees or if already
paying a management fee, pay an increase in management fees unless with respect
to any of the foregoing (after giving effect to such transaction) (a) Borrower
meets the Minimum Net Worth Test and (b) the payment of such dividend, the
making of such distribution, or the purchase, redemption or retirement of such
stock, individually or in the aggregate, does not exceed twenty-five percent
(25%) of the prior fiscal year-end Cash Margins in any one calendar year. In no
event may the Borrower make such a distribution or payment when there is unpaid
any due installment of principal and/or interest on the Note or if the Borrower
is otherwise in material default of any provision of this Agreement or would be
in material default hereunder as a result of such distribution or payment.
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7.04 SPECIAL NEGATIVE COVENANTS. During the term hereof, Lender and
its Counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) REPRESENTATION AND WARRANTIES. Any representation or
warranty made herein, in any of the Other Agreement or
in any statement, report, certificate, opinion,
financial statement or other document furnished or to be
furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material
respect.
(b) PAYMENT. Failure of Borrower to make any of the payment
Obligations, including, without limitation, any sum due
the Lender under this Agreement or any of the Other
Agreements, when and as the same shall become due,
whether at the due date thereof, by demand, by
acceleration or otherwise.
(c) OTHER COVENANTS. Failure, in any material respect, of
Borrower to observe or perform any warranty, covenant or
condition to be observed or performed by Borrower under
this Agreement or any of the Other Agreements.
(d) CORPORATE EXISTENCE. The Borrower shall forfeit or
otherwise be deprived of its corporate charter,
franchises, permits, easements, consents or licenses
required to carry on any material portion of its
business.
(e) OTHER OBLIGATIONS. Default by the Borrower in the
payment when due, beyond any applicable grace period, of
any money owed by the Borrower, whether principal,
interest, premium or otherwise, under any other
agreement for borrowing money in an amount in excess of
5% of total assets, whether or not such borrowing is
secured.
(f) BANKRUPTCY. A court shall enter a decree or order for
relief with respect to the Borrower or any Subsidiary or
guarantor (if any) in an involuntary case under any
applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator
or similar official, or ordering the winding up or
liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of
sixty (60) consecutive days or the Borrower or any
Subsidiary or guarantor (if any) shall commence a
voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in
effect, or under any such law, or consent to the
appointment or taking of possession by a receiver,
liquidator, assignee,
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custodian or trustee, of a substantial part of its
property, or make any general assignment for the benefit
of creditors.
(g) DISSOLUTION OR LIQUIDATION. Other than as provided in
subsection (f) above, the dissolution or liquidation of
the Borrower or any Subsidiary or guarantor (if any), or
failure by the Borrower or any Subsidiary or guarantor
promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will
impair its ability to continue its business or fulfill
its obligations and such execution, garnishment or
attachment shall not be vacated within sixty (60) days.
(h) FINAL JUDGMENT. A final non-appealable judgment in
excess of $100,000 shall be entered against the Borrower
and shall remain unsatisfied or without a stay for a
period of ninety (90) days.
9. RIGHTS AND REMEDIES
9.01 RIGHTS AND REMEDIES OF THE LENDER. Under the occurrence of an
Event of Default, the Lender may, subject to:
(i) Thirty (30) days prior written notice during which time Borrower
shall have the opportunity to cure said Event of Default except
with respect to Obligations pursuant to 8(b), 8(f) and 8(g)
above which shall require no notice or demand and shall have no
period to cure; and
(ii) compliance, if required, with the rules and regulations of the
FCC and any state public service or utilities commission having
jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note,
all accrued and unpaid interest thereon, and all other
Obligations to be immediately due and payable and the
same shall thereupon become immediately due and payable
without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the
Obligations owed to, or any Liens in favor of the
Lender.
(c) Pursue all rights and remedies available to the lender
that are contemplated by the Mortgage in the manner,
upon the conditions, and with the effect provided in the
Mortgage, including but not limited to a suit for
specific performance, injunctive relief or damages.
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(d) Pursue any other rights and remedies available to the
Lender at law or in equity.
9.02 CUMULATIVE NATURE OF REMEDIES. Nothing herein shall limit the
right of the Lender, subject to notice and right to cure provisions contained
herein, to pursue all rights and remedies available to a creditor following the
occurrence of an Event of Default subject to compliance, if required, with the
rules and regulations of the FCC and any state public service or utilities
commission having jurisdiction. Each right, power and remedy of the lender in
this Agreement and/or the Other Agreements shall be cumulative and concurrent,
and recourse to one or more rights or remedies shall not constitute a waiver of
any other right, power or remedy.
9.03 COSTS AND EXPENSES. Borrower agrees to pay and to be liable for
any and all reasonable expenses, including reasonable attorney's fees and court
costs, incurred by the Lender in exercising or enforcing any of its rights
hereunder or under the Other Agreements, together with interest thereon at the
rate and determined in the manner provided in the Mortgage. Subject to the
Mortgage and applicable law, the Lender may apply all Collateral and proceeds of
all Collateral to the Obligations in any manner which the Lender, in its
reasonable discretion, deems appropriate, and Borrower will continue to be
liable for any deficiency.
9.04 LATE PAYMENT CHARGES. If payment of any principal and/or
interest due under the terms of the Note is not received at the office of the
Lender in Herndon, Virginia, or as the Lender may otherwise designate to the
Borrower, within such time period as the Lender may prescribe from time to time
in its policies in connection with any late payment charges (such unpaid amount
of principal and/or interest being herein called the "delinquent amount" and the
period beginning after such due date until payment of the delinquent amount
being herein called the "late-payment period"), the Borrower will pay to the
Lender, in addition to all other amounts due under the terms of the Note, the
Mortgage, and this Agreement, any late-payment charge as may be fixed by the
Lender from time to time, on the delinquent amount for the late-payment period.
Provided, however, no late payment charge shall exceed an amount equal to the
then prevailing bank prime rate published in the "Money Rates" column of the
Eastern addition of the Wall Street Journal plus three percent (3%) per annum on
the delinquent amount computed over the late-payment period on the basis of a
365-day year.
9.05 LENDER'S SETOFF. The Lender shall have the right, in addition to
all other rights and remedies available to it, to setoff and to recover against
any or all of the Obligations due to Lender, any monies now and hereafter owing
to Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment and counterclaim.
10. MISCELLANEOUS
10.01 PERFORMANCE FOR BORROWER. Borrower agrees and hereby authorizes
that the Lender may, in its sole discretion, but the Lender shall not be
obligated to, advance funds on behalf of Borrower without prior notice to
Borrower, in order to insure Borrower's compliance with any material covenant,
warranty, representation, or agreement of Borrower made in or pursuant to this
Agreement or any of the Other Agreements, to preserve or protect any right or
interest of the Lender in the Collateral or under or pursuant to this Agreement
or any of the Other Agreements, including without limitation, the payment of any
insurance premiums or taxes and
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the satisfaction or discharge of any judgment or any Lien upon the Collateral or
other property or assets of Borrower; provided, however, that the making of any
such advance by the Lender shall not constitute a waiver by the Lender of any
Event of Default with respect to which such advance is made nor relieve Borrower
of any such Event or Default. Borrower shall pay to the Lender upon demand all
such advances made by lender with interest thereon at the rate and determined in
the manner provided in the Note. All such advances shall be deemed to be
included in the Obligations and secured by the security interest granted the
Lender hereunder to the extent permitted by law.
10.02 EXPENSES AND FILING FEES. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement,
including, without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any document or
instrument in connection herewith. Borrower agrees to save harmless and
indemnify the Lender from and against any liability resulting from the failure
to pay any required documentary stamps, recordation and transfer taxes,
recording costs incurred by the Lender in connection with this Agreement. The
provisions of this Subsection 10.02 shall survive the execution and delivery of
this Agreement and the payment of all other Obligations.
10.03 WAIVERS BY BORROWER. Borrower hereby waives, to the extent the
same may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of nonpayment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations. Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
10.04 WAIVERS BY THE LENDER. Neither any failure nor any delay on the
part of the Lender in exercising any right, power or remedy hereunder or under
any of the Other Agreements shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
10.05 LENDER'S RECORDS. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations shall
be presumed conclusively to be correct and shall constitute an account stated
between the Lender and Borrower unless, within ten (10) Business Days after such
statement or reconciliation shall have been mailed, postage prepaid, to
Borrower, the Lender shall receive written notice of specific objection thereto.
10.06 MODIFICATIONS. No modification or waiver of any provision of
this Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which
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given. No notice to or demand upon Borrower in any case shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
10.07 NOTICES. All notices, requests and other communications provided
for herein including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement shall be given or made in writing
(including, without limitation, by telecopy) and delivered to the intended
recipient at the "Address for Notices" specified below; or, as to any party, at
such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when personally delivered
or, in the case of a mailed or telecopied notice, upon receipt, in each case
given or addressed as provided for herein. The Address for Notices of the
respective parties are as follows:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 22071-3025
Attention: Loan Officer
Fax: 703-709-6776
The Borrower:
The address set forth in
Schedule 1 hereto
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF VIRGINIA.
(b) BORROWER HEREBY SUBMIT(S) TO THE NONEXCLUSIVE JURISDICTION OF
THE UNITED STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
16
<PAGE> 17
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.09 HOLIDAY PAYMENTS. If any payment to be made by the Borrower
hereunder shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in computing any interest in respect of such payment.
10.10 RESCISSION FEE. The Borrower may elect not to borrow all or any
portion of the Loan, in which event the Lender shall release the Borrower from
its obligations hereunder provided the Borrower complies with such terms and
conditions as the Lender may impose for such release including, without
limitation, payment of any rescission fee which shall not exceed fifty (50)
basis points times the amount of the Commitment being rescinded.
10.11 SURVIVAL; SUCCESSORS AND ASSIGNS. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.12 USE OF TERMS. The use of any gender or the neuter herein shall
also refer to the other gender or the neuter and the use of the plural shall
also refer to the singular, and vice versa.
10.13 SEVERABILITY. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
10.14 MERGER AND INTEGRATION. This Agreement and the attached exhibits
and matters incorporated by reference contain the entire agreement of the
parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other agreement, statement or promise made by any
party hereto, or by any employee, officer, agent or attorney of any part hereto,
which is not contained herein, shall be valid or binding.
10.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.16 HEADINGS. The headings and sub-headings contained in this
Agreement are intended to be used for convenience only and do not constitute a
part of this Agreement.
17
<PAGE> 18
10.17 ASSIGNMENT. The Lender may assign its rights and obligations
under this Agreement and the Other Agreements without the consent of Borrower;
provided, however, that no such assignment shall result in terms or conditions
less favorable to Borrower. The Borrower may not assign any of its rights of
obligations under this Agreement or the Other Agreements without the prior
written consent of the Lender.
10.18 RIGHT TO INSPECT. The Borrower shall permit representatives of
the Lender at any time during normal business hours to inspect and make
abstracts from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require.
10.19 CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code"), including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
10.20 FURTHER ASSURANCES. The Borrower will, upon demand of the
Lender, make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.
10.21 LENDER'S APPROVAL. Wherever prior written approval of Lender is
required under the terms and conditions of this Agreement, Lender hereby agrees
to not unreasonably withhold said approval.
10.22 SCHEDULE 1. Schedule 1 attached hereto is an integral part of
this Agreement.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed or caused
to be executed this Agreement under seal as of the date first above written.
ILLUMINET, INC.
By:
-------------------------------------
Title:
----------------------------------
(SEAL)
Attest:
-----------------------------
Assist. Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By:
-------------------------------------
(SEAL) Title: Assistant Secretary-Treasurer
Attest:
-----------------------------
Assistant Secretary-Treasurer
19
<PAGE> 20
SCHEDULE 1
1. The Original Agreements and the current Notes are:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Original Amount
New Loan Original Agreement Note Outstanding SCC Maturity Loan
Number Loan Number Date Amount As of7/30/96 Amount Date Purpose
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WA 812-A-01 WA 800-A-01 6/15/90 $4,996,670 $4,328,087.27 $499,670 6/15/2010 Headquarters
construction
- ---------------------------------------------------------------------------------------------------
WA 812-A-02 WA 806-A-02 3/9/95 $1,167,111 $1,140,879.64 $116,711 3/9/2015 Acquisition
of real
property/
operating
capital
- ---------------------------------------------------------------------------------------------------
WA 812-A-03 WA 806-A-03 3/9/95 $1,504,444 $1,470,631.26 $150,444 3/9/2015 Operating
capital
- ---------------------------------------------------------------------------------------------------
WA 812-A-04 WA 801-A-03 10/9/95 $3,078,947 $2,799,158.60 $153,947 10/9/2000 Refinance
Northern
Telecom debt
- ---------------------------------------------------------------------------------------------------
WA 812-A-05 WA 801-A-04 10/9/95 $4,689,474 $ 842,105.00 $234,474 10/9/2000 Finance SS7
Network
expansion
- ---------------------------------------------------------------------------------------------------
WA 812-A-06 -- -- $3,894,737 -0- $194,737 5 years Finance
from equity
even investment
date in
herewith Authentix,
Inc. and
capital
expenses for
a cellular
fraud
prevention
service
- ---------------------------------------------------------------------------------------------------
</TABLE>
The "Commitment" shall mean the Note amount for each particular Note referenced
above.
2. The Mortgage is the Consolidated Mortgage and Security Agreement by and
between Borrower and Lender dated as of even date herewith.
3. The months relating to the Payment Date are March, June, September and
December.
4. The method of amortization referred to in Section 2.03 shall be based
upon the level debt service method for all of the Notes issued
hereunder.
5. The date of Borrower's financial statement referred to in Section 4.06
is June 30, 1995 for ITN and December 31, 1995 for USIH.
6. The chief place of business referred to in Section 4.12 and the address
of the Borrower referred to in Section 10.07 is 4501 Intelco Loop, S.E.
Olympia, WA 98507.
7. The government authorities referred to in Section 4.13 are not
applicable.
8. The special conditions referred to in Section 5.06 are not applicable.
9. The special affirmative covenants referred to in Section 6.06 are not
applicable.
10. The special negative covenants referred to in Section 7.04 are not
applicable.
<PAGE> 1
SECURED REVOLVING LINE OF CREDIT APPLICATION AND AGREEMENT
("AGREEMENT")
Name of Applicant: ILLUMINET, INC.
a Delaware corporation ("Applicant")
Address: 4501 Intelco Loop, S.E.
Olympia, WA 98507
Applicant hereby applies to Rural Telephone Finance Cooperative ("RTFC"), a
South Dakota cooperative association, for a revolving line of credit loan in an
amount not to exceed seven million three hundred thousand ($7,300,000).
Applicant hereby agrees that in the event RTFC approves this Agreement, the
terms and conditions herein and any additional terms and conditions as approved
by RTFC, and as agreed to in writing by Applicant, shall constitute a valid and
binding agreement between Applicant and RTFC. In consideration of their mutual
promises hereunder and other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, RTFC and Applicant agree to the following terms
and conditions:
1. REVOLVING CREDIT AND TERM. Upon approval of this Agreement, RTFC agrees
to make advances to the Applicant pursuant to the terms of this
Agreement ("Advances") in the maximum amount specified above or such
lesser amount as may be approved by RTFC in accordance with the terms
and conditions hereof. Within such limits, the Applicant may borrow,
repay and reborrow at any time or from time to time for a period up to
sixty (60) months from the Effective Date (as defined herein) (the
"Maturity Date").
2. REQUISITIONS. The Applicant shall give RTFC such prior notice of
requests for Advances as RTFC may reasonably require from time to time.
3. INTEREST RATE AND PAYMENT. The Applicant unconditionally promises and
agrees to pay, as and when due, interest on all amounts advanced
hereunder from the date of each Advance and to repay all amounts
advanced hereunder with interest on the Maturity Date. Interest shall be
due and payable quarterly on the first day of each January, April, July
and October, commencing on the first such date after such initial
Advance; except that if RTFC gives notice thereof to the Applicant
before the first day of any month, interest shall thereafter be due and
payable on the 15th day of such month and each month thereafter. RTFC
shall invoice the Applicant at least five days prior to the due date of
any such interest payment. All amounts shall be payable at RTFC's main
office at Woodland Park, 2201 Cooperative Way, Herndon, Virginia
20171-3025 or at such other location as designated by RTFC from time to
time.
The interest rate on all Advances will be equal to the Prevailing Bank
Prime Rate (as defined herein), plus one and one-half percent per annum
or such lesser total rate per annum as may be fixed by RTFC from time to
time. Interest will be computed on the basis of a year of 365 days. The
interest rate will be adjusted as determined from time to time by RTFC,
provided that no such adjustment may be effective on a date other than
<PAGE> 2
the first or sixteenth day of any month, and will remain in effect until
a subsequent change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in
the "Money Rates" column of any edition of The Wall Street Journal which
RTFC determines in its discretion to be the representative bank prime
rate on the day preceding the day on which an adjustment in the interest
rate hereof shall become effective. If such preceding day is not a
publication day for The Wall Street Journal then the Prevailing Bank
Prime Rate shall be established by reference to such "Money Rates"
column as of the last publication day next preceding the day on which
such adjustment shall become effective; provided if The Wall Street
Journal shall cease to be published, then the Prevailing Bank Prime Rate
shall be determined by RTFC, by reference to another publication
reporting bank prime rates in a similar manner.
4. RTFC ACCOUNTS. RTFC shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Applicant
resulting from each Advance made from - time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In
any legal action or proceeding in respect of this Agreement, the entries
made in such account or accounts (whether stored on computer memory,
microfilm, invoices or otherwise) shall be presumptive evidence (absent
manifest error) of the existence and amounts of the Applicant's
transactions therein recorded.
5. CORPORATE AND REGULATORY APPROVALS. Applicant represents that it has
obtained any and all necessary corporate and regulatory approvals for
Applicant to execute and perform pursuant to this Agreement.
6. REPORTS. Applicant agrees to deliver to RTFC, promptly upon their
becoming available, a copy of (i) any annual report prepared subsequent
to the submission of this Agreement; (ii) its monthly operating report
within twenty (20) days for any month in which there are advances
outstanding pursuant to this Agreement; and (iii) any other reports
which RTFC reasonably requests during the term of this Agreement.
7. FEES. If any amount outstanding and due hereunder shall not be paid when
due, Applicant agrees to pay on demand RTFC's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at RTFC's
office in Herndon, Virginia, or such other location designated by RTFC
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein
called the "late-payment period"), Applicant will pay to RTFC, on
demand, in addition to all other amounts due under the terms of this
Agreement, any late-payment charge as may then be in effect pursuant to
RTFC's policy on the delinquent amount for the late payment period.
8. LIMITATION ON ADVANCES. The amount of outstanding Advances hereunder in
any single calendar year may not at any one time exceed the amount
approved by RTFC.
2
<PAGE> 3
9. REDUCE BALANCE TO ZERO. In the event this Agreement is for a term of
more than 12 months, then within 360 days of the first Advance,
Applicant will reduce to zero for a period of at least five consecutive
business days, (the last day of such five day period being herein called
the "Zero Balance Date") amounts outstanding hereunder, and will reduce
to zero for a period of at least five consecutive business days (the
last day of such five business day period being called the "Subsequent
Zero Balance Date") amounts outstanding hereunder within 360 days from
the Zero Balance Date or Subsequent Zero Balance Date, as appropriate.
10. CREDIT SUPPORT. This Agreement may not be used as credit support for any
other financings without RTFC's prior written approval.
11. NOTICES, ACCELERATION OF DEBT AND WAIVERS. While any amount hereunder is
outstanding, Applicant agrees to notify RTFC of any delinquency or
default on any of its financial obligations, any material adverse change
in its financial or business condition and if any representation or
warranty made in this Agreement has become untrue in any respect having
a material adverse effect on the financial condition or business of the
Applicant. If any delinquency, default, or any other event as a result
of which any holder of indebtedness may declare the same due and payable
shall occur and continue for more than any applicable grace period, or
any representation or warranty herein shall become untrue in any
material respect, or Applicant shall fail to comply with any term of
this Agreement, or if the financial condition of Applicant shall have
changed to the extent that such change, in the reasonable judgment of
RTFC, materially increases RTFC's risk hereunder, then RTFC may declare
at any time all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand,
and may withhold advances of funds. The Applicant waives the defense of
usury and all rights to setoff, counterclaim, deduction or recoupment.
12. PURPOSE, REPAYMENTS AND DEPOSIT. Applicant agrees that any and all
Advances hereunder will be used only for proper corporate purposes and
consistently with the requirements of outstanding security documents of
Applicant relating to its operations. Applicant agrees that this loan
shall be repayable out of Applicant's general funds and that loan
proceeds will not be deposited in Applicant's Trustee-Special
Construction Fund Account or any other account dedicated for secured
financing advances.
13. ADDITIONAL INDEBTEDNESS. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to RTFC, Applicant agrees that it
will not, without prior written consent of RTFC, create, incur, assume,
guarantee or otherwise become obligated for any additional indebtedness,
other than to RTFC except that the Applicant may borrow against another
loan previously approved by RTFC.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND PAYMENT OBLIGATIONS.
Applicant agrees that the representations and warranties made in this
Agreement shall survive the making of Advances hereunder. Any
unsatisfied payment obligation hereunder shall survive the maturity and
cancellation of this Agreement.
3
<PAGE> 4
15. REPRESENTATIONS AND WARRANTIES. Except as set forth in writing and
attached hereto, Applicant represents and warrants as of the date of its
application and on the date of each and every Advance hereunder that:
(a) The Applicant has and will meet all material obligations and be
in material compliance with all instruments under which it is
bound and that all information submitted in support of its
application is true, complete and correct in all material
respects;
(b) There has been no material adverse change in the Applicant's
business or financial condition from that set forth in its
audited financial statements;
(c) The Applicant has no outstanding loans from sources other than
RTFC;
(d) The Applicant is not in default in any material respect of any
of its obligations and no litigation is threatened or pending
which would have a material adverse impact on the Applicant's
ability to perform under this Agreement; and
(e) The Applicant has no lines of credit with any other lenders.
16. SUBMISSIONS. Applicant submits the following documents in support of
this Agreement (if not previously received by RTFC):
(a) The most recently prepared income statement and balance sheet
and all attachments thereto; and
(b) The income statement and balance sheet for each of the three
preceding calendar years; and
(c) Applicant's most recent annual audit report prepared by an
independent certified public accountant.
17. CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Applicant hereby consents
that the amount of any distributions with respect to Applicant's
patronage which are made in written notices of allocation (as defined in
Section 1388 of the Internal Revenue Code of 1986, as amended ("Code")
including any other comparable successor provision) and which are
received from RTFC will be taken into account by Applicant at their
stated dollar amounts in the manner provided in Section 1385(a) of the
Code in the taxable year in which such written notices of allocation are
received.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
19. SEVERABILITY. If any term, provision or condition, or any part thereof,
of this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term,
4
<PAGE> 5
provision or condition, and this Agreement shall survive and be
construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
20. SETOFF. RTFC is hereby authorized at any time and from time to time
without prior notice to the Applicant to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by
RTFC or owed to the Applicant or for the credit or account of the
Applicant against any and all of the obligations of the Applicant now or
hereafter existing hereunder. RTFC agrees to notify the Applicant
promptly after any such setoff or recoupment and the application
thereof, provided that the failure to give such notice shall not affect
the validity of such setoff, recoupment or application. The rights of
RTFC under this section are in addition to any other rights and remedies
(including other rights of setoff or recoupment) which RTFC may have.
21. ADDITIONAL TERMS AND CONDITIONS. Additional terms and conditions set
forth herein or attached hereto are an integral part of this Agreement.
22. TERMINATION AND CANCELLATION OF EXISTING AGREEMENT. Applicant agrees to
the termination and cancellation of its existing revolving line of
credit with RTFC (#WA 812-S-01 & WA 800-S-01), if any, on the Effective
Date, in consideration of RTFC's approval of this Agreement, provided,
however, Applicant agrees that any unsatisfied payment obligation owed
pursuant to such lines of credit shall survive their termination and
cancellation.
23. INTEGRATION. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and
signed by both parties.
24. HEADINGS. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of
this Agreement.
5
<PAGE> 6
- --------------------------------------------------------------------------------
(For RTFC Use Only)
ADDITIONAL TERMS AND CONDITIONS
1. All advances hereunder shall be secured pursuant to the Consolidated
Mortgage and Security Agreement by and between Applicant and RTFC dated
as of even date herewith. ("Mortgage") and the obligation of Applicant
to repay Advances hereunder shall be deemed an "Additional Note" secured
by the Mortgage.
2. The total principal balance outstanding on this secured line of credit
shall not exceed the lesser of 80% of the value of Borrower's prevailing
accounts receivable of $7,300,000.
3. Each request for advance from this line of credit must be submitted to
RTFC in writing and accompanied by:
(a) The most recent balance sheet and income statement;
(b) A monthly cash flow forecast, in form and content satisfactory
to RTFC, indicating all planned advances from and repayment of
the line of credit, including the current advance request; and
(c) A collateral position statement, in a form and content
satisfactory to RTFC, itemizing all of Applicant's outstanding
secured debt and the corresponding net book value of the
collateral for said indebtedness.
<PAGE> 7
- --------------------------------------------------------------------------------
Name of Applicant: ILLUMINET, INC
Signed By:
----------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Date of Application:
------------------------------------------------------------
- --------------------------------------------------------------------------------
APPROVAL OF AGREEMENT
This Agreement is approved, subject to any Additional Terms and Conditions noted
above, on the date set forth below and is effective as of _________________,
199__ (the "Effective Date").
RURAL TELEPHONE FINANCE COOPERATIVE
Signed By: ____________________________________________, Chief Executive Officer
Loan: # WA 812-S-01 Date of Approval:
-----------------------
<PAGE> 8
- --------------------------------------------------------------------------------
Name of Applicant: ILLUMINET, INC
Signed By:
----------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Date of Application:
------------------------------------------------------------
- --------------------------------------------------------------------------------
APPROVAL OF AGREEMENT
This Agreement is approved, subject to any Additional Terms and Conditions noted
above, on the date set forth below and is effective as of _________________,
199__ (the "Effective Date").
RURAL TELEPHONE FINANCE COOPERATIVE
Signed By: ____________________________________________, Chief Executive Officer
Loan: # WA 812-S-01 Date of Approval:
-----------------------
<PAGE> 1
SECURED INTERMEDIATE-TERM EQUIPMENT
FINANCING LOAN SUBSTITUTE AGREEMENT
("AGREEMENT")
ILLUMINET, INC. ("Borrower"), a Delaware corporation located at 4501 Intelco
Loop S.E., Olympia, WA 98507, hereby applies to RURAL TELEPHONE FINANCE
COOPERATIVE ("RTFC"), a South Dakota cooperative association, pursuant to the
terms of this Agreement dated as of August 14, 1996, for a loan in the amount of
one million fifty-two thousand six hundred thirty two dollars ($1,052,632) (the
"Commitment"). This Agreement is made in substitution of and lieu of the
original Unsecured Intermediate-Term Equipment Financing Loan Agreement
("Original Equipment Agreement") (WA 800-E-01), dated as of August 30, 1995,
made by and between U.S. Intelco Networks, Inc. and RTFC. The balance as of July
30, 1996 was $1,001,985.49. This Agreement should not be, nor is it deemed to
be, a novation of the indebtedness evidenced by the Original Equipment
Agreement. In consideration of the mutual premises hereunder and other valuable
consideration the receipt and sufficiency of which is hereby acknowledged, RTFC
and Borrower agree to the following terms and conditions:
1. TERM AND PURPOSE. RTFC agrees to make advances to the Borrower pursuant
to the terms of this Agreement ("Advances") in an amount not to exceed
the Commitment or such lesser amount as may be approved by RTFC in
accordance with the terms and conditions hereof. RTFC shall not be
obligated to make any Advances hereunder after two years from the date
hereof (the "Termination Date"). All amounts outstanding hereunder shall
be due and payable on August 30, 2000 (the "Maturity Date"). The
Borrower agrees that all Advances hereunder shall be used solely for the
purpose of (i) financing the purchase and installation of new hardware
and related software to support Borrower's Line Information Data Base
operation and other RTFC approved items; and (ii) purchasing a
Subordinated Capital Certificate ("SCC").
2. REQUISITIONS. The Borrower shall give RTFC such prior notice of requests
for Advances as RTFC may require. Requisitions shall be supported by
work orders, purchase invoices and such other matters that RTFC may
require from time to time.
3. INTEREST RATES, AMORTIZATION BASIS DATE AND PAYMENTS. Each Advance will
be initially made at the Variable Rate (as defined herein). The Borrower
unconditionally promises and agrees to pay, as and when due, interest on
all amounts advanced hereunder from the date of each Advance and to
repay all amounts advanced hereunder with interest on or before the
Maturity Date. Interest and principal shall be due and payable quarterly
on the first day of each January, April, July and October, commencing on
the first such date after such initial Advance. RTFC shall invoice the
Borrower at least five days prior to the due date of any such payment.
The principal will amortize based on a schedule determined by RTFC using
the level debt service method and based on the Variable Rate in effect
on the date of the first Advance.
All amounts shall be payable at RTFC's main office at Woodland Park,
2201 Cooperative Way, Herndon, Virginia 20171-3025 or at such other
location as designated by RTFC from time to time. At RTFC's option, all
payments shall be applied first to any late-payment charge or fees due,
then to interest accrued to the date of such payment, and then
<PAGE> 2
to the reduction of principal balance outstanding. Any prepayments shall
be applied, at RTFC's option, in inverse order of the principal payments
due.
a. Variable Rate. The "Variable Rate" on all Advances shall
mean the long-term variable rate established by RTFC from time to time
plus twenty-five (25) basis points. Interest will be computed on the
basis of a year of 365 days. The interest rate will be adjusted as
determined from time to time by RTFC, provided that no such adjustment
may be effective on a date other than the first day of any month, and
will remain in effect until a subsequent change in rate occurs.
b. Conversion to Fixed Rate. The Borrower may convert to a
Fixed Rate (defined herein) for any portion or all of the principal
amount of the Commitment then outstanding at any time provided RTFC
offers a Fixed Rate at such time for such amounts and for similarly
classified loans. The "Fixed Rate" shall be the fixed rate as is
available and in effect for similarly classified loans at the time
Borrower's election to convert to such fixed rate plus twenty-five basis
points. The Fixed Rate shall apply to such amounts converted until a
date determined by RTFC and agreed to by Borrower (the "Adjustment
Date"). Upon notice given by the Borrower five business days prior to
such Adjustment Date, Borrower may elect to reset the interest rate to
such Fixed Rate as is available and in effect at the time of such
Adjustment Date. Such reset Fixed Rate shall apply to that portion of
the outstanding principal balance of the loan elected to have a Fixed
Rate from the Adjustment Date until a new Adjustment Date or the
Maturity Date. If Borrower does not elect to reset the Fixed Rate, the
Variable Rate shall apply to the outstanding principal balance of the
loan that had been bearing interest at the Fixed Rate prior to such
Adjustment Date, from such Adjustment Date to the Maturity Date.
Interest at the Fixed Rate shall be computed on the basis of a 360-day
year.
c. Conversion from Fixed Rate to Variable Rate. The
Borrower may convert from a Fixed Rate to the Variable Rate only on an
Adjustment Date.
4. RTFC ACCOUNTS. RTFC shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In
any legal action or proceeding in respect of this Agreement, the entries
made in such account or accounts (whether stored on computer memory,
microfilm, invoices or otherwise) shall be presumptive evidence of the
existence and amounts of the Borrower's transactions therein recorded.
5. CORPORATE AND REGULATORY APPROVALS. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. REPORTS. Borrower agrees to deliver to RTFC, promptly upon their
becoming available, a copy of (i) the annual audit report prepared by
Borrower or the annual report prepared by the Borrower's parent
corporation, USTN Holdings, Inc., which shall include consolidated and
consolidating financial statements on USTN Holdings, Inc. and each of
2
<PAGE> 3
its subsidiary companies, subsequent to the submission of this Agreement
and (ii) any reports which RTFC reasonably requests during the term of
this Agreement.
7. FEES. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand RTFC's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any amount due under
the terms of this Agreement is not received at RTFC's office in Herndon,
Virginia, or such other location designated by RTFC within five (5)
business days after the due date thereof (such unpaid amount being
herein called the "delinquent amount," and the period beginning after
such due date and ending on the date of payment in full of the
delinquent amount and applicable late payment charges being herein
called the "late-payment period"), Borrower will pay to RTFC, on demand,
in addition to all other amounts due under the terms of this Agreement,
any late-payment charge as may then be in effect pursuant to RTFC's then
current policy on the delinquent amount for the late payment period
without setoff or counterclaim. Notwithstanding the foregoing, the
maximum late-payment charge shall not exceed an amount equal to the
Prevailing Bank Prime Rate (as defined herein) plus three percent per
annum on the delinquent amount computed over the late-payment period on
the basis of a 365-day year. The "Prevailing Bank Prime Rate" shall be
that current rate published in the "Money Rates" column of the Eastern
edition of the Wall Street Journal.
8. NOTICES, ACCELERATION OF DEBT AND WAIVERS. While any amount hereunder is
outstanding, Borrower agrees to notify RTFC of any delinquency or
default on any of its financial obligations, any material adverse change
in its financial or business condition and if any representation or
warranty made in this Agreement has become untrue in any respect having
a material adverse effect on the financial condition or business of the
Borrower. RTFC may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court
shall enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains
in effect for a period of ninety (90) days; (iii) Borrower or any
subsidiary shall commence a voluntary case under bankruptcy, insolvency
or similar law or consent to the appointment of a receiver, liquidator,
or trustee; (iv) the dissolution or liquidation of Borrower or
subsidiary or guarantor or failure to forestall or remove any execution,
garnishment or attachment of such consequence as to impair its ability
to continue business and such execution, garnishment or attachment shall
not be vacated within thirty (30) days; or (v) any other event as a
result of which any holder of indebtedness of the Borrower may declare
the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue in any
material respect, or Borrower shall fail to comply with any term of this
Agreement or if the financial condition of Borrower shall have changed
to the extent that such change in the reasonable judgement of RTFC,
materially increases RTFC's risk hereunder, then RTFC may
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<PAGE> 4
withhold advances of funds. The Borrower waives the defense of usury and
all rights to setoff, counterclaim, deduction or recoupment.
9. SURVIVAL OF REPRESENTATION, WARRANTIES AND PAYMENT OBLIGATIONS. Borrower
agrees that the representations and warranties made in this Agreement
shall survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
10. PREPAYMENT AND RESCISSION. Subject to any prepayment or rescission
premium or fee that RTFC may have in effect, Borrower may prepay and/or
rescind any portion of this loan (i) at any time if the loan is bearing
interest at the Variable Rate; and (ii) only on an Adjustment Date if
the loan is bearing interest at the Fixed Rate.
11. ADDITIONAL INDEBTEDNESS. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to RTFC, Borrower agrees that it
will not, without prior written consent of RTFC: (i) make distributions
of cash or stock to its stockholders; or (ii) create, incur, assume,
guarantee or otherwise become obligated for any additional indebtedness,
other than to RTFC, except that the Borrower may borrow against another
loan previously approved by RTFC.
12. REPRESENTATIONS. Except as set forth in writing and attached hereto,
Borrower represents and warrants as of the Date of Application and on
the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all material obligations and be
in material compliance with all instruments under which it is
bound and that all information submitted in support of this
Agreement is true, complete and correct in all material
respects;
(b) There has been no material adverse change in the Borrower's
business or financial condition from that set forth in its most
recent financial statements provided to RTFC;
(c) The Borrower has no outstanding loans from sources other than
RTFC;
(d) The Borrower is not in default in any material respect of any of
its obligations and no litigation is pending or, to Borrower's
knowledge, threatened, which would have a material adverse
impact on the Borrower's ability to perform under this
Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
13. SUBMISSIONS. Borrower submits the following documents in support of this
Agreement (if not previously received by RTFC):
(a) Borrower's or Borrower's parent corporation's, USTN Holdings,
Inc., most recent CPA audit report prepared by independent
certified public accountants; and
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<PAGE> 5
(b) Prior to the first Advance, an opinion of counsel, in form and
substance satisfactory to RTFC.
14. EQUITY CERTIFICATE. Prior to or with the first Advance, Borrower shall
purchase a SCC in an amount equal to 5% percent of the Commitment. If
the SCC is purchased with Borrower's general funds, it shall cost N/A.
If the SCC is purchased with the first Advance hereunder, it shall cost
$52,632.00. The SCC will amortize annually (after the earlier of the
loan being fully advanced or the Termination Date) so that the SCC shall
be equal to 5% of the outstanding principal loan balance.
15. CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Borrower hereby consents
that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in
Section 1388 of the Internal Revenue Code of 1986, as amended ("Code")
including any other comparable successor provision) and which are
received from RTFC will be taken into account by Borrower at their
stated dollar amounts in the manner provided in Section 1385(a) of the
Code in the taxable year in which such written notices of allocation are
received.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
17. SEVERABILITY. If any term, provision or condition, or any part thereof,
of this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term,
provision or condition, and this Agreement shall survive and be
construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
18. SETOFF. RTFC is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by
RTFC or owed to the Borrower or for the credit or account of the
Borrower against any and all of the obligations of the Borrower now or
hereafter existing hereunder. RTFC agrees to notify the Borrower
promptly after any such setoff or recoupment and the application
thereof, provided that the failure to give such notice shall not affect
the validity of such setoff, recoupment or application. The rights of
RTFC under this section are in addition to any other rights and remedies
(including other rights of setoff or recoupment) which RTFC may have.
19. ASSIGNMENT. RTFC may assign its rights and obligations under Agreement
without the consent of the Borrower; provided, however, that no such
assignment shall result in terms or conditions less favorable to the
Borrower. The Borrower may not assign any of its rights and obligations
under this Agreement without the prior written consent of RTFC.
20. CHANGE OF CONTROL. Borrower covenants that it will not, directly or
indirectly, without the prior written consent of RTFC, alter or permit
alteration of control of the Borrower. Control shall be as defined by
regulations for telephone companies issued by the Federal Communications
Commission ("FCC") from time to time.
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<PAGE> 6
21. INTEGRATION. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and
signed by both parties.
22. HEADINGS. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ILLUMINET, INC.
(SEAL)
By:
-------------------------------------
VP-Finance and Treasurer
Attest:
--------------------------
Assist. Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
(SEAL)
By:
-------------------------------------
Assistant Secretary-Treasurer
Attest:
--------------------------
Assistant Secretary-Treasurer
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ILLUMINET, INC.
(SEAL)
By:
-------------------------------------
Chief Executive Officer
Attest:
--------------------------
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
(SEAL)
By:
-------------------------------------
Assistant Secretary-Treasurer
Attest:
--------------------------
Assistant Secretary-Treasurer
7
<PAGE> 1
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into the 12th day of December,
1997, by and between FACILITY PROPERTIES, L.L.C., a Kansas limited liability
corporation ("Lessor"), and ILLUMINET, INC., a Delaware corporation ("Lessee").
WITNESSETH:
1. LEASE OF PREMISES: For and in consideration of the rents reserved
herein and the covenants and undertakings contained herein, Lessor hereby leases
to Lessee, and Lessee hereby leases from Lessor, upon the terms and conditions
herein set forth, those certain premises (hereinafter called the "Premises")
consisting of the area outlined in red on the plans and specifications to be
attached hereto and marked Exhibit A, which shall be a part of Lessor's building
(the "Building") to be constructed upon that certain real property situated in
Overland Park, Johnson County, Kansas, more particularly described in Exhibit B
attached hereto. Exhibit A and Exhibit B are each incorporated herein by this
reference. This Lease and the rents reserved herein also cover Lessee's right to
use the common areas and the parking spaces in the parking areas designated by
Lessor for parking by Lessee and Lessee's employees and visitors.
2. CONSTRUCTION: Lessor shall construct the Building and Premises in
accordance with Exhibit C attached hereto and incorporated herein by reference.
3. LEASE TERM: This Lease shall be for a term of five (5) years
commencing on the "Commencement Date," which is defined to be the first day of
the month immediately following the "Completion Date" (as defined in Exhibit C),
and ending at midnight on the last day of the month that is five years from the
month in which the Commencement Date occurs (the "Expiration Date"), unless
earlier terminated in accordance with the terms of this Lease. Upon the request
by either party, the parties shall execute an acknowledgment letter confirming
the actual Commencement Date and Expiration Date. Lessee will have thirty (30)
days access to fixture the space prior to the Completion Date. If such access or
ability to fixture the space is not available from the Lessor, the Commencement
Date will be adjusted accordingly.
4. OPTION TO EXTEND: Lessee shall have the option to extend the term of
this Lease for an additional five (5) year term (the "Option Period") commencing
immediately after the Expiration Date by notifying Lessor in writing one hundred
and eighty (180) days prior to the Expiration Date ("the Option Renewal Date").
All terms and provisions of this Lease shall govern during the Option Period,
except that the rent shall be adjusted per Section 6: Rent Adjustments.
In addition, Lessee shall pay as additional rent the pro rata costs associated
with Lessor's refinance of its then existing mortgage of the Building (the "Loan
Refinance Costs") which shall include, without limitation, interest rate
increases over Lessor's then current loan, loan origination fees, title
insurance and property appraisal fees. Such pro rata share is based on the ratio
of the floor area of the Premises (23,000 square feet including a proportionate
part of the Common Areas and any expansion space occupied by the Lessee which
have been allocated to all rentable areas in Lessor's building) to the total
rentable floor area in Lessor's building. On or before the Option Renewal Date,
Lessor shall submit its estimate of the Loan Refinance Costs to
<PAGE> 2
Lessee. The proposed Loan Refinance Costs submitted to Lessee must be consistent
with then prevailing market rates and costs in the Overland Park, Kansas area
for comparable loans. If Lessee exercises its options to renew the lease, Lessee
shall notify Lessor on or before the Option Renewal Date that Lessee intends to
pay the Loan Refinance Costs as follows: (i) the portion of the Loan Refinance
Costs relating to the interest rate increase shall be payable monthly with the
payment of Rent, and (ii) the remainder of the Loan Refinance Costs shall be
payable (a) in one lump sum payment on or before the tenth day of the first
month of the Option Period, (b) in equal monthly installments, or (c) some
combination thereof, to be determined by Lessee. If the actual Loan Refinance
Costs differ from the estimated Loan Refinance Costs previously submitted to
Lessee, Lessee shall pay an amount equal to the actual Loan Refinance Costs;
provided, however, that Lessee shall not pay the portion of the Loan Refinance
Costs that exceeds ten percent of the estimated Loan Refinance Costs.
5. RENT: Lessee promises to pay to Lessor, as rent for the Premises, the
sum of Fifteen and 38/100 Dollars ($15.38) per rentable square foot in the
Premises per annum, payable in equal monthly installments in advance on the
first day of each and every calendar month during the term of this Lease,
commencing on the Commencement Date. Lessee agrees to pay the rent payable for
each and every month of the term of this Lease without deduction or setoff
except as set forth herein. All references to square footage in this lease shall
mean rentable square feet as defined and agreed upon by Lessee and Lessor in the
Standard Method of Floor Measurement prepared by the Building Owners' and
Managers' Association International ANSI Z 65.1-1996 Method dated June 7, 1996.
The rent for any partial month shall be prorated.
All rent payable pursuant to this Lease during the term hereof shall be
paid to Lessor at such place as Lessor may, from time to time, designate in
writing and until any further such designation, such place shall be the business
office of Lessor at 8500 W. 110th Street, Suite 525, Overland Park, Kansas
66210. In the event Lessee fails to pay any rent or other payment owed to Lessor
pursuant to this lease within five (5) days after such payment is due, Lessor
will notify Lessee of payment due. Lessee will have five (5) days after such
notice to make payment. If payment is not received after ten (10) days such
payment was due, the Lessee agrees to pay to Lessor, as additional rent, a sum
equal to five percent (5%) of each such delinquent payment.
6. RENT ADJUSTMENTS: Lessee agrees that the monthly rent payable in each
of the succeeding years of the term of this Lease as provided in Paragraph 5
herein above shall be increased or decreased effective on each twelve (12) month
anniversary of the Commencement Date, as follows:
(a) For Real Property Tax and for Fire and Casualty Insurance
Premium Changes during years one (1) through (5): By one-twelfth (1/12) of the
amount by which the ad valorem real property taxes and Fire and Casualty
Insurance premium payable by Lessor for the Premises changed during the
preceding calendar year;
For any lease extension beyond the initial five-year term, the
following rent adjustments 6(b) and 6(c) will also apply:
(b) For all Operating Expense changes, except electricity, during
years six (6) through (10): by one twelfth (1/12) of the amount by which the
operating expenses payable by
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<PAGE> 3
Lessor changed from the base year except that such adjustments will not exceed
the aggregate average annual percentage price changes as measured by the
Consumer Price Index for Overland Park, Kansas of the preceding three (3)
calendar years.
(c) For all Loan Finance Cost changes during years six (6)
through ten (10): By 1/12 the amount by which the bona fide loan financing costs
payable by Lessor changed from the Base Year. On or before the Option Renewal
Date, Lessor shall submit its estimate of the Loan Refinance Costs to Lessee.
The proposed Loan Refinance Costs submitted to Lessee must be consistent with
then prevailing market rates and costs in the Overland Park, Kansas area for
comparable loans. If Lessee exercises its options to renew the lease, Lessee
shall notify Lessor on or before the Option Renewal Date that Lessee intends to
pay the Loan Refinance Costs as follows: (i) the portion of the Loan Refinance
Costs relating to the interest rate increase shall be payable monthly with the
payment of Rent, and (ii) the remainder of the Loan Refinance Costs shall be
payable (a) in one lump sum payment on or before the tenth day of the first
month of the Option Period, (b) in equal monthly installments, or (c) some
combination thereof, to be determined by Lessee. If the actual Loan Refinance
Costs differ from the estimated Loan Refinance Costs previously submitted to
Lessee, Lessee shall pay an amount equal to the actual Loan Refinance Costs;
provided, however, that Lessee shall not pay the portion of the Loan Refinance
Costs that exceeds ten percent of the estimated Loan Refinance Costs.
The parties acknowledge and agree that for the purposes of the
computations contemplated by subparagraphs 6(a), 6(b) and 6(c) herein above, the
property taxes insurance premiums, operating expenses and loan finance cost for
the Premises referenced in those subparagraphs shall be the pro rata share of
the total ad valorem real property taxes, fire and casualty insurance premiums
and operating expenses payable by Lessor for the entire property of which the
premises are a part, and that such prorata share is based on the ratio of the
floor area of the Premises (23,000 square feet and any expansion space occupied
by the Lessee including a proportionate part of the Common Areas which have been
allocated to all rentable areas in Lessor's building) to the total rentable
floor area in Lessor's building.
Base Year is defined as the calendar year ending December 31, 1999.
Consumer Price Index is defined as the Overland Park, Kansas - All Urban
Consumers published by the United States Government. In the event the United
States Government shall revise or discontinue publication of the Consumer Price
Index, the parties agree to use in its place the government index or computation
which may replace the Consumer Price Index or such other reasonable comparable
economic index that would yield substantially the same result.
Operating Expenses are defined as all reasonable and appropriate
expenses paid or incurred by the Lessor for maintaining, operating and repairing
the building, the land, the parking facilities on the land, including but not
limited to all expenses paid or incurred by lessor for heating, cooling, water,
gas, sewers, refuse collection, telephone charges not chargeable to Lessee and
similar utility services; the cost of supplies, janitorial and cleaning
services, window washing, the cost of complying with any governmental rules,
regulations, requirements or orders (except that Lessor is responsible for any
capital items for American Disabilities Act compliance), cost of independent
contractors, the cost of compensation (including employment taxes and fringe
benefits) of all persons who perform duties in connection with such operating
3
<PAGE> 4
costs and any other reasonable and appropriate expense or charge which, in
accordance with generally accepted accounting principles, would be considered an
expense of operating or repairing the building. Operating expenses shall not
include capital expenditures, Lessor's income taxes or any expenses paid by the
Lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by a third party or by any insurance proceeds.
7. OPTION TO EXPAND: During the period that commences on the
Commencement Date and terminates six months prior to the Expiration Date (or
expiration of the Option Period, if applicable), Lessee shall have the right to
expand into additional space of up to 4,000 square feet in the Building not then
occupied by Lessee by delivering one hundred twenty (120) days prior written
notice to Lessor. Such notice shall specify the date Lessee desires to expand
and the area subject to Lessee's desired expansion (the "Expansion Space").
Additionally, for any space in the Building vacated by the Lessor or a third
party tenant, Lessee shall have the first right of refusal to expand into part
or all of that space. Lessee will have ten (10) business days from receipt of
Lessor's written notice of such space availability to exercise the option to
expand into part or all the available space. Lessor (or the possessor of the
Expansion Space at such time) shall surrender the Expansion Space on or before
the date specified in the notice in good condition and in a condition compatible
with Lessee's use and occupancy, reasonable wear and tear excepted. The rent
payable by Lessee shall be adjusted to reflect Lessee's increased square
footage, as certified by Lessee or Lessee's agent, effective the date Expansion
Space is made available to Lessee. All other terms and conditions will remain
the same for the Expansion Space.
8. COMMON AREAS: PARKING: Common areas include parking areas, entrances
and exits thereto, driveways, sidewalks, landscaped areas, lavatories, and other
areas and facilities which are provided and designated by Lessor for the common
or joint use and benefit of occupants of the Building, and their respective
employees, agents, customers and invitees. Lessor shall provide at no cost
Lessee parking spaces in size, number, and type sufficient to comply with
federal, state, and local statutes, ordinances, and regulations, and in no event
shall Lessor provide Lessee with fewer than 108 parking spaces for the use by
Lessee, its employees, and visitors. If Lessee exercises option to expand,
Lessor will provide additional parking spaces in size, number and type
sufficient to comply with federal, state and local statutes, ordinances and
regulations and in no event fewer than 3.1 spaces per each one thousand (1,000)
square feet of Expansion Space exercised.
9. AUTHORIZED USE: Lessee shall use and occupy the Premises during the
entire Lease term for a business office and for no other purpose without the
prior written consent of Lessor. No use shall be made of the Premises nor any
act done in or about the Premises which is unlawful. Lessee agrees to observe
the rules and regulations set forth on Exhibit D attached hereto and
incorporated herein and such additional reasonable and nondiscriminatory rules
and regulations as may be mutually adopted and published by Lessor and Lessee
from time to time for the safety, care and cleanliness of the Premises. Written
notice of changes will be provided to each party five (5) days before effective
date to allow time for conformance except that rules and regulations addressing
issues of immediate high risk safety and security matters will be effective
immediately.
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<PAGE> 5
10. POSSESSION: So long as Lessee shall fully comply with and promptly
perform all of the terms, covenants and conditions of this Lease and the rules
and regulations on its part to be complied with and performed, Lessee shall have
and quietly enjoy possession of the Premises for the term set forth herein.
Lessee's occupation and continued possession of the Premises shall be deemed
Lessee's agreement and acknowledgement that the Premises are then in a
tenantable and good condition, except for latent defects or defects which Lessee
has given Lessor written notice to correct.
11. SECURITY: Lessor acknowledges that access to the Premises is limited
and strictly controlled. Lessor agrees to cause all of its employees, agents,
customers and invitees to comply with any and all rules and regulations
established by Lessee and agreed to in writing by Lessor to assure the security
of its premises. Lessor shall be granted access, which will not be unreasonably
withheld, to the building for the purpose of inspection, repair, remodeling and
operation of the Building under security procedures established by Lessee;
provided, however, that Lessor, its employees, or any other party acting on
Lessor's behalf or at Lessor's request shall not disclose to any third party
information about Lessee or Lessee's customers or operations obtained by Lessor
or such other party while in the Premises, and Lessor shall indemnify Lessee
from and against all damages, losses, liabilities, and expenses (including
reasonable attorneys' fees) incurred by Lessee as a result of a breach or
violation of the non-disclosure obligation set forth in this Paragraph.
12. MAINTENANCE AND SERVICES PROVIDED BY LESSOR: Lessor shall maintain
the roof, exterior walls and structural members of the Building, in good order
and condition, except for damage occasioned by the acts of Lessee or Lessee's
officers, employees and agents.
Lessor shall provide lighting, electrical power, air conditioning,
water, sewer service, refuse disposal service, janitorial service and other such
utility and maintenance services, all within the normal requirements of such
utilities and services for which the occupancy of Lessee under this Lease is
contemplated. Lessor shall also provide the security alarm system and the
security monitoring service for the Building, which shall be subject to Lessee's
written approval. Electrical power shall be separately metered for Lessee's use.
Lessor shall pay for all utilities and services set forth in this paragraph
except electricity separately metered for Lessee's use. Lessee's primary
business hours will be 7 a.m. to 6 p.m. Monday through Friday and the Premises
will be occupied twenty four hours a day, seven days a week by customer service
and network monitoring personnel.
Lessor shall maintain the Building, the common areas, and the parking
areas in good order and condition, except for damage occasioned thereto by the
acts of Lessee or Lessee's officers, employees and agents, and Lessor shall
furnish such areas with required utility services, snow and ice removal, and
shall provide lighting replacement for such areas.
Lessor will sufficiently notify Lessee of utility service repairs,
especially those services that would impact the Lessee's operations. Following
sufficient notice to the Lessee, Lessor shall not be liable to Lessee for any
loss or damage caused by our resulting from any variation, interruption or
failure of utility services to be provided by Lessor pursuant to this Lease, due
to any cause except for Lessee's negligence or willful acts and no temporary
interruption or failure
5
<PAGE> 6
of such services incidental to the making of repairs, alterations or
improvements, or due to accident or strike or conditions or events not under
Lessor's control, shall be deemed as an eviction of Lessee or release Lessee
from any of Lessee's obligations hereunder.
13. CARE OF PREMISES, REPAIRS AND ALTERATIONS: Lessee shall take good
care of the Premises. Lessee shall be responsible for timely payment of all
utility and other services furnished to or provided for the Premises which are
not to be provided by Lessor as specifically set forth hereinabove.
Lessee shall, upon termination of this Lease by the expiration of time
or as otherwise provided herein, promptly and peacefully yield and surrender the
Premises to Lessor in as good condition as when received by Lessee from Lessor
or as hereafter improved, reasonable use, wear and damage by fire or other
casualty excepted.
Lessee shall not make any alterations, additions or improvements in or
to the Premises, or make changes to locks on doors except for emergency security
or safety purposes, or add, disturb or in any other way change any plumbing or
wiring without first obtaining the written consent of Lessor. Lessor will be
notified as soon as practical regarding any changes due to emergency security or
safety requirements. All damage or injury done to the Premises by Lessee, or by
any person who may be in or upon the Premises with the consent of Lessee, shall
be paid for by Lessee, and Lessee shall pay for all damage to the Building
caused by Lessee's misuse of the same or the appurtenances thereto.
Lessor may make any alterations, repairs or improvements, which Lessor
may deem necessary or advisable for the security, preservation, safety or
improvement of the Building, subject to Lessee's prior written approval. Such
alterations, repairs or improvements shall be made at times convenient to
Lessee. Lessor will make best efforts to limit disruption of Lessee's business
operations. All alterations, additions and improvements to the building
structure during the term of this Lease, shall be and become the property of
Lessor. All equipment and trade fixtures installed by Lessee shall remain the
property of Lessee. If Lessee shall damage the Premises in removing any
equipment or trade fixtures, Lessee shall promptly cause such damage to be
repaired and shall be fully responsible for the cost thereof.
Lessee may install antennas and satellite dishes on the roof of the
Building in accordance with local codes and regulations.
14. ENTRY AND INSPECTION: Subject to Paragraph 10 above, Lessee agrees
to permit Lessor and Lessor's agents to enter the Premises at reasonable times
and upon reasonable notice (except in the case of emergency), for the purpose of
inspecting the same or for the purpose of cleaning, repairing, altering or
improving the Premises. Nothing contained in this paragraph shall be deemed to
impose any obligation upon Lessor not expressly set forth elsewhere in this
Lease. Lessor shall have the right to enter the Premises at reasonable times,
and with reasonable notice, for the purpose of showing the same to prospective
tenants during a period of one hundred and eighty (180) days prior to the
expiration of the term of this Lease, if Lessee has not extended lease. Due to
Lessee's business security reasons, any Lessor entry and inspection will require
an escort provided by the Lessee except in emergency situations.
6
<PAGE> 7
15. TAXES AND LICENSEE FEES: Lessee shall be liable for and pay,
throughout the term of this Lease, any and all license fees, excise taxes and
occupation taxes applicable to the business conducted by Lessee on the Premises,
and all applicable ad valorem taxes levied and assessed upon the personal
property of Lessee maintained on the Premises.
Lessor shall be liable for and pay all real property ad valorem taxes
levied and assessed upon the land and improvements of which the Premises are a
part.
The parties acknowledge and agree that the rent provided in Paragraph 5
hereof are exclusive of any sales, use, business and occupation or other similar
taxes, based upon or measured by rents payable to Lessor hereunder. If during
the term of this Lease any such taxes shall become payable by Lessor to any
governmental authority, the rent hereunder shall be deemed increased to net
Lessor the same revenue after Lessor's payment of any such tax, as would have
been payable to Lessor prior to the imposition of any such tax. The foregoing
provision does not include, and shall not be construed to impose on Lessee, any
liability to pay any income taxes payable by Lessor.
16. LIABILITY AND INDEMNIFICATION: Lessor shall not be liable for any
injury to or the death of any person, or for any loss of or damage to any
property (including the property of Lessee) occurring in or about the Premises
of any cause whatsoever, save the except that caused by the negligence and/or
willful misconduct of Lessor; provided, however, Lessor shall not in any event
be liable to Lessee, or any person or entity claiming by, through or under
Lessee, for any incidental or consequential damages.
Lessee shall defend and indemnify Lessor and save Lessor harmless, from
and against any and all loss, damage, liability or expense (including attorney's
fees and other expenses of litigation) incurred by Lessor arising or resulting
from any actual or alleged injury or death to any person occurring upon the
Premises or from any actual or alleged loss of or damage to any property upon or
about the Premises, caused by or resulting from any act or omission of Lessee or
any officer, employee, contractor, licensee, agent, servant, guest, invitee or
visitor of Lessee, in or about the Premises; provided, however, that the
foregoing provisions shall not be construed to make Lessee responsible for any
loss, damage, liability or expense resulting from injuries to third parties
caused by the negligence or willful misconduct of Lessor, or any officer,
employee, contractor, licensee, business invitee or visitor of Lessor. Lessee
shall not in any event be liable for any indirect, incidental, or consequential
damages to Lessor or any person or entity making such claim by, through or under
Lessor.
17. LIABILITY INSURANCE: Throughout the term of this Lease, and any and
all extensions of such term, Lessee and Lessor shall each maintain, with
insurers authorized to do business in the State of Kansas that are well rated by
any recognized national rating organization, a policy or policies of commercial
general liability insurance providing coverage against claims for bodily injury,
death or property damage arising out of the use or occupancy of the Premises by
Lessee and Lessor, in a combined single limit amount of not less than
$1,000,000.00. The policies of insurance required to be maintained by Lessee and
Lessor pursuant to this paragraph shall name the Lessee and Lessor as insured
parties such that both parties are named in both policies and may be carried
under blanket policies maintained by Lessee and Lessor if such policies comply
with the provisions of this Lease. The policy or policies of insurance required
to
7
<PAGE> 8
be maintained by Lessee and Lessor pursuant to this paragraph shall each provide
that not less than thirty (30) days prior written notice of any cancellation,
termination, modification or lapse of coverage shall be given to Lessor and
Lessee, and any holder or holders of a first lien mortgage or deed of trust
covering the Building, and such insurance policy or policies shall not contain
any provision relieving the insurers thereunder of liability for any loss by
reason of the existence of other policies of insurance covering the Premises
against the perils involved, whether collectible or not.
Lessor shall acquire builder's risk insurance prior to the start of
construction of the Building.
Lessee and Lessor shall deliver to the other before the Commencement
Date certificates evidencing all of the insurance which is required to be
maintained by Lessee and Lessor hereunder, and, within five (5) working days
following policy expiration of any such insurance, other certificates evidencing
the renewal of such insurance.
18. PROPERTY INSURANCE: DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY:
Lessor shall carry all-risk property damage insurance effective as of the
Commencement Date in an amount equal to the full replacement cost of the
Building, and Lessor shall deliver to Lessee certificates evidencing such
insurance. The policy shall provide a minimum of thirty (30) days' written
notice to Lessee prior to the expiration or any cancellation or modification of
such policy. In the event Lessor shall fail to maintain the insurance required
by this section, Lessee may, but shall not be so obligated, to procure such
insurance, and any amount so expended by Lessee shall be reimbursed to Lessee by
Lessor within ten days of Lessee's written demand. If Lessor fails to reimburse
Lessee within such time period, Lessee may abate rent in the amount of such cost
to Lessee.
In the event the Premises shall be destroyed or rendered untenantable,
either wholly or in part, by fire or other unavoidable casualty, Lessor shall
restore the Premises to the same condition that existed prior to such casualty,
and during the time the premises or any portion thereof shall be so rendered
untenantable, the rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof; provided,
however, that during the last six months of the term of the Lease (or Option
Period, if applicable), either Lessor or Lessee may terminate the Lease by
delivering written notice to the other within thirty (30) days after the
happening of any such casualty.
19. WAIVER OF SUBROGATION: In the event of any loss or damage referred
to in this Lease, whether such loss or damage is due to the negligence of either
of the parties hereto or their respective agents or employees, or any other
cause, Lessor and Lessee do each herewith and hereby release and relieve the
other from responsibility for, and waive the entire claim of recovery for (a)
any loss or damage to the Premises and other parts of the Building, or any
personal property of either located anywhere in said building, arising out of or
incident to the occurrence of any of the perils which may be covered by any fire
and casualty insurance policy with extended coverage endorsement in common use
in the Overland Park, Kansas area; or (b) any loss resulting from business
interruption at or upon the Premises or loss of rental income, arising out of or
incident to the occurrence of any of the perils which may be covered by any
8
<PAGE> 9
such insurance, and each party shall cause its insurance carrier to consent to
such waiver and to waive any and all rights of subrogation against the other
party.
20. EMINENT DOMAIN: If the whole of the Premises, or if such portion of
the Premises as may be required for the reasonable use of the same, shall be
taken by virtue of any condemnation or eminent domain proceeding, this Lease
shall automatically terminate as of the date of such condemnation, or as of the
date possession is taken by the condemning authority, whichever date is earlier.
Current rent shall be apportioned as of the date of such termination on a thirty
(30) day month basis. In the case of a taking of only a portion of the Premises
not required for the reasonable use thereof, then Lessor shall restore the
Premises as nearly as practicable to the condition prior to such taking, and
this Lease shall continue in full force and effect and the rental shall be
equitably reduced based upon the proportion by which the Premises are reduced,
such rent reduction to be effective on the date of such partial taking. No award
for any partial or entire taking shall be apportioned, and Lessee hereby assigns
to Lessor any award which may be made in such taking or condemnation, together
with any and all rights of Lessee now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing herein shall be deemed to give
Lessor any interest in, or to require Lessee to assign to Lessor, any award made
to Lessee for the interruption of or damage to Lessee's business or for Lessee's
moving expenses.
21. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease or
sublet the Premises, or any part thereof, without first obtaining Lessor's
written consent which shall not be unreasonably withheld; provided, however,
that Lessee is not required to obtain Lessor's prior written consent if Lessee
is not released from its obligations under this Lease. The Lessee shall be
released from its obligations hereunder to an assignee subject to approval of
Lessor, which approval will not be unreasonably withheld if the assignee has a
net worth in equal to or in excess of Lessee's net worth, equal or better credit
rating of Lessee and assignee assumes all obligations set forth hereunder.
Lessor's consent, which will not be unreasonably withheld, to any assignment or
subletting which requires Lessor's consent shall not operate as a waiver of the
necessity for a consent to any subsequent assignment or subletting which
requires Lessor's consent. The terms of this paragraph shall be binding upon any
person by, under or through Lessee.
Lessor may assign this Lease at any time without obtaining Lessee's
consent provided the assignee agrees to abide by and is bound by the terms and
conditions of this Lease Agreement; and provided further, however, that Lessor
shall not assign this Lease prior to the Completion Date without first obtaining
Lessee's written consent. Lessee hereby consents to Lessor assigning the Lease
to any entity be wholly owned by Lessor, and/or individuals or entities related
to Facility Design, Inc. or Rolly McNutt that are acceptable to Lessee. In the
event of such assignment, Facility Design, Inc. shall not be released from its
obligations to perform Lessor's obligation to construct the Building and the
Premises set forth herein.
22. APPROVAL OF THIRD PARTY TENANTS: Because of the nature of Lessee's
business requiring security and privacy from competitors, Lessee shall approve
any third party tenant proposed by the Lessor. The Lessee will not unreasonably
withhold such approval.
9
<PAGE> 10
23. LIENS AND INSOLVENCY: Lessee shall keep the Premises free from any
and all liens arising out of any work performed, materials ordered or
obligations incurred by Lessee.
24. DEFAULT AND TERMINATION: If Lessee fails to pay any installment of
rent within ten (10) days after the due date, or to perform any other covenant
under this Lease within thirty (30) days after written notice from Lessor
stating the nature of such default, Lessor may cancel this Lease and re-enter
and take possession of the Premises using all necessary force to do so;
provided, however, that if the nature of such default (other than for nonpayment
of rent) is such that the same cannot reasonably be cured within such thirty-day
period, Lessee shall not be deemed to be in default if Lessee shall, within such
period, commence such cure and thereafter diligently pursue the same to
completion. Notwithstanding such retaking of possession by Lessor, Lessee's
liability for the rent provided herein shall not be extinguished for the balance
of the term of this Lease. Upon such re-entry, Lessor may, without terminating
this Lease, relet or attempt to relet, all or any part of the Premises upon such
terms and conditions as Lessor may deem advisable, in which event the rents
received in connection with such reletting shall be applied first to the
expenses of reletting and collection, including any necessary renovations and
thereafter to payment of all sums due to or become due Lessor pursuant to the
terms of this Lease, and if a sufficient amount shall not be thus realized to
pay such charges, Lessee shall pay Lessor any deficiency monthly, and Lessor may
bring an action for any and all such monthly deficiencies as the same shall
arise. Lessee hereby waives any and all claims for damages that may be caused by
Lessor's re-entering and taking possession of the Premises or removing and
storing the property of Lessee as provided in this Lease, and Lessee will save
Lessor harmless from any loss, costs or damages occasioned Lessor thereby, and
no such re-entry shall be considered or construed to be a forcible entry.
25. REMOVAL OF PROPERTY: If Lessee shall fail to remove any of its
property of any nature whatsoever from the Premises after termination of this
Lease or when Lessor has the right of reentry, Lessor may, at Lessor's option,
remove and store such property without liability for loss thereof or damage
thereto, such storage to be for the account and at the expense of Lessee. If
Lessee shall not pay the cost of storing any such property after the same has
been stored for a period of (30) days or more, Lessor may, at Lessor's option,
sell or permit to be sold, any or all of such property at public or private
sale, in such manner and at such times and places as Lessor, in Lessor's sole
discretion, may deem proper, without notice to Lessee, and Lessor shall apply
the proceeds of such sale first to the cost and expenses of such sale, including
reasonable attorney's fees actually incurred; second, to the payment of the
costs of storing any such property; third, to the payment any other obligations
which may then be or thereafter become due Lessor from Lessee pursuant to the
terms hereof; and fourth, the balance, if any, to Lessee.
26. NON-WAIVER: A waiver by either party of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or of any subsequent breach of the same or any
other term, covenant or condition herein contained.
27. HOLDOVER: If Lessee shall, with the consent of Lessor, continue to
occupy the Premises after the expiration of the term of this Lease, such tenancy
shall be for an indefinite period of time on a month-to-month tenancy, which
tenancy may be terminated as provided by
10
<PAGE> 11
the laws of the State of Kansas. During such tenancy, Lessee agrees to pay to
Lessor the rent then determined payable as provided herein unless a different
rate be agreed upon at such time, and to be bound by all the terms, covenants
and conditions herein set forth insofar as applicable.
28. SUBORDINATION TO MORTGAGE: Lessee agrees to subordinate this Lease
to any mortgage covering property which includes the Premises that may hereafter
be placed by Lessor upon such property and all renewals, replacements and
extensions of such existing mortgage or any such subsequent security instrument,
provided that the secured party under any such subsequent security instrument
agrees not to disturb the leasehold interest of Lessee in the event of
foreclosure if Lessee is not in default hereunder. If any existing secured party
desires to have this Lease a prior lien to its security interest, then in such
event and upon such secured party notifying Lessee to that effect, this Lease
shall be deemed prior to the lien of such security interest. Within fifteen (15)
days of presentation, Lessee shall execute any and all documents which any such
secured party may require to effectuate the provisions of this paragraph, and
Lessee shall execute certificates as to the status of rental payments and
Lessee's compliance as required by Lessor from time to time in the standard form
of any such security party.
29. RIGHT OF FIRST REFUSAL TO PURCHASE THE BUILDING AND REAL PROPERTY:
During the term of the lease the Lessee shall have the right of first refusal to
purchase the building and the real property described in Exhibit B prior to the
Lessor seeking third party buyers. The purchase price will be determined by a
joint agreement of a qualified appraiser selected by the Lessor and a qualified
appraiser selected by the Lessee. A qualified appraiser shall be an appraiser
who is independent, licensed, and a member of the American Institute of Real
Estate Appraisers or its successor organization. If the two appraisers are
unable to agree upon a purchase price, the two appraisers will each submit their
latest proposed purchase price to a third appraiser who will select one of the
two submitted purchase prices. Each party will be responsible for their
respective expenses except in the case of utilizing a third appraiser wherein
those costs will be shared equally. Lessee will have ten (10) business days to
respond from the date upon receiving written notice of the pending sale from the
Lessor.
In addition, if the Lessee exercises the option, Lessor will furnish
Lessee an ALTA Survey and Title Commitment, as well as any and all additional
documents and materials relating to the building and the property, including,
without limitation, copies of environmental studies, engineering studies, and
plans and specifications. Lessor and Lessee will share equally in the costs of
obtaining such surveys, commitments and studies. Lessee shall have at least ten
days to object to the items set forth therein prior to closing. If Lessor fails
to cure such objections, Lessee shall be able to waive its objections or shall
terminate the sale and continue as a tenant under the Lease. The closing date
should occur on the later of the following two dates: (i) the date that is sixty
(60) days from the day Lessee affirmatively responds to the notice of Lessor's
desire to sell, or (ii) the date that is twenty (20) days beyond Lessee's
receipt of all due diligence materials. Lessor will furnish Lessee a Title
Policy at its own cost.
30. TRANSFER OF LESSOR'S INTEREST: In the event of sale or conveyance by
Lessor of Lessor's interest in the premises, this Lease shall not be affected by
any such sale and the Lessor will provide for the assumption of all Lessor
obligations under this lease in writing by the transferee. Lessor agrees not to
sell or convey Lessor's interest in the premises without consent from the
Lessee. Lessee's consent will not be unreasonably withheld.
11
<PAGE> 12
31. NOTICES: All notices required to be made and given under this Lease
shall be in writing and delivered in person or sent by certified mail to Lessor
at the same place rent payments are made hereunder, and to Lessee at the
Premises or to such other addresses as may hereafter be designated by either
party to the other in writing.
32. COSTS AND ATTORNEY'S FEES: In the event of any action at law or in
equity between the Lessor and Lessee to enforce any of the terms and provisions
of this Lease or the rights of either party hereunder, the parties each agree
that the unsuccessful party to such litigation shall pay to the successful party
all costs and expenses, including reasonable attorney's fees, incurred therein
by such successful party, and if such successful party shall recover judgment in
any such action or proceeding, such costs and expenses, including attorney's
fees, shall be included in and made a part of such judgment.
33. CAPTIONS AND CONSTRUCTIONS: Paragraph titles of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof. This Lease shall be construed in accordance
with and governed by the laws of the State of Kansas.
34. SUCCESSORS: Subject to and consistent with the limitations on
assignments and subletting as provided in Paragraph 20 hereinabove, all of the
covenants, agreements, terms and conditions contained in this Lease shall apply
to and be binding upon Lessor and Lessee and their respective successors and
assigns.
35. SEVERABILITY: In the event any part of this Lease is held to be
unenforceable or invalid for any reason, by any court of competent jurisdiction
and if such invalidity or unenforceability shall materially impair achieving the
purpose and intent of this Lease, then this entire Lease shall be invalid and
unenforceable. Otherwise, this Lease shall be construed as if not containing the
particular provision or provisions hereof held to be invalid or unenforceable,
and the rights and obligations of the parties shall be construed and enforced
accordingly.
36. LESSEE'S APPROVALS: All approvals required by Lessee hereunder and
in the Exhibits attached hereto shall be exercisable in Lessee's sole
discretion.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease effective
as of the day and year first above written.
12
<PAGE> 13
FACILITY PROPERTIES, L.L.C.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
"Lessor"
ILLUMINET, INC., a Delaware corporation
By:______________________________________________
Roger H. Moore
President and CEO
"Lessee"
13
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ILLUMINET HOLDINGS, INC.
Illuminet, Inc.
U.S.I. Gateway, Inc.
U.S. Intelco Wireless, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Consolidated Financial and Other Data," "Selected Consolidated Financial and
Other Data" and "Experts" and to the use of our reports dated February 12, 1999
in the Registration Statement on Form S-1 and the related Prospectus of
Illuminet Holdings, Inc. for the registration of shares of its common stock.
ERNST & YOUNG LLP
Seattle, Washington
August 20, 1999
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 11,967 11,347
<SECURITIES> 0 0
<RECEIVABLES> 28,288 32,577
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<CURRENT-ASSETS> 42,007 43,924
<PP&E> 84,533 90,363
<DEPRECIATION> (40,786) (45,814)
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0 0
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<TOTAL-COSTS> 62,410 37,530
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<INTEREST-EXPENSE> 746 392
<INCOME-PRETAX> 8,756 7,194
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<NET-INCOME> 5,293 4,460
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