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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27555
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ILLUMINET HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-4042177
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4501 INTELCO LOOP, LACEY, WASHINGTON 98503
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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(360) 493-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price on January 31, 2000 of $50.38 per share, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $225,294,322 for Common Stock and an aggregate of $1,097,165,564
when giving effect to the April 5, 2000 conversion of Class A Common Stock.
At January 31, 2000, 4,485,000 shares of Common Stock, $0.01 par value per
share, and 6,344,134 shares of Class A Common Stock, $0.01 par value per share
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III, Items 10, 11, 12 and 13 are incorporated by reference from the
Illuminet Holdings, Inc. Proxy Statement related to the Annual Meeting of
Stockholders to be held on May 5, 2000.
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ILLUMINET HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 18
Item 6. Selected Consolidated Financial Data........................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 21
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 28
Item 11. Executive Compensation...................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13. Certain Relationships and Related Transactions.............. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 28
Signatures............................................................. 29
Index to Consolidated Financial Statements and Supplementary Data...... F-1
Exhibit Index.......................................................... E-1
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PART I
ITEM 1: BUSINESS
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 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 will not update forward-looking statements.
You should understand that many important factors 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, and
cyclical and seasonal fluctuations in our operating results. All written and
oral forward-looking statements made in connection with this Form 10-K which are
attributable to Illuminet or persons acting on its behalf are expressly
qualified in their entirety by "Risks and Uncertainties" and other cautionary
statements and disclosures regarding our business included herein.
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 nearly 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 more than 700 network
customers, including incumbent local exchange carriers, competitive local
exchange carriers, long distance companies, wireless telecommunications
providers and Internet service providers.
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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 most of 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 awards for our
industry expertise. 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 would be 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. 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 enhance 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 Cisco
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and Lucent, 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.
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 have worked 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
while lowering their costs. We intend to continue positioning 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. Additionally, we may seek
to acquire companies that have developed telecommunication-related
services that will enable our customers to expand their service and
product offerings and to differentiate themselves from their competitors.
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.
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ANATOMY OF THE SS7 NETWORK
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 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 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
The majority of our products and services is 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 license specially
designed software for measuring network usage.
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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 230 of the 237 local
access and transport areas and major independent local exchange carrier
regions 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.
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. We are 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
carriers' 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 caller identification or calling name delivery access and
transport. Each of these services uses our SS7 network to access our databases
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
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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. Wireless carriers have not been mandated to port telephone
numbers between carriers until November 2002. Today they are responsible for
routing ported telephone numbers when completing calls to ported areas. Our
local number portability solution provides wireless carriers with this routing
information today.
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;
- a local service management system that is the hardware and software
database platform necessary to manage customer call routing information;
- data access to the appropriate local number portability service control
point for the information necessary to complete a call; and
- wireless number portability.
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 containing
over 21 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 or
calling name delivery 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
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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;
- 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
Agilent Technologies, Inc. (f/k/a 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.
OUR NETWORK
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.
Our leases generally have renewable two year terms. If a signal transfer
point lease is terminated, we may continue to use the capacity for up to one
year 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
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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 230 of the nation's 237 local access and
transport areas and major independent local exchange carrier regions, 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 December
31, 1999, we provided signaling for approximately 18,400 trunk groups providing
customers with local access and transport area access.
We connect our customers to our nationwide SS7 network through links to our
signal transfer points. As of December 31, 1999, we had approximately 1,900
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 15 direct salespeople and two telemarketers.
Eleven of these salespeople are located in our Overland Park office, with four
regional account managers located strategically throughout the United States. In
addition to our direct sales force, we maintain a customer care center with 12
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.
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 46% of our revenues for the year ended December 31,
1999, and no customer represented more than 8% of our revenues in that year. As
of December 31, 1999, in addition to 320 independent telephone companies, our
customer base includes 82 wireless carriers, 204 competitive local exchange
carriers and 90 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
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wireless carriers. Our intelligent network services customers include
Frontier (a Global Crossing company), 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 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 could result in price reductions,
reduced margins and loss of market share. We currently compete with only one
other significant company, National Exchange Carrier 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.
11
<PAGE> 12
EMPLOYEES
As of December 31, 1999, we had 317 employees, of whom 207 were engaged in
operations, 61 were engaged in sales and marketing, and 49 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.
RISKS AND UNCERTAINTIES
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; and
- errors by our employees or third-party service providers.
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.
12
<PAGE> 13
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 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
Agilent Technologies, Inc. (f/k/a 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, which may reduce our cash available for operations
and other uses, or issue equity securities, which may dilute the
ownership interests of existing stockholders; 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 customers will
13
<PAGE> 14
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,
some 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 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.
We sell our products and services primarily to traditional
telecommunications companies. Emerging companies are providing convergent
Internet protocol-based telecommunications 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 COMPETITIVE AND
MANY OF OUR COMPETITORS HAVE SIGNIFICANT ADVANTAGES THAT COULD ADVERSELY AFFECT
OUR BUSINESS.
We compete in markets that are competitive and rapidly changing. Increased
competition could result in 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
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<PAGE> 15
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 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 Agilent Technologies, Inc. (f/k/a
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 Agilent 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 Agilent.
THERE IS A LIMITED MARKET FOR OUR EXISTING NETWORK USAGE SOFTWARE
APPLICATIONS.
We derive only a small portion of our revenues 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.
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<PAGE> 16
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 networks or offer an expanded range of
services.
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.
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, or customer decisions
to deploy in-house technology;
- 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.
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<PAGE> 17
OUR COMMON STOCK PRICE MAY BE VOLATILE.
In recent years, the market for stock in technology, telecommunications and
computer companies has been highly volatile. The Common Stock price 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
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 until April 5, 2000. The holders of 3,952,995
shares of Class A Common Stock (15,811,980 shares on an as if converted basis)
have agreed not to sell their shares until April 5, 2000 (when each share of
Class A Common Stock converts into four shares of Common Stock) without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters in our initial public offering. The remaining 2,391,139 shares of
our Class A Common Stock (9,564,556 shares on an as if converted basis) will not
be tradable in the public market until April 5, 2000 when each share of Class A
Common Stock automatically converts into four shares of Common Stock. We
currently have 4,485,000 shares of Common Stock outstanding and 6,344,134 shares
of Class A Common Stock outstanding which will convert into 25,376,536 shares of
Common Stock on April 5, 2000. Common Stock shares issued on the conversion of
Class A Common Stock will be freely transferable without restriction under the
Securities Act, unless they are held by persons that have control relationships
with us. We will also have reserved an additional 3,804,941 shares of Common
Stock for issuance under our stock option plan. The shares reserved for issuance
under our stock option plan are also available to be sold in the public market.
ITEM 2: PROPERTIES
Our headquarters and a portion of our operations center are located in
Lacey, Washington, where we own our 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
("RTFC"). RTFC 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.
We also lease 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 sublease space for
our signal transfer point facilities at Mattoon, Illinois. The sublease expires
on July 31, 2001. We lease space for our signal transfer point facilities at
Rock Hill, South Carolina. The lease expires April 30, 2001.
ITEM 3: 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
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<PAGE> 18
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
At December 31, 1999, Illuminet had outstanding 4,485,000 shares of Common
Stock and 6,344,134 shares of Class A Common Stock. The Class A Common Stock is
not publicly traded. On April 5, 2000, each share of Class A Common Stock will
automatically be converted into four shares of Common Stock, (25,376,536 total
shares) and will be freely transferable unless they are held by persons that
have a control relationship with Illuminet.
Illuminet's Common Stock trades on The Nasdaq Stock Market ("NASDAQ") under
the symbol "ILUM". The following table reflects the range of the high and low
closing prices for the period from October 7, 1999 (the closing of Illuminet's
initial public offering at $19 per share) to year end, as reported by NASDAQ.
This table reflects inter-dealer prices, without retail mark-up, mark-down or
commission.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1999 HIGH LOW
----------------------------------- ------ ------
<S> <C> <C>
October 7, 1999 to December 31, 1999....................... $57.25 $28.50
</TABLE>
STOCKHOLDERS
As of January 31, 2000, there were 11 stockholders of record of Illuminet
Common Stock and 287 stockholders of record of Illuminet's Class A Common Stock,
excluding shares held in street name by various brokerage firms. Illuminet
estimates that there are approximately 7,200 beneficial owners of Illuminet
Common Stock.
DIVIDEND POLICY
To date, no dividends have been declared. Illuminet currently intends to
retain its earnings for future growth and, therefore, does not anticipate paying
any cash dividends in the foreseeable future.
When authorized by the Illuminet Holdings, Inc. Board of Directors,
payments of dividends require approval by RTFC, under long-term debt
arrangements with RTFC, unless Illuminet's ratio of equity to total assets
exceeds 40%.
USE OF PROCEEDS
Illuminet expects to use the net offering proceeds from its October 1999
initial public offering, Registration Statement No. 333-85779, effective October
7, 1999, to fund potential acquisitions, to develop new and improved services,
to maintain and expand its network and for general corporate purposes. To date,
none of the net proceeds from the initial public offering has been disbursed.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
We derived the following selected consolidated financial data as of and for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999 from our
consolidated financial statements. 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 for the
years ended December 31, 1997, 1998 and 1999 and the notes to those financial
statements included in this report. Other data are unaudited.
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 $0.9 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.
- Earnings (loss) per share-basic is based on net income divided by the
weighted-average number of common shares outstanding. Earnings (loss) per
share-diluted includes the dilutive effect of outstanding Series A
Preferred Stock, convertible debentures using the as if converted method,
and Common Stock options and Class A Common Stock options calculated
using the treasury stock method. Effective with Illuminet's initial
public offering on October 7, 1999, all existing common stock immediately
prior to the initial public offering was renamed to Class A Common Stock.
Each share of Class A Common Stock will automatically convert into four
shares of Common Stock on April 5, 2000. All share and per share amounts
for the periods presented reflect amounts that would have been reported
had the conversion of the Class A Common Stock into Common Stock occurred
on January 1, 1995.
- 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.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Network services.............. $ 8,438 $ 29,434 $ 44,117 $ 60,274 $ 93,211
Clearinghouse services........ 7,049 7,896 6,723 6,232 5,851
Network usage software
applications............... 1,123 558 3,468 5,406 1,532
Other......................... 494 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues........ 17,104 37,888 54,308 71,912 100,594
Expenses:
Carrier costs................. -- 9,358 15,313 22,983 26,091
Operating..................... 9,547 11,139 14,979 19,768 28,868
Selling, general and
administrative............. 6,764 7,774 8,873 10,287 13,492
Depreciation and
amortization............... 2,846 5,714 7,354 9,372 11,966
----------- ----------- ----------- ----------- -----------
Total expenses........ 19,157 33,985 46,519 62,410 80,417
----------- ----------- ----------- ----------- -----------
Operating income (loss)......... (2,053) 3,903 7,789 9,502 20,177
Interest income................. 271 475 732 834 2,105
Interest expense................ (440) (1,313) (1,540) (1,580) (1,611)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (2,222) 3,065 6,981 8,756 20,671
Income tax provision
(benefit)..................... (707) 112 (676) 3,463 7,666
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (1,515) $ 2,953 $ 7,657 $ 5,293 $ 13,005
=========== =========== =========== =========== ===========
PER SHARE DATA:
Earnings (loss) per
share -- basic................ $ (0.10) $ 0.15 $ 0.36 $ 0.25 $ 0.56
Earnings (loss) per
share -- diluted.............. $ (0.10) $ 0.14 $ 0.32 $ 0.22 $ 0.48
Weighted-average common
shares -- basic............... 14,916,060 19,980,368 21,182,036 21,425,540 23,377,396
Weighted-average common
shares -- diluted............. 14,916,060 23,889,136 25,586,660 25,989,440 27,456,760
OTHER FINANCIAL DATA:
Capital expenditures............ $ 1,579 $ 6,727 $ 10,121 $ 17,870 $ 12,771
OTHER DATA:
Customers....................... 311 417 544 735
Signaling points................ 388 533 686 765
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents....... $ 6,992 $ 12,515 $ 11,167 $ 11,967 $ 22,903
Property and equipment, net..... 12,794 31,377 34,715 43,747 45,129
Total assets.................... 39,398 70,822 78,026 89,450 183,657
Long-term obligations, less
current portion............... 7,638 21,060 18,014 20,742 11,025
Stockholders' equity............ $ 12,419 $ 21,760 $ 30,226 $ 36,192 $ 136,966
</TABLE>
20
<PAGE> 21
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 nearly 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. As of December 31, 1999, our network served more
than 700 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 that facilitate payments 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 long distance carrier detailing the long distance calls made by
the customers of another carrier. We prepare statements to each billing carrier
of its 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 long distance carrier,
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.
21
<PAGE> 22
REVENUES
Our revenues primarily come from the sale of network services, including
SS7 connectivity, switching and transport and the provision of intelligent
network services. To a much 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.
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, consisting primarily of regional Bell operating
companies, have already licensed our product. Therefore, revenues may change
significantly from period to period, depending on the mix of license and
maintenance fees in any given period.
The table below indicates the portion of our revenues attributable to
network services, clearinghouse services and network usage software applications
in the years ended December 31, 1999, 1998, and 1997, together with the
percentage change in revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 % CHANGE 1997 % CHANGE
-------- ------- ---------------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Network services........................... $ 93,211 $60,274 55% $44,117 37%
Clearinghouse services..................... 5,851 6,232 (6) 6,723 (7)
Network usage software applications........ 1,532 5,406 (72) 3,468 56
-------- ------- -------
$100,594 $71,912 40% $54,308 32%
======== ======= =======
</TABLE>
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;
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<PAGE> 23
- 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, sales and marketing 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.
The table below indicates our expenses in the years ended December 31,
1999, 1998, and 1997, together with the percentage change in expenses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 % CHANGE 1997 % CHANGE
------- ------- ---------------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Carrier costs....................... $26,091 $22,983 14% $15,313 50%
Operating........................... 28,868 19,768 46 14,979 32
Selling, general and
administrative.................... 13,492 10,287 31 8,873 16
Depreciation and amortization....... 11,966 9,372 28 7,354 27
------- ------- -------
$80,417 $62,410 29% $46,519 34%
======= ======= =======
</TABLE>
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
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Network services...................................... 93% 84% 81%
Clearinghouse services................................ 6 9 13
Network usage software applications................... 1 7 6
--- --- ---
Total revenues................................ 100 100 100
Expenses:
Carrier costs......................................... 26 32 28
Operating............................................. 29 28 28
Selling, general and administrative................... 13 14 16
Depreciation and amortization......................... 12 13 14
--- --- ---
Total expenses................................ 80 87 86
--- --- ---
Operating income........................................ 20 13 14
Interest income......................................... 2 1 1
Interest expense........................................ (1) (2) (2)
--- --- ---
Income before income taxes.............................. 21 12 13
Income tax provision (benefit).......................... 8 5 (1)
--- --- ---
Net income.............................................. 13% 7% 14%
=== === ===
</TABLE>
23
<PAGE> 24
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES
Network services. Network services, comprised of network connectivity,
which includes message switch and transport, and intelligent network services,
revenues increased by $32.9 million, or 55%, to $93.2 million for the year ended
December 31, 1999 ("1999") from $60.3 million for the year ended December 31,
1998 ("1998"), and by $16.2 million, or 37%, to $60.3 million in 1998 from $44.1
million for the year ended December 31, 1997 ("1997"). These increases were due
to increased customer connections and signaling across our network, substantial
growth in queries processed in the line information, caller identification or
calling name delivery and toll-free databases, and the rollout of local number
portability.
Network connectivity revenues increased by $14.4 million, or 41%, to $49.8
million in 1999 from $35.4 million in 1998, and by $9.8 million, or 38%, to
$35.4 million in 1998 from $25.6 million in 1997. Intelligent network services
revenues increased by $18.5 million, or 74%, to $43.4 million in 1999 from $24.9
million in 1998, and by $6.4 million, or 35%, to $24.9 in 1998 from $18.5
million in 1997. The increases reflect the overall growth in our customer base
and higher caller information services volume as we obtained access to
additional caller information maintained in third-party databases. The remainder
of the increase was due to continued growth in local number portability, which
is expected to slow in 2000, due to competitive pricing pressures for database
access.
Clearinghouse services. Clearinghouse services revenues decreased by $0.3
million, or 6%, to $5.9 million in 1999 from $6.2 million in 1998, and by $0.5
million, or 7%, to $6.2 million in 1998 from $6.7 million in 1997. The decrease
over the three periods was caused by a continued decline in messages processed.
Network usage software applications. Network usage software applications
revenues decreased by $3.9 million, or 72%, to $1.5 million in 1999 from $5.4
million in 1998, and increased by $1.9 million, or 56%, to $5.4 million in 1998
from $3.5 million in 1997. Software maintenance revenues were $1.0 million, $0.8
million, and $0 in 1999, 1998, and 1997, respectively. The remainder of the
variance was caused by software licensing fees. New sales opportunities for
these products in their current form are limited, as many of the customers in
the top tier market, consisting primarily of regional Bell operating companies,
have already licensed our product. Therefore, revenues may vary significantly
from period to period, depending on the mix of license and maintenance fees in
any given period.
EXPENSES
Carrier costs. Carrier costs increased by $3.1 million, or 14%, to $26.1
million in 1999 from $23.0 million in 1998, and by $7.7 million, or 50%, to
$23.0 million in 1998 from $15.3 million in 1997. These increases were 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
through the end of 1998 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 direct links exceeds that of our prior arrangements,
the reliability of our network is enhanced as we gain increased link control and
monitoring capabilities. Over the reported periods, carrier costs have decreased
as a percentage of revenue as network capacity has been leveraged to support
increasing revenues, and network growth has allowed for the realization of
volume discounts.
Operating. Operating expenses increased $9.1 million, or 46%, to $28.9
million in 1999 from $19.8 million in 1998, and by $4.8 million, or 32%, to
$19.8 million in 1998 from $15.0 million in 1997. These increases 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, we recorded
losses of $2.9 million and $1.0 million in 1999 and 1998, respectively, for a
loss on a clearinghouse services contract. We have entered into a new contract
with this customer and recently completed an agreement to settle items in
dispute under the prior contract. No further losses are expected under the prior
contract. Also in 1999, we recorded a $1.5 million impairment loss of the full
amount of a 1995 preferred stock equity investment in a start-up company that
was previously recorded at cost. The recognition
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<PAGE> 25
of this loss was coincident with significant liquidity concerns of the investee,
and the investee's decision to discontinue its historical primary operations and
related uncertainties resulting from a change in the investee's business
strategy and direction.
Selling, general and administrative. Selling, general and administrative
expenses increased by $3.2 million, or 31%, to $13.5 million in 1999 from $10.3
million in 1998, and by $1.4 million, or 16%, to $10.3 million in 1998 from $8.9
million in 1997. These increases were primarily due to the addition of personnel
necessary to support the overall growth of our business, especially in the areas
of customer care and sales.
Depreciation and amortization. Depreciation and amortization expenses
increased by $2.6 million, or 28%, to $12.0 million in 1999 from $9.4 million in
1998, and by $2.0 million, or 27%, to $9.4 million in 1998 from $7.4 million in
1997. These increases reflect the significant investment made in the last two
years for network monitoring and data collection hardware and software, database
applications, and signal transfer point switches. Included in depreciation and
amortization are asset write downs totaling $0.7 million in both 1999 and 1998.
The 1999 write down related to asset obsolescence, and the 1998 write down
related to our early retirement and replacement of two signal transfer points as
part of our network reliability upgrade.
Interest income. Interest income increased by $1.3 million, or 153%, to
$2.1 million in 1999 from $0.8 million in 1998, and by $0.1 million, or 14%, to
$0.8 million in 1998 from $0.7 million in 1997. The 1999 change reflects
increased interest income generated by the investment of $78.3 million of net
proceeds from our mid-October 1999 initial public offering and earnings from
higher cash balances generated from operations beginning in mid-1999.
Interest expense. Interest expense was comparable in 1999, 1998, and 1997.
The components of interest expense changed during the years and reflect
increased interest expense from capital leases completed in late 1998 and
mid-1999, offset by the reduction in interest expense from the conversion of the
redeemable subordinated debentures in October 1999.
Income taxes. Income tax expense increased by $4.2 million, or 121%, to
$7.7 million, an effective tax rate of 37.1%, in 1999 from $3.5 million, an
effective tax rate of 39.6%, in 1998, and by $4.2 million, to $3.5 million in
1998 from a tax benefit of $0.7 million in 1997, an effective tax benefit rate
of (9.6)%. In 1999, the increases were caused by our increase in income, an
increased deferred tax asset valuation reserve of $0.6 million, offset by
one-time credits of $0.8 million. The 1997 provision reflects benefits of $3.2
million comprised primarily of $2.4 million due to the utilization of net
operating loss carryforwards and $0.9 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 provision also reflects federal
alternative minimum taxes that could not 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 equity securities to fund our
operations and capital needs. Currently, our operating activities generate
positive cash flows. 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 address changing markets and
customer needs.
Our working capital (current assets in excess of current liabilities) was
$105.7 million at December 31, 1999. Our cash and cash equivalent balances
included $4.9 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 $92.8 million from $12.9 million at
December 31, 1998, reflects the October 14, 1999 receipt of approximately $78.3
million in cash, net of underwriter discounts, commissions and other offering
costs from our initial public offering. Our initial public offering resulted in
the issuance of 4,485,000 shares of Common Stock. In conjunction with the
offering, all existing common stock immediately prior to the offering was
renamed Class A Common Stock, and all outstanding Series A Preferred Stock
automatically
25
<PAGE> 26
converted into 204,941 shares of Class A Common Stock. On April 5, 2000, each
outstanding share of Class A Common Stock will convert to four shares of Common
Stock. If all Class A Common Stock were converted at December 31, 1999, an
additional 25,376,536 shares of Common Stock would have been outstanding.
On October 4, 1999, we called for redemption all outstanding 7.5%
debentures with approximately $8.4 million in principal amount and accrued
interest. An additional 760,838 shares of Class A Common Stock were issued to
debentureholders who elected to convert their debentures and $0.1 million was
paid for redemption of the principal amount and accrued interest for debentures
that were not converted.
Our property and equipment acquisitions were $12.8 million in 1999.
Expenditures for property and equipment were primarily for network equipment to
expand capacity and enhance reliability, including network monitoring equipment
and local number portability service-related assets. We anticipate capital
expenditures of approximately $25.3 million in 2000.
At December 31, 1999, we had a secured line of credit expiring August 15,
2001 with Rural Telephone Finance Cooperative ("RTFC") that permits us, subject
to certain conditions, 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 December 31, 1999, we had $3.8 million of unused
loan facilities established or committed with RTFC, expiring in the years 2000
and 2001. Long-term secured notes payable to RTFC were $7.5 million at December
31, 1999, with various maturity dates ranging from August 2000 to March 2015.
Also, during 1999, we obtained vendor financing for capital leases related to a
purchase of $2.5 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, and borrowings available under our existing credit agreements will
be sufficient to meet our anticipated capital expenditure and working capital
needs for the foreseeable future. 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 incur 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
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarter or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
As of December 31, 1999, we spent approximately $1.0 million to remedy the
Year 2000 issue by upgrading and replacing certain systems and at this time, do
not expect to incur further significant expenditures. Approximately 90% of these
systems costs were capitalized, and those costs related to Year 2000
modifications, which were only an incremental part of overall software and
hardware upgrades, were expensed.
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 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 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
26
<PAGE> 27
are generally consistent with our past accounting policies and, therefore, there
has been no material impact on our financial condition or operating results. In
June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for Illuminet's year ending
December 31, 2000. Illuminet anticipates that the adoption of this new
accounting standard will not have a material impact on Illuminet's consolidated
financial statements, but continues to evaluate the impact.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates. We are
exposed to this risk in two specific ways. First, we have debt outstanding. Our
secured notes payable to RTFC, which had average borrowings of $9.1 million
during 1999 and was $7.5 million at the end of 1999, 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, at 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
December 31, 1999, our net income and cash flows would decrease by an immaterial
amount.
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 $15.9 million over the past year. Earnings
from these cash equivalents totaled $0.6 million in 1999. Additionally, we have
available-for-sale securities of $79.7 million as of December 31, 1999, which
represent the investment of our initial public offering net proceeds.
Available-for-sale securities are primarily comprised of commercial paper, and
have provided earnings of $1.0 million in 1999, or approximately $4.0 million on
an annualized basis.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Supplementary Data on
page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 28
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statement related to the Annual Meeting of Stockholders to be
held on May 5, 2000 (the "Proxy Statements").
ITEM 11: EXECUTIVE COMPENSATION
Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form
10-K:
(a) 1. Financial Statements.
The consolidated financial statements are listed in the accompanying
Index to Consolidated Financial Statements and Supplementary Data on
page F-1.
2. Financial Statement Schedules.
The financial statement schedule is listed in the accompanying Index to
Consolidated Financial Statements and Supplementary Data on page F-1.
3. Exhibits.
The Exhibits listed in the Exhibit Index on page E-1 are filed as part
of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
None.
(c) Exhibits
The Exhibits listed in the Exhibit Index on page E-1 are filed as part
of this Annual Report on Form 10-K.
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<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lacey, State of Washington, on the 3rd of March, 2000.
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 signatures
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, or him, in any and all capacities, to sign any and all
amendments to this report 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 Exchange Act of 1934, this
report 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 March 6, 2000
- -------------------------------
Theodore D. Berns
/s/ EUGENE L. COLE Director March 3, 2000
- -------------------------------
Eugene L. Cole
/s/ AUBREY E. JUDY Director March 6, 2000
- -------------------------------
Aubrey E. Judy
/s/ KENNETH L. LEIN Director March 3, 2000
- -------------------------------
Kenneth L. Lein
/s/ RICHARD A. LUMPKIN Director March 3, 2000
- -------------------------------
Richard A. Lumpkin
/s/ JAMES S. QUARFORTH Director March 9, 2000
- -------------------------------
James S. Quarforth
/s/ G. I. ROSS Director March 6, 2000
- -------------------------------
G. I. Ross
/s/ JAMES W. STRAND Director March 6, 2000
- -------------------------------
James W. Strand
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GREGORY J. WILKINSON Director March 13, 2000
- -------------------------------
Gregory J. Wilkinson
/s/ ROGER H. MOORE Director, President and Chief Executive Officer March 3, 2000
- ------------------------------- (Principal Executive Officer)
Roger H. Moore
/s/ DANIEL E. WEISS Chief Financial Officer, Secretary and Treasurer March 3, 2000
- ------------------------------- (Principal Financial and Accounting Officer)
Daniel E. Weiss
</TABLE>
30
<PAGE> 31
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ILLUMINET HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Ernst & Young LLP, Independent Auditors, on
Financial Statement Schedule.............................. F-20
Schedule II -- Valuation and Qualifying Accounts............ F-21
</TABLE>
F-1
<PAGE> 32
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, 1999 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, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 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, 1999
in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Seattle, Washington
January 20, 2000
F-2
<PAGE> 33
ILLUMINET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 22,903 $11,967
Available-for-sale securities............................. 79,738 --
Accounts receivable, less allowance for doubtful accounts
of $1,944 ($1,133 in 1998)............................. 30,916 27,155
Deferred income taxes..................................... 1,485 2,101
Prepaid expenses and other................................ 1,458 784
-------- -------
Total current assets.............................. 136,500 42,007
Property and equipment, net................................. 45,129 43,747
Computer software product costs, less accumulated
amortization of $2,345 ($1,784 in 1998)................... 513 1,075
Other assets................................................ 1,515 2,621
-------- -------
Total assets...................................... $183,657 $89,450
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses............... $ 10,822 $ 7,301
Due to customers.......................................... 16,133 16,622
Current portion of obligations under capital leases....... 2,428 1,706
Current portion of long-term debt......................... 1,430 3,458
-------- -------
Total current liabilities......................... 30,813 29,087
-------- -------
Deferred income taxes....................................... 4,853 3,429
Obligations under capital leases, less current portion...... 4,997 5,146
Long-term debt, less current portion........................ 6,028 15,596
Stockholders' equity:
Preferred Stock, par value $.01 per share, authorized
100,000 shares, 4,416 shares designated as Series A,
none outstanding (2,408 in 1998) and 7,000 shares
designated as Series B, none outstanding............... -- --
Common Stock, par value $.01 per share, authorized
150,000,000 shares, issued and outstanding 4,485,000
(none in 1998)......................................... 45 --
Class A Common Stock, par value $.01 per share, authorized
7,200,000 shares, issued and outstanding 6,344,134
(5,365,605 in 1998).................................... 63 54
Additional paid-in capital................................ 103,865 12,712
Deferred stock-based compensation......................... (3,828) (394)
Retained earnings......................................... 36,821 23,820
-------- -------
Total stockholders' equity........................ 136,966 36,192
-------- -------
Total liabilities and stockholders' equity........ $183,657 $89,450
======== =======
</TABLE>
F-3
<PAGE> 34
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Network services.................................. $ 93,211 $ 60,274 $ 44,117
Clearinghouse services............................ 5,851 6,232 6,723
Network usage software applications............... 1,532 5,406 3,468
----------- ----------- -----------
Total revenues............................ 100,594 71,912 54,308
Expenses:
Carrier costs..................................... 26,091 22,983 15,313
Operating......................................... 28,868 19,768 14,979
Selling, general and administrative............... 13,492 10,287 8,873
Depreciation and amortization..................... 11,966 9,372 7,354
----------- ----------- -----------
Total expenses............................ 80,417 62,410 46,519
----------- ----------- -----------
Operating income.................................... 20,177 9,502 7,789
Interest income..................................... 2,105 834 732
Interest expense.................................... (1,611) (1,580) (1,540)
----------- ----------- -----------
Income before income taxes.......................... 20,671 8,756 6,981
Income tax provision (benefit)...................... 7,666 3,463 (676)
----------- ----------- -----------
Net income.......................................... $ 13,005 $ 5,293 $ 7,657
=========== =========== ===========
Earnings per share -- basic......................... $ 0.56 $ 0.25 $ 0.36
=========== =========== ===========
Earnings per share -- diluted....................... $ 0.48 $ 0.22 $ 0.32
=========== =========== ===========
Weighted-average common shares -- basic............. 23,377,396 21,425,540 21,182,036
=========== =========== ===========
Weighted-average common shares -- diluted........... 27,456,760 25,989,440 25,586,660
=========== =========== ===========
</TABLE>
F-4
<PAGE> 35
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A
COMMON CLASS A COMMON PREFERRED ADDITIONAL
------------------ ------------------ --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ --------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.................... -- $-- 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
Conversion of Series A Preferred Stock........ -- -- 204,941 2 (2,408) -- --
Conversion of convertible redeemable
subordinated debentures..................... -- -- 760,838 7 -- -- 8,347
Deferred stock-based compensation............. -- -- -- -- -- -- 4,123
Stock-based compensation expense.............. -- -- -- -- -- -- --
Stock options exercised....................... -- -- 12,750 -- -- -- 394
Issuance of common stock...................... 4,485,000 45 -- -- -- -- 78,289
Net income.................................... -- -- -- -- -- -- --
--------- --- --------- --- ------ --- --------
Balance at December 31, 1999.................. 4,485,000 $45 6,344,134 $63 -- $-- $103,865
========= === ========= === ====== === ========
<CAPTION>
DEFERRED TOTAL
STOCK-BASED RETAINED STOCKHOLDERS'
COMPENSATION EARNINGS EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997.................... $ -- $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
Conversion of Series A Preferred Stock........ -- (2) --
Conversion of convertible redeemable
subordinated debentures..................... -- (2) 8,352
Deferred stock-based compensation............. (4,123) -- --
Stock-based compensation expense.............. 689 -- 689
Stock options exercised....................... -- -- 394
Issuance of common stock...................... -- -- 78,334
Net income.................................... -- 13,005 13,005
------- ------- --------
Balance at December 31, 1999.................. $(3,828) $36,821 $136,966
======= ======= ========
</TABLE>
F-5
<PAGE> 36
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income............................................... $ 13,005 $ 5,293 $ 7,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 11,966 9,372 7,354
Impairment on investment.............................. 1,461 -- --
Stock-based compensation expense...................... 689 507 169
Deferred income taxes................................. 2,040 2,198 (870)
Change in:
Accounts receivable................................... (3,761) (3,337) (2,238)
Trade accounts payable................................ 3,663 (501) 1,212
Due to customers...................................... (489) (309) (2,306)
Other................................................. (1,145) (42) (234)
-------- -------- --------
Net cash provided by operating activities........ 27,429 13,181 10,744
-------- -------- --------
Investing activities:
Purchases of investments................................. (79,738) -- --
Capital purchases........................................ (10,241) (10,380) (10,121)
-------- -------- --------
Net cash used in investing activities............ (89,979) (10,380) (10,121)
-------- -------- --------
Financing activities:
Purchase of subordinated capital certificates related to
notes payable......................................... -- (68) --
Proceeds from issuance of notes payable.................. -- 1,368 --
Proceeds from issuance of Class A Common Stock........... 394 1 --
Proceeds from issuance of Common Stock................... 78,334 -- --
Principal payments on notes payable and capital leases... (5,238) (3,302) (1,835)
Class A Common Stock repurchases......................... (4) -- (136)
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 73,486 (2,001) (1,971)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 10,936 800 (1,348)
Cash and cash equivalents at:
Beginning of year........................................ 11,967 11,167 12,515
-------- -------- --------
End of year.............................................. $ 22,903 $ 11,967 $ 11,167
======== ======== ========
Supplemental cash flow disclosure:
Income taxes paid........................................ $ 4,676 $ 342 $ 226
======== ======== ========
Interest paid............................................ $ 1,860 $ 1,859 $ 1,944
======== ======== ========
Capital acquisitions financed through capital leases..... $ 2,530 $ 7,490 $ --
======== ======== ========
Debentures and Series A Convertible Preferred Stock
converted into Class A Common Stock................... $ 8,356 $ 165 $ 735
======== ======== ========
</TABLE>
F-6
<PAGE> 37
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
database 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.
CASH EQUIVALENTS
Illuminet considers all highly liquid investments of operating cash,
defined as funds generated from ongoing business operations, 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, 1999 and 1998, such
investments included $19.8 million, and $10.0 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, 1999, investments in a fund collateralized by commercial paper
investments totaled $3.1 million. At December 31, 1998, direct commercial paper
investments totaled $2.0 million.
AVAILABLE-FOR-SALE SECURITIES
Illuminet considers the investment of the proceeds and related interest
earnings from its initial public offering to be available-for-sale securities.
Investments classified as available-for-sale securities are reported at fair
value with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as accumulated other
comprehensive income. At December 31, 1999, such investments included, at market
value, $69.7 million invested in commercial paper with an average of 59 days to
maturity and $10.0 million invested in demand notes. There were not any gross
unrealized holding gains or losses at December 31, 1999 and 1998.
F-7
<PAGE> 38
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1999 and 1998, accounts receivable included
$9.0 million and $11.5 million, respectively, of such toll amounts due from
telephone companies. Related amounts due to customers included $11.8 million and
$12.4 million, respectively, for amounts owed to such service providers.
Accounts receivable from these companies are uncollateralized; however,
uncollected amounts may be offset against amounts otherwise due to service
providers.
Concentration of credit risk with respect to trade receivables is limited
due to the diversity of the customer base and geographic dispersion, and is
evidenced by a history of minimal customer account write-offs.
PROPERTY AND EQUIPMENT
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 is provided using the straight-line method
over the estimated useful lives of the assets.
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, 1999, 1998, and 1997, 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 changes in facts and circumstances suggest that the value
has been impaired, an assessment is made of future cash flows and the carrying
value of the related assets will be reduced appropriately based on their
estimated discounted future cash flows.
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 determinable, the
related amounts are collectible, and the software has been delivered.
F-8
<PAGE> 39
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1999, Illuminet earned approximately 13% of its revenues from AT&T and
its affiliates with no single affiliate contributing more than 8% of total
revenue.
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 Common
Stock and Class A Common Stock at the measurement date over the stock option
exercise price. Statement 123 requires companies that continue to follow APB 25
to provide pro forma disclosure of the impact of applying the fair value method
of Statement 123 (refer to Note 6).
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 outstanding common shares, including Class A Common
Stock. The computation of earnings per share-diluted includes the dilutive
effect of outstanding preferred stock, convertible debentures calculated using
the as if converted method, and Common Stock options and Class A Common Stock
options calculated using the treasury stock method. Effective with Illuminet's
initial public offering on October 7, 1999, all existing common stock
outstanding immediately prior to the initial public offering was renamed to
Class A Common Stock. Each share of Class A Common Stock will automatically
convert into four shares of Common Stock on April 5, 2000. All share and per
share amounts have been restated to reflect the conversion of the Class A Common
Stock into Common Stock at the beginning of each period presented.
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 1998 and 1997 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
F-9
<PAGE> 40
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for Illuminet's year ending
December 31, 2000. Illuminet anticipates that the adoption of this new
accounting standard will not have a material impact on Illuminet's consolidated
financial statements, but continues to evaluate that impact.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Land..................................................... $ 912 $ 912
Building and leasehold improvements...................... 7,543 7,156
Equipment and furniture.................................. 4,040 3,435
Network assets........................................... 59,972 51,799
Computer hardware and software........................... 24,839 21,231
------- -------
97,306 84,533
Less: accumulated depreciation........................... 52,177 40,786
------- -------
Property and equipment, net.................... $45,129 $43,747
======= =======
</TABLE>
NOTE 3. LEASES
In 1999 and 1998, Illuminet entered into various capital lease obligations
expiring in 2002 and 2003 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,
-----------------
1999 1998
------- ------
<S> <C> <C>
Network assets............................................ $10,020 $7,490
Less: accumulated amortization............................ 2,465 645
------- ------
Total property and equipment held under capital
leases........................................ $ 7,555 $6,845
======= ======
</TABLE>
F-10
<PAGE> 41
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1999, 1998 and 1997, rent expense was $0.6 million, $0.5 million and $0.4
million, respectively.
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>
2000..................................................... $2,942 $ 604
2001..................................................... 2,942 545
2002..................................................... 2,072 465
2003..................................................... 402 440
2004..................................................... -- 440
Thereafter............................................... -- 440
------ ------
Total minimum lease payments................... 8,358 $2,934
======
Less: amount representing interest (at 8.12%)............ 933
------
Present value of net minimum lease payments.............. 7,425
Less: current installments of obligations under capital
leases................................................. 2,428
------
Obligations under capital leases, less current portion... $4,997
======
</TABLE>
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------ -------
<S> <C> <C>
Various secured notes payable to Rural Telephone Finance
Cooperative ("RTFC") with variable interest rates, 7.00%
at December 31, 1999 (6.15% at December 31, 1998)
payable in quarterly installments, including interest,
each maturing at various dates ranging from August 2000
to March 2015........................................... $7,458 $10,591
Convertible redeemable subordinated debentures
("Debentures") converted and repaid in 1999............. -- 7,474
Debentures, deferred interest payable..................... -- 989
------ -------
7,458 19,054
Less: current portion..................................... 1,430 3,458
------ -------
Total long-term debt............................ $6,028 $15,596
====== =======
</TABLE>
In connection with a call for redemption, Illuminet converted, on October
4, 1999, almost all outstanding Debentures with approximately $8.4 million in
principal and accrued interest and issued 760,838 shares of Class A Common Stock
to debentureholders who elected to convert. A remaining amount of $0.1 million
was paid for redemption of the principal and accrued interest that was not
converted to Class A Common Stock.
Additional borrowings available under the various note agreements with RTFC
aggregated $3.8 million at December 31, 1999 and 1998. 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-
F-11
<PAGE> 42
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $1.0 million and $1.1 million at
December 31, 1999 and 1998, respectively, are carried at cost, and are included
in prepaid expenses and in other long-term assets. The loan agreements contain
certain covenants, the most restrictive of which requires Illuminet to maintain
certain cash flow-to-debt service ratios.
All RTFC loans are currently secured by a first-priority lien 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 $4.9 million and $3.3 million at December 31, 1999,
and 1998, respectively.
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
(7.70% at December 31, 1999), 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, 1999 and 1998.
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.
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>
2000................................ $1,430
2001................................ 675
2002................................ 372
2003................................ 408
2004................................ 448
2005 - 2009......................... 2,983
2010 - 2014......................... 1,142
------
$7,458
======
</TABLE>
NOTE 5. STOCKHOLDERS' EQUITY
Effective October 7, 1999, Illuminet Holdings, Inc. is authorized to issue
up to 157,300,000 shares of capital stock consisting of (i) 150,000,000 shares
of Common Stock, par value $.01 per share, (ii) 7,200,000 shares of Class A
Common Stock, par value $.01 per share, and (iii) 100,000 shares of Illuminet
Holdings, Inc. Preferred Stock, par value $.01 per share. Each share of Common
Stock is entitled to one vote. Prior to the pending April 5, 2000 conversion,
each share of Class A Common Stock is entitled to four votes. The accompanying
financial statements have been retroactively adjusted to reflect the changes to
amounts of authorized shares.
INITIAL PUBLIC OFFERING
On October 14, 1999, Illuminet completed an initial public offering of
4,485,000 shares of its Common Stock and received approximately $78.3 million in
cash, net of underwriter discounts, commissions and other offering costs.
F-12
<PAGE> 43
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CLASS A COMMON STOCK
Immediately prior to the initial public offering, all existing common stock
was renamed to Class A Common Stock. Each share of Class A Common Stock will
automatically convert into four shares of Common Stock on April 5, 2000. If the
Class A Common Stock were converted at December 31, 1999, an additional
25,376,536 shares of Common Stock would have been outstanding. Other than the
conversion feature and voting rights, terms of Class A Common Stock are
identical to those of the Common Stock on an as if converted basis.
SERIES A PREFERRED STOCK
As approved by stockholders on June 21, 1999, all outstanding Series A
Preferred Stock automatically converted into an aggregate total of 204,941
shares of Class A Common Stock at the time of the initial public offering.
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 (" 1/1000") share, and votes
together as a class with Common Stock and Class A Common Stock on matters on
which holders of Common Stock and Class A Common Stock are generally entitled to
vote. Although the Series B Stock ranks superior to Common Stock and Class A
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 and Class A Common Stock,
the only liquidation right of the Series B Stock is that each 1/1000 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 and Class A Common Stock. Series
B Stock was authorized in connection with the establishment of Illuminet's
Shareholder Rights Plan. No such shares were outstanding at December 31, 1999.
DIVIDENDS
Payments of dividends are restricted under Illuminet's long-term debt
arrangements with approval of RTFC required unless Illuminet's ratio of equity
to total assets exceeds 40%. Dividends on Series B Stock are payable as follows:
(1) should Illuminet declare and pay a dividend on Common Stock or Class A
Common Stock, each 1/1000 share of Series B Stock is entitled to receive the
same dividend amount paid on one whole share of Class A Common Stock, (2) $0.01
per whole share of Series B Stock offset by any payments made as a result of a
Class 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 Shareholder
Rights Plan and declared a dividend, issued on November 20, 1998, of one right
for each outstanding share of Common Stock ("Right"). Each Right represents the
right to purchase shares of our Series B Stock. 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 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.
F-13
<PAGE> 44
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
STOCK OPTION PLAN
Illuminet established the 1997 Equity Incentive Plan under which 13% of
outstanding shares of Common Stock are reserved from time to time (3,804,941 at
December 31, 1999) 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, primarily granted to key employees, are generally exercisable ratably
over four years and expire ten years from the date of grant except that options
expire 60 days after termination of employment. Outside Director non-qualified
stock options are generally exercisable on grant, or within twelve months of
grant, and expire ten years from the date of grant. Prior to the initial public
offering, the Board of Directors determined the estimated fair value of Class A
Common Stock as the stock was not publicly traded and a readily ascertainable
market value was not available.
Additional information regarding options granted and outstanding is
summarized as follows. This information includes the effect of Class A Common
Stock options on an as if converted basis:
<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............... 926,016 2.20
---------
Outstanding December 31, 1997 (280,016
exercisable at $2.20 weighted-average
exercise price)............................. 926,016 2.20
Granted at exercise price less than fair value
of Common Stock on grant date............... 1,170,044 2.34
Granted at exercise price equal to fair value
of Common Stock on grant date............... 474,000 4.18
Exercised...................................... (400) 2.20
Forfeited...................................... (57,500) 2.20
---------
Outstanding December 31, 1998 (1,188,660
exercisable at $2.28 weighted-average exercise
price)......................................... 2,512,160 2.63
Granted at exercise price less than fair value
of Common Stock on grant date............... 686,060 7.55
Granted at exercise price equal to fair value
of Common Stock on grant date............... 87,123 17.41
Exercised...................................... (51,000) 2.20
---------
Outstanding December 31, 1999 (1,699,243
exercisable at $4.08 weighted-average exercise
price)......................................... 3,234,343 $ 4.08
========= ======
</TABLE>
Outstanding and exercisable stock options by price range as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.20 - $ 2.36.. 1,999,160 7.90 $ 2.28 1,494,160 $ 2.29
$ 4.18 - $ 4.55.. 551,260 8.15 $ 4.24 204,760 $ 4.30
$ 8.00 - $13.05.. 620,800 9.64 $ 8.20 0 --
$19.00 - $48.44.. 63,123 9.77 $19.07 323 $33.38
--------- ---------
$ 2.20 - $48.44.. 3,234,343 8.31 $ 4.08 1,699,243 $ 2.54
========= ==== ====== ========= ======
</TABLE>
F-14
<PAGE> 45
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 1999, 1998 and 1997, deferred stock-based
compensation for the stock options granted was $4.1 million, $0.6 million and
$0.5 million, respectively, and $0.7 million, $0.5 million and $0.2 million,
respectively, was recognized as stock-based compensation expense.
EMPLOYEE STOCK PURCHASE PLAN
Effective October 7, 1999, Illuminet adopted an Employee Stock Purchase
Plan ("ESPP") for which the last purchase date is October 6, 2001. Eligible
employees may contribute up to 15% of cash compensation toward the semi-annual
purchase of Common Stock. Under the terms of the plan, 700,000 shares of
authorized Common Stock were reserved for purchase at 85% of the fair market
value price at the beginning of the six-month offering period at which an
eligible employee enrolled, or the end of each six-month offering period,
whichever is lower. In no case, can the fair market value price at the beginning
of any six-month offering period be less than $16.15. Through December 31, 1999,
no stock was purchased under this plan, and eligible employees have contributed
$0.2 million toward the first purchase on April 6, 2000.
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 and includes
the effect of Class A Common Stock options on an as if converted basis. The
weighted-average grant date fair value of these options was estimated at the
date of grant using the Minimum Value Option Pricing Model for all options
granted before the initial public offering and the Black-Scholes Option Pricing
Model for all options granted after the initial public offering with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
OCTOBER 7, JANUARY 1,
1999 TO 1999 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 6, ------------------------
1999 1999 1998 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Risk-free interest rate.................... 6.1% 5.7% 5.4% 5.9%
Dividend yield............................. 0% 0% 0% 0%
Expected volatility........................ 70% 0% 0% 0%
Estimated option life...................... 6.99 years 9.07 years 8.47 years 8.54 years
Weighted-average grant date value for
options granted at exercise price less
than fair value of Common Stock on grant
date..................................... -- $9.10 $2.04 $1.40
Weighted-average grant date value for
options granted at exercise price equal
to fair value of Common Stock on grant
date..................................... $13.63 $5.40 $1.54 --
</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) and includes the effect of Class A Common Stock options on an as if
converted basis.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net income -- as reported....................... $13,005 $5,293 $7,657
======= ====== ======
Net income -- pro forma......................... $12,002 $4,796 $7,485
======= ====== ======
Earnings per share -- diluted -- as reported.... $ 0.48 $ 0.22 $ 0.32
======= ====== ======
Earnings per share -- diluted -- pro forma...... $ 0.44 $ 0.20 $ 0.31
======= ====== ======
</TABLE>
F-15
<PAGE> 46
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1999, 1998 and 1997,
contribution expense was approximately $2.0 million, $1.1 million and $1.2
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>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Current:
Federal......................................... $5,535 $1,077 $ 193
State........................................... 91 188 --
Deferred:
Federal......................................... 2,170 2,076 (821)
State........................................... (130) 122 (48)
------ ------ -----
Total income tax provision (benefit).............. $7,666 $3,463 $(676)
====== ====== =====
</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, 1999 and 1998, such
differences primarily related to the use of accelerated depreciation and
amortization for tax purposes, accruals for certain expenses that are not
currently deductible for tax purposes until paid, the tax basis of certain
investments that have been written off for financial statement purposes and
software development costs that were capitalized for financial statement
purposes. December 31, 1998 also included net operating loss carryforwards and
tax credit carryforwards that were fully utilized in 1999.
During 1999, Illuminet recorded an additional valuation allowance related
to the write down of a preferred stock equity investment based on a change in
the investee's business strategy and direction and fully utilized all federal
net operating loss carryforwards and tax credit carryforwards. 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. During
the year ended December 31, 1997, the valuation allowance decreased $3.1 million
primarily through utilization of net operating loss carryforwards and the
reversal of substantially all of the previously recorded deferred tax valuation
allowance due to improved anticipated operating results.
F-16
<PAGE> 47
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.............. $7,316 $2,977 $ 2,373
State income taxes, net of federal tax
benefit....................................... (26) 205 --
Utilization of net operating loss
carryforward.................................. -- -- (2,373)
Alternative minimum tax......................... -- -- 193
Additional (reversal of) valuation allowance.... 565 -- (869)
Other........................................... (189) 281 --
------ ------ -------
Income tax provision (benefit).................. $7,666 $3,463 $ (676)
====== ====== =======
</TABLE>
The components of the deferred tax assets as of December 31 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 251 $ 1,454
Tax credit carryforwards............................... -- 1,368
Allowance for doubtful accounts........................ 739 408
Contract loss provision................................ 760 151
Deferred stock-based compensation...................... 508 227
Loss on impairment..................................... 555 --
Other non-deductible accruals.......................... 824 1,059
Valuation allowance.................................... (745) (180)
------- -------
Net deferred tax assets........................ 2,892 4,487
------- -------
Deferred tax liabilities:
Excess tax over book depreciation and amortization..... (6,246) (5,801)
Other.................................................. (14) (14)
------- -------
Total deferred tax liabilities................. (6,260) (5,815)
------- -------
Deferred tax liability, net.............................. $(3,368) $(1,328)
======= =======
</TABLE>
F-17
<PAGE> 48
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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) and includes the
effect of Class A Common Stock on an as if converted basis:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Numerator for earnings per share-
basic -- net income............ $ 13,005 $ 5,293 $ 7,657
Effect of dilutive securities --
Debenture interest, net of
tax............................ 291 427 498
----------- ----------- -----------
Numerator for earnings per share-
diluted -- net income after
assumed conversions............ $ 13,296 $ 5,720 $ 8,155
=========== =========== ===========
Denominator:
Denominator for earnings per
share-
basic -- weighted-average
shares......................... 23,377,396 21,425,540 21,182,036
Weighted-average effect of
dilutive securities:
Stock options.................. 1,134,656 549,308 --
Debentures..................... 2,331,484 3,187,456 3,528,292
Series A Stock................. 613,224 827,136 876,332
----------- ----------- -----------
Dilutive potential common
shares....................... 4,079,364 4,563,900 4,404,624
----------- ----------- -----------
Denominator for earnings per
share-diluted -- adjusted
weighted-average shares and
assumed conversions............ 27,456,760 25,989,440 25,586,660
=========== =========== ===========
Earnings per share -- basic......... $ 0.56 $ 0.25 $ 0.36
=========== =========== ===========
Earnings per share -- diluted....... $ 0.48 $ 0.22 $ 0.32
=========== =========== ===========
</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. 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 11. RELATED PARTY TRANSACTIONS
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 $2.1 million, $1.7 million and $1.6 million
for the years ended December 31, 1999, 1998, and 1997, respectively.
F-18
<PAGE> 49
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included in accounts receivable at December 31, 1998 is $0.2 million (none
in 1999), 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 $0.4
million, $0.8 million, and $0.5 million for the years ended December 31, 1999,
1998, and 1997, respectively. Included in 1999 operating expenses is a $1.5
million impairment loss of the full amount of a 1995 investment in this start-up
company that was previously recorded at cost. The recognition of this loss was
coincident with significant liquidity concerns of the investee, and the
investee's decision to discontinue its historical primary operations and related
uncertainties resulting from a change in the investee's business strategy and
direction.
NOTE 12. QUARTERLY RESULTS (UNAUDITED)
The following quarterly financial data has been prepared from Illuminet's
financial records without audit, and in the opinion of management, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly Illuminet's results of operations for those periods when
considered in conjunction with our audited consolidated financial statements and
the notes to those financial statements included in this report. Earnings per
share-basic and earnings-per share diluted include the effect of Class A Common
Stock on an as if converted basis. Quarterly information may not total the
annual amounts in some instances because of rounding.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................. $ 15,073 $ 16,513 $ 18,735 $ 21,591
Operating income.......... 1,699 2,264 2,409 3,130
Income before income
taxes................... 1,636 2,103 2,142 2,875
Net income................ $ 1,047 $ 1,304 $ 1,295 $ 1,647
Earnings per
share -- basic.......... $ 0.05 $ 0.06 $ 0.06 $ 0.08
Earnings per
share -- diluted........ $ 0.05 $ 0.05 $ 0.05 $ 0.07
Weighted-average common
shares -- basic......... 21,388,324 21,388,324 21,462,020 21,462,284
Weighted-average common
shares -- diluted....... 25,637,212 25,997,580 25,982,984 25,935,444
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................. $ 21,603 $ 23,513 $ 26,769 $ 28,709
Operating income.......... 3,949 3,637 5,875 6,716
Income before income
taxes................... 3,759 3,435 5,674 7,803
Net income................ $ 2,331 $ 2,129 $ 3,518 $ 5,027
Earnings per
share -- basic.......... $ 0.10 $ 0.10 $ 0.16 $ 0.17
Earnings per
share -- diluted........ $ 0.09 $ 0.09 $ 0.14 $ 0.16
Weighted-average common
shares -- basic......... 21,463,972 21,466,920 21,473,440 29,042,896
Weighted-average common
shares -- diluted....... 26,097,456 26,143,140 26,606,200 30,973,828
</TABLE>
F-19
<PAGE> 50
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, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
January 20, 2000 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule listed in Item 14(a) of this Form
10-K. 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
January 20, 2000
F-20
<PAGE> 51
ILLUMINET HOLDINGS, INC.
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, 1999
Allowance for doubtful accounts..... $1,133 $1,316 $-- $(505) $1,944
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
</TABLE>
F-21
<PAGE> 52
ILLUMINET HOLDINGS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
3.1 Certificate of Incorporation of Illuminet Holdings, Inc. as
amended
3.2 Amendment to Certificate of Incorporation dated October 7,
1999
3.3 Bylaws of Illuminet Holdings, Inc. as amended on August 20,
1999
4.1 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
4.2 Amendment No. 2 to Rights Agreement
10.1 Illuminet Holdings, Inc. 1997 Equity Incentive Plan as
amended
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 Employment Agreements with Messrs. Moore, Kremian, Johnson
and Nicol
21.1 Subsidiaries of Illuminet Holdings, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
E-1
<PAGE> 1
EXHIBIT 3.1
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 3.2
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
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 stockholders 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 Incorporation of the Corporation be
amended by deleting the first six paragraphs of Article FOURTH as they now exist
and inserting in lieu thereof the following:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is One Hundred Fifty Seven
Million Three Hundred Thousand (157,300,000) shares of stock, of which
One Hundred Thousand (100,000) shares shall be Preferred Stock, par
value $.01 per share ("Preferred Stock"), One Hundred Fifty Million
(150,000,000) shares shall be Common Stock, par value $.01 per share
("Common Stock"), and Seven Million Two Hundred Thousand (7,200,000)
shares shall be Class A Common Stock, par value $.01 per share ("Class A
Common Stock").
Each share of the Corporation's common stock outstanding on the
date of effectiveness of this Article FOURTH shall automatically be
reclassified into one share of Class A Common Stock, without any further
action by the Corporation or any holder of stock of the Corporation.
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 or series
of stock 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 such voting
<PAGE> 2
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing
for the issue of such Preferred Stock adopted by the Board of Directors
of the Corporation pursuant to the Board's authority to do so, which is
hereby expressly vested in the Board.
SUBDIVISION B. COMMON STOCK.
1. DIVIDENDS AND LIQUIDATION. Subject to those rights expressly
granted to the holders of Preferred Stock and the holders of Class A
Common 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, together with Class A Common
Stock at any and all meetings of the stockholders of the Corporation, on
all propositions before such meetings.
<PAGE> 3
SUBDIVISION C. CLASS A COMMON STOCK.
1. DIVIDENDS AND LIQUIDATION. Subject to those rights expressly
granted to the holders of Preferred Stock, the holders of Class A Common
Stock shall have (a) the right to receive, together with the holders of
Common Stock, dividends, when and as declared by the Board of Directors
of the Corporation for the holders of Common Stock out of the assets of
the Corporation available for the payment of dividends under the laws of
the State of Delaware; provided, however, that in determining the amount
of the dividends payable to the holders of Common Stock and the holders
of Class A Common Stock in the event of any such declaration, holders of
Class A Common Stock shall be entitled to the amount of dividends to
which they would have been entitled had the conversion of Class A Common
Stock into Common Stock described below taken place immediately prior to
such declaration; and (b) upon any liquidation (complete or partial),
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the right to receive, together with the holders of Common
Stock, 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 and Class A
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; provided, however, that in determining the amount of
assets to be received by the holders of Common Stock and the holders of
Class A Common Stock in the event of any such liquidation, dissolution
or winding up of the Corporation, holders of Class A Common Stock shall
be entitled to the amount of assets to which they would have been
entitled had the conversion of Class A Common Stock into Common Stock
described below taken place immediately prior to such liquidation,
dissolution, or winding up of the Corporation.
2. VOTING. Each share of Class A Common Stock shall entitle the
holder thereof to vote, in person or by proxy, together with Common
Stock at any and all meetings of the stockholders of the Corporation, on
all propositions before such meetings. In any such vote, the holders of
Class A Common Stock shall be entitled to that number of votes to which
they would have been entitled had the conversion of Class A Common Stock
into Common Stock described below taken place immediately prior to such
vote; provided, however, that if at the time of any such vote no shares
of Common Stock are outstanding, each share of Class A Common Stock
shall entitle the holder thereof to one vote.
<PAGE> 4
3. AUTOMATIC CONVERSION INTO COMMON STOCK. On the date that is
one hundred eighty-one (181) days following the date of the final
prospectus for a firmly 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, in which the gross proceeds to the Corporation (before
underwriting discounts, commissions and fees) are at least $30,000,000
(the "IPO"), each outstanding share of Class A Common Stock shall,
without any further action by the Corporation or any holder of shares of
Class A Common Stock, automatically convert into that number of shares
of Common Stock set forth by the Board of Directors in a resolution
adopted prior to the closing of the IPO, which resolution shall be filed
with the Secretary of the Corporation and made available to any
stockholder who so requests. The conversion ratio shall be set by the
Board of Directors after having received the advice of the IPO
underwriters as to the appropriate number of shares of Common Stock into
which each share of Class A Common Stock should be converted."
FURTHER RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by deleting the first sentence of Article SIXTH as it now
exists and inserting in lieu thereof the following:
"SIXTH: The number of directors of the Corporation which shall
constitute the entire Board shall be not less than five (5) nor more
than sixteen (16), with the exact number to be set by resolution adopted
by a majority of the entire Board from time to time; provided, however,
that the number of directors constituting the 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 Class I directors shall expire at the 2000 Annual Meeting of
Stockholders; that of the Class II directors at the 2001 Annual Meeting
of Stockholders; and that of the Class III directors at the 2002 Annual
Meeting of Stockholders. At each annual meeting, 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."
FURTHER RESOLVED, that the Certificate of Designation of Series A
Convertible Preferred Stock of the Corporation be amended by deleting Section
5(a) as it now exists and inserting in lieu thereof the following:
"(a) Each share of this Series shall be convertible into 85.12 shares of
Class A Common Stock, par value $.01 per share, of the Corporation
(the "Conversion Amount"), at the option of the
<PAGE> 5
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."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed this ____ day of October, 1999.
ILLUMINET HOLDINGS, INC.
By:
--------------------------------------
Name: Roger H. Moore
Title: President & CEO
<PAGE> 1
EXHIBIT 3.3
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
2
<PAGE> 3
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.
3
<PAGE> 4
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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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 7
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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<PAGE> 8
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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<PAGE> 9
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
10
<PAGE> 11
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> 14
SECOND AMENDMENT TO THE BY-LAWS
OF
ILLUMINET HOLDINGS, INC.
Pursuant to a special meeting of the Board of Directors of Illuminet
Holdings, Inc., a Delaware corporation (the "Corporation"), dated August 20,
1999, the By-Laws of the Corporation are hereby amended as follows:
1. The first paragraph of Article II, Section 1 of the By-Laws is hereby
amended and restated in its entirety to read as follows:
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 4501 Intelco Loop S.E., Lacey, Washington on the first Monday in
June.
2. Article III, Section 5 of the By-Laws is hereby amended and restated
in its entirety to read as follows:
SECTION 5. REMOVAL. 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.
3. Article V, Section 1 of the By-Laws is hereby amended and restated in
its entirety to read as follows:
SECTION 1. CERTIFICATES FOR SHARES. The shares of the Corporation
shall be represented by a certificate or shall be uncertificated. Certificates
shall be signed by, or in the name of the Corporation by, the chairman or
vice-chairman of the Board of Directors, or the president or a vice-president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the Corporation. Within a reasonable time after the issuance or
transfer of uncertificated stock, the Corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a)
or a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Any of all the signatures on a certificate may be facsimile. In
case any office, transfer agent or registrar who has signed or
<PAGE> 15
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
IN WITNESS WHEREOF, the By-Laws are so amended as of this 20th day of
August, 1999.
--------------------------------------------
Secretary
<PAGE> 1
EXHIBIT 4.1
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>
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<TABLE>
<CAPTION>
Page
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<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
<PAGE> 10
(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
7
<PAGE> 11
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.
8
<PAGE> 12
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.
9
<PAGE> 13
(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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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
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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
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<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.
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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
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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 "Acquiring 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 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
EXHIBIT 4.2
SECOND AMENDMENT TO RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made and
entered into this 7th day of October, 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, as amended (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 respective
agreements set forth in the Agreement, the parties hereby agree as follows:
1. The following definitions shall be added to Section 1.1:
"Class A Common Stock" shall mean the Company's Class A Common
Stock, par value of $.01 per share, as set forth in the Company's
Certificate of Incorporation.
"Conversion Date" shall mean the date on which shares of Class A
Common Stock automatically convert into shares of Common Stock as
set forth in the Company's Certificate of Incorporation.
"Conversion Ratio" shall mean the number of shares of Common
Stock into which the Class A Common Stock shall automatically
convert on the Conversion Date.
2. There is hereby added to the Agreement the following Section
5.19:
5.19 Class A Common Stock Creation and Conversion. The
following provisions relate to the restructuring of the Company's
capital stock on October 7, 1999:
(a) Concurrent with the filing of an amendment to the
Company's Certificate of Incorporation on October 7, 1999 (the
"Amendment"), all existing shares of common stock of the Company
were automatically reclassified, changed and converted into Class
A Common Stock and the Company created a new class of common
stock designated as Common Stock. In accordance with the terms of
the Amendment, at the Conversion Date, the Class A Common Stock
will convert automatically into Common Stock at the Conversion
Ratio.
(b) Prior to the earliest of the Distribution Date, the
Redemption Date or the Conversion Date, certificates for shares
of
<PAGE> 2
Class A Common Stock shall evidence one Right for each share of
Class A Common Stock represented thereby and shall entitle the
holder to purchase the number of shares of Common Stock set forth
in (c) below and shall have impressed on, printed on, written on
or otherwise affixed to them the legend set forth in Section 2.1
hereof.
(c) All Rights that have attached to any shares of common
stock of the Company outstanding prior to the Amendment (which
shares are now designated as Class A Common Stock) as set forth
in this Agreement shall be exercisable in accordance with the
provisions hereof for the number of shares of Common Stock equal
to the Conversion Ratio.
(d) Any Rights that are automatically issued pursuant
hereto with respect to additional shares of Class A Common Stock
issued after the date hereof, shall also be adjusted in the same
manner as referenced in 5.19(c).
(e) Rights that automatically attach upon the issuance of
Common Stock shall not be adjusted as described above.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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:__________________________________
2
<PAGE> 1
EXHIBIT 10.1
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.
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<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
-5-
<PAGE> 6
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
-6-
<PAGE> 7
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,
-7-
<PAGE> 8
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
-8-
<PAGE> 9
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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<PAGE> 15
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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<PAGE> 16
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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<PAGE> 17
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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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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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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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.
- 2 -
<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:
- 4 -
<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> 26
AMENDMENT NO. 1
TO
ILLUMINET HOLDINGS, INC.
1997 EQUITY INCENTIVE PLAN
Pursuant to Section 10.1 of the Illuminet Holdings, Inc. (the "Company")
1997 Equity Incentive Plan, adopted October 29, 1997 and amended April 29, 1998
(the "Plan"), the Board of Directors of the Company hereby amends the Plan as
follows:
Section 4.1 of the Plan is hereby amended and restated in its entirety
to read as follows:
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 equal thirteen percent (13%) of the total shares of
the Company that may be outstanding from time to time, so that
as additional Shares are issued by the Company, or as Shares are
redeemed and cancelled by the Company, the number of Shares
available for grant under this Plan shall increase or decrease,
respectively, by thirteen percent (13%) of the number of Shares
so issued or redeemed and cancelled. Shares granted under this
Plan may be either authorized but unissued Shares or treasury
Shares, or any combination thereof.
IN WITNESS WHEREOF, the Plan is so amended as of this 9th day of
September, 1999.
By:_____________________________________________
Name: Roger H. Moore
Title: President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.2
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.
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<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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<PAGE> 6
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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<PAGE> 7
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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<PAGE> 8
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
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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.
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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.
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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
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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
EXHIBIT 10.3
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
EXHIBIT 10.4
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
3
<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
4
<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.
5
<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
EXHIBIT 10.5
November 14, 1995
Mr. Roger H. Moore
1821 Kings Isle Drive
Plano, Texas 75093
Dear Roger:
I am writing on behalf of the boards of directors of USIH and Independent
Telecommunications Network to offer you employment as president and chief
executive officer of USTN, a new company to be formed by the merger of USIH and
ITN. This offer is on the terms generally described below and will be the
subject of an employment agreement to be entered into between you and USTN.
You will be paid an annual salary of $225,000 per year with an annual bonus
opportunity of 50% of base salary to be determined based on an evaluation of
progress toward specific goals and personal performance. You will also have a
long term bonus opportunity in the form of cash or equity which will be
calculated based on the increase in value achieved under your direction as we
discussed in Orlando. I am currently seeking the advice of specialists as to how
best to structure this element of your compensation. We have agreed, however,
that this benefit will vest at 20% per year.
We have also discussed the unlikely event that the proposed merger will not take
place. In that event, you may elect to resign and you will be paid a termination
settlement of $450,000. Should the merger take place and you are subsequently
terminated without cause or elect to resign as the result of a subsequent change
of control, you will be entitled to a termination settlement equal to your base
salary in effect at that time.
You will be eligible to participate in the corporation's medical plan and 401K
retirement plan. You will be entitled to four weeks vacation. Should it be
determined that the corporate office should be located other than in the Dallas
area, you will be reimbursed for the normal costs of relocation.
It is my understanding that you are available to commence work as of December 1,
1995. I am looking forward to working with you to finalize an employment
agreement and to introducing you to the employees of USIH and ITN.
Sincerely,
Richard A. Lumpkin
Chairman
Independent Telecommunications Network
<PAGE> 2
EXHIBIT 10.5
October 8, 1997
Mr. Terry Kremian
1604 145th Place S.E.
Millcreek, WA 98012
Dear Terry:
It is a pleasure to offer you the position of Vice President-Sales and Marketing
for Illuminet beginning no later than December 1, 1997. Your starting salary
will be $145,000 and you will be eligible for an annual bonus of up to 40% of
your salary depending upon attainment of a combination of corporate and
individual performance objectives. A copy of the short-term bonus plan is
attached.
You will receive a bonus of $25,000 upon joining the company and, if approved by
the Board of Directors, will be eligible for a long-term stock option program
for officers and directors. This program will be presented for approval by the
Board of Directors in late October. I anticipate the initial grant to be
approximately 20,000 shares.
The company will provide up to $800.00 per month for a 1 bedroom furnished
apartment in Olympia to assist you in your relocation. The apartment will be
provided for up to 9 months. The company will also reimburse you for reasonable
expenses to cover the sale of your home, the purchase of a new home and
transportation of household goods. As we discussed, your relocation package will
not include reimbursement for any loss on the sale of your existing home.
If you are terminated, except for cause, within a two year period from your date
of hire, you will be given a separation payment equal to 6 months of your base
salary.
I'm looking forwarding to working with you and to your contribution to the
growth of Illuminet.
Please acknowledge the acceptance of this offer by signing and returning one
copy of this letter to me.
Sincerely,
Roger H. Moore
President & CEO
I acknowledge and accept this offer.
------------------------------------
Terry Kremian
<PAGE> 3
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
Agreement dated this 1st day of June, 1992, by and between Independent
Telecommunications Network, Inc. ("ITN"), a Delaware corporation with its
offices at 47th at Main Street, Kansas City, Missouri 64112; and Bruce Johnson
("Johnson").
RECITALS:
- ITN is developing and implementing a signaling network based on
Signaling System 7 (SS7) protocol;
- Mr. Johnson has special skills, knowledge, abilities, and experience
in the areas of operations and engineering involving
telecommunications;
- ITN has extended to Mr. Johnson an offer of employment as Vice
President-Operations and Engineering and he has accepted;
- The parties wish to formalize their understanding by entering into
this Employment Agreement.
1. Employment. ITN agrees to engage Mr. Johnson and Mr. Johnson agrees
to serve ITN as its Vice President-Operations and Engineering. Mr. Johnson shall
exert his best efforts and devote substantially all of his time and attention to
ITN's affairs. Mr. Johnson shall be subject to the general direction of ITN's
President.
2. Term. The term of this Agreement shall commence on the date set forth
above and shall continue for one (1) year. Thereafter, the term shall
automatically be extended on an annual basis unless either party gives ninety
(90) days advance written notice of intention to
<PAGE> 4
terminate this Agreement, provided that ITN may terminate this Agreement for
cause prior to the expiration of any term.
3. Compensation. ITN shall pay Mr. Johnson for his services a monthly
salary of Nine Thousand Dollars ($9,000), for a total of One Hundred Eight
Thousand ($108,000) annual salary, subject to withholding for appropriate taxes.
Mr. Johnson shall be given consideration, at least annually, for an increase in
salary in addition to any bonuses earned.
a) Annual Bonus. Mr. Johnson shall have the opportunity to earn
an annual performance bonus, payable within ninety (90) days of the end
of each twelve (12) months of employment. The annual performance bonus
shall be a maximum of twenty percent (20%) of Mr. Johnson's then annual
base pay. Criteria for the annual performance bonus shall be determined
by Mr. Johnson and the President of ITN, and the bonus amount will be
recommended by the President for approval by the Board of Directors. The
Board of Directors shall have the ultimate authority to approve any
recommended bonus.
b) Deferred Bonus. The Board of Directors of ITN shall consider
awarding Mr. Johnson a deferred bonus to a maximum of the ten percent
(10%) of Mr. Johnson's salary annually. The deferred bonus shall be
based on performance. The deferred bonus shall be paid according to the
company's Long Term Incentive Plan, provided that Mr. Johnson is still
an employee of ITN at that time. If Mr. Johnson's employment is
terminated for any reason whatsoever, except for voluntary termination
by Mr. Johnson, any deferred bonus and accumulated investment earnings
shall be paid to Mr. Johnson, or in the event Mr. Johnson is no longer
living, then to his designated beneficiary.
2
<PAGE> 5
The award of a deferred bonus, if any, shall be for the successful
achievement of specific goals for a particular year. The specific goals
shall be mutually determined by the President of ITN and Mr. Johnson.
The Board of Directors of ITN has agreed to an equity based or
alternate deferred compensation plan, such as stock or a substitute for
stock, as an alternative to this deferred bonus.
4. Retirement Benefits. ITN will contribute on Mr. Johnson's behalf to
an approved 401(K) Plan, a maximum of four and one-half percent (4-1/2%) of Mr.
Johnson's annual base salary. ITN will match Mr. Johnson's contributions up to
4-1/2%. Mr. Johnson may contribute beyond that to the maximum allowed by law.
5. Expenses. Mr. Johnson shall be entitled to reimbursement for all
ordinary and necessary business expenses incurred by him in the performance of
his duties. ITN will pay all reasonable expenses relating to relocation of Mr.
Johnson's household, including up to three (3) months of temporary living
expenses at the ITN permanent location. The expense reimbursement and temporary
living expenses are subject to approval by the President of ITN. Included are
necessary realtor's and legal fees, day of move expenses, moving of household
goods, associated points or closing fees, and a stipend of one-half of one
month's salary for miscellaneous expenses associated with the move. ITN will pay
no more than a maximum of Seventy-five Thousand Dollars ($75,000) for these move
expenses. ITN will adjust these payments to compensate for Mr. Johnson's taxes.
6. Vacations. Vacations shall accrue at the rate of one (1) week for
every three (3) months of continuous employment from the time employment
commenced, to a maximum of
3
<PAGE> 6
four (4) weeks per year. Any vacation schedule subsequently adopted by ITN will
supersede this provision.
7. Termination. ITN may terminate Mr. Johnson, with or without cause, at
any time. A termination payment equal to twelve (12) months of base pay shall be
paid to Mr. Johnson if termination is without cause.
Mr. Johnson shall be entitled to appropriate out placement services of a
value not to exceed Ten Thousand Dollars ($10,000) in the event of his
termination for any reason other than a termination for cause.
Upon such termination for cause, the terms of this Agreement shall be
deemed to be terminated at that time.
ITN's absolute right to terminate Mr. Johnson "for cause" shall include
the following grounds for termination:
a) Mr. Johnson's intentional disclosure of confidential information.
b) Substantial failure to reasonably perform or meet reasonable
objectives and measurable standards.
c) Disloyalty, dishonesty, conduct detrimental to ITN's business, or
illegal conduct.
8. Indemnification. ITN shall indemnify Mr. Johnson and hold him
harmless for all acts and decisions made by him in good faith while performing
services for ITN. ITN will also extend coverage to him under any insurance
policy now in effect or hereinafter obtained during the term of this Agreement
covering the other officers and directors of ITN against lawsuits. ITN shall pay
all expenses, including attorney's fees actually and necessarily incurred by Mr.
4
<PAGE> 7
Johnson in connection with the defense of such act, suit, or proceeding and in
connection with any related appeal, including the costs of court settlement.
9. Life Insurance. Provided he is insurable at standard rates, ITN will
provide term group plan life insurance during the term of this Agreement,
insuring the life of Mr. Johnson and payable to his designated beneficiary. Such
life insurance coverage shall be acquired upon employment and will end upon the
termination of this Agreement.
10. Disability. ITN shall provide disability insurance coverage for Mr.
Johnson, provided he is insurable at standard rates, as defined in the company's
group insurance policy. Coverage of such disability insurance shall be acquired
upon employment.
11. Other Benefits. The provisions of this Agreement shall not be in
lieu of any rights, benefits, and privileges to which Mr. Johnson may be
entitled as an employee of ITN under any retirement, pension, profit sharing,
hospitalization, insurance, or other plans which may now be in effect or which
may hereafter be adopted. Mr. Johnson shall have the same rights and privileges
to participate in such plans and benefits as any other employee during his
period of employment.
12. Non-Assignability. Neither Mr. Johnson nor any person claiming an
interest through him shall have any right to anticipate, encumber, or dispose of
any payment under this Agreement. Such payments and accompanying rights are
non-assignable and non-transferable, except as otherwise specifically provided
in this Agreement.
13. Binding Effect. This Agreement shall be binding upon the parties
hereto, their executors, administrators, and successors.
5
<PAGE> 8
14. Entire Agreement. This Agreement supersedes all agreements
previously made between the parties relating to its subject matter. There are no
other understandings or agreements.
15. Notice. Any notice to be delivered under this Agreement shall be
given in writing and delivered personally or by certified mail, postage prepaid,
addressed to the company or to Mr. Johnson at their last known addresses.
16. Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
17. Governing Law. This Agreement shall be governed by the State of
Delaware.
18. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. Signature as indicated below constitutes acceptance of these terms
and conditions.
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
By:
-----------------------------------------
Dennis D. Parker, President
--------------------------------------------
Bruce Johnson
6
<PAGE> 9
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of March 1, 1994, between
Independent Telecommunications Network, Inc. ("ITN"), a Delaware corporation
with its offices at 6th Floor, 8500 W. 110th Street, Overland Park, Kansas 66210
and David J. Nicol (the "Executive").
WHEREAS, ITN and the Executive desire to enter into this agreement for
the purpose of clearly, correctly and completely stating the terms of the
Executive's employment by ITN.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, ITN and the Executive agree as follows:
1. Employment. ITN hereby employs the Executive and the Executive hereby
accepts such employment on the terms and conditions hereinafter set forth.
2. Term. Subject to the respective rights of ITN and the Executive under
Paragraph 9 to terminate his employment, the Executive shall serve ITN for a
period (the "Term of Employment") beginning on March 1, 1994 and continuing for
a period of two years. This Agreement shall renew for a period of one year
unless ITN or the Executive provides notice of intention not to renew to the
other at least ninety days prior to February 28 of any year of its intention to
cancel his Agreement.
3. Duties. The Executive shall serve as Vice President-Planning and
Administration of ITN and shall have such powers and duties as may be prescribed
from time to time by the President and Chief Executive Officer of ITN. During
the Term of Employment the Executive shall devote his full time, attention and
efforts to the business of ITN and shall use his best efforts to promote the
interests of ITN at all times.
4. Compensation.
(a) ITN agrees to pay the Executive for services rendered
hereunder in his capacity as Vice President-Planning and Administration,
an annual base salary (exclusive of any bonus stock award, incentive
payments, imputed income or similar items) of one hundred ten thousand
dollars ($110,000) during the first year of this Agreement. The salary
shall be payable in monthly installments in arrears less any sums which
may be required to be deducted or withheld under the provisions of law.
(b) The Executive shall be eligible for an annual increase in
base salary, based on performance. The amount of the increase in base
salary, if any, shall be determined by the President and approved by the
Board.
(c) The Executive shall be eligible to participate in the ITN
Performance Share Plan for Senior Management and the ITN Long-Term
Incentive Plan for Senior Management. Payments under such plans may be
made in cash or ITN common stock based on the value of ITN common stock
as determined under the ITN Long-Term Incentive Plan for Senior
Management.
(d) ITN agrees to pay the Executive ten thousand dollars
($10,000), less withholding, as a one-time incentive upon the execution
of this Agreement.
<PAGE> 10
5. Benefits. The benefits provided to the Executive in this Agreement
are all available employee benefits. The Executive may also participate in
future benefits such as profit sharing plans, pension plans, and other similar
plans and programs, that ITN, in its sole discretion, may provide to the
Executive.
6. Expenses. ITN shall reimburse the Executive for all reasonable
expenses incurred in connection with the performance of his duties for the
benefit of ITN, within such limits and standards as may from time to time be set
by ITN.
7. Vacation. The Executive shall be entitled to four weeks of vacation
time in each twelve-month period commencing March 1, 1994 (in addition to the
established public or statutory holidays). Upon termination of the Executive's
employment, he shall be entitled to accrued vacation pay (to the extent such
vacation time has not been used) for any vacation days not taken during the year
of termination. Vacation days not taken in any twelve-month period shall be
forfeited and not carried forward.
8. Non Competition and Confidentiality. The Executive acknowledges and
agrees that during the course of his employment by ITN he has obtained or will
obtain access to certain information, know-how, designs, formulas, processes,
technology or other matters relating to Company's business, research, design
activities, manufacturing processes, development, products, or its production,
marketing, accounting or engineering methods, not generally known by the public
or in the relevant industry ("Confidential Information") and that because of
such access, competition by him with ITN could result in material damage to ITN
and might cause it to suffer irreparable damage.
The Executive agrees that during the Term of Employment and for a period
of two years immediately following the Term of Employment, the Executive shall
not directly or indirectly, as an owner, partner, employee, stockholder, officer
or director of any firm or business entity, engage in any business activity in
any state of the continental United States, territory or foreign country in
which ITN does business at the conclusion of the Term of Employment which is the
same as or similar to the business of ITN or any division or subsidiary thereof.
The Executive acknowledges the ITN's "business", as presently conducted, is
described in the most recent business plan.
The Executive also agrees that at all times, whether after termination
of his engagement by Company or otherwise, he will keep in confidence and not
disclose to anyone or make any use of any Confidential Information without ITN's
prior written consent.
The Executive acknowledges and agrees that the observance by him of his
covenants contained in this Paragraph 8 is so important to the continued success
of the business of ITN that in the event of a breach or threatened breach by the
Executive of such covenants ITN will not have an adequate remedy at law, and
accordingly shall be entitled to proceed in equity to obtain specific
enforcement of such covenants, including but not limited to injunctions
restraining the Executive from breaching such covenants; provided that this
sentence shall not be construed as a waiver by ITN of any other remedies
available to it for such breach or threatened breach, including, but not limited
to the recovery of damages from the Executive.
The prohibitions of this Paragraph 8 and any of its provisions are
severable, and a finding by any court that any provision of this Paragraph 8 is
unenforceable shall not affect the validity
2
<PAGE> 11
of any other covenant set forth herein. Additionally, should any court find that
the provisions of this Paragraph 8 are unenforceable, the Executive and ITN
agree that the court may modify the restrictions contained herein and prohibit
the Executive from engaging in such activities as the court finds necessary to
protect ITN's interests.
9. Termination. The Term of Employment or any renewal thereof may be
terminated by ITN at any time or for any reason. Unless such termination is on
account of death or disability of the Executive or for good cause, ITN shall pay
the Executive a "termination payment" as described below. ITN shall be deemed to
have "good cause" to terminate the Executive's employment if ITN determines that
the Executive
(a) has violated Paragraph 8;
(b) has refused or failed to perform the duties of his position
or other duties which have been assigned to him; or
(c) has engaged in dishonesty, conduct detrimental to ITN's
business or illegal conduct.
In the event of a termination for death, disability or good cause, ITN
shall owe the Executive no further salary, benefits or other compensation or any
kind after ITN provides notice to the Executive of termination. The obligations
of the Executive under Paragraph 8 shall survive such termination, whether made
by ITN or by the Executive.
"Termination Payment" means one year's annual base salary exclusive of
any current year bonus, stock award, incentive payments, imputed income or
similar items.
10. Indemnification. ITN shall indemnify the Executive to the maximum
extent permitted by its Certificate of Incorporation and Bylaws and any other
applicable laws and shall hold him harmless for all acts and decisions made by
him in good faith while performing services of ITN. ITN also will extend
coverage to the Executive, provided he is insurable, under any insurance policy
now in effect or hereinafter obtained during the term of this Agreement covering
the other officers and directors of ITN against lawsuits. ITN shall pay all
expenses, including attorney's fees, actually and necessarily incurred by the
Executive in connection with the defense of such act, suit or proceeding and in
connection with any related appeal, including the costs of court settlement.
11. Effectiveness of Agreement. This Agreement shall be binding on and
inure to the benefit of ITN and its successors and assigns. This Agreement shall
be binding upon and shall inure to the benefit of ITN and any successor to ITN,
and any such successor to ITN shall be deemed substituted for ITN under this
Agreement. No assignment by ITN hereunder shall release ITN from its obligations
pursuant to Paragraph 4 hereof in the event ITN's successor fails to satisfy
such obligations. For the purposes of this Agreement, the term "successor" shall
mean any person, firm, corporation or other business entity which at any time,
whether by merger, purchase, liquidation or otherwise, shall acquire all or
substantially all of the assets of ITN. The obligations of the Executive
hereunder are hereby expressly declared to be nonassignable and nontransferable.
3
<PAGE> 12
12. Severability. The failure of any court to enforce any clause,
paragraph or provision of this Agreement shall not adversely affect the validity
or enforceability of any other clause or provision.
13. Entire Agreement. This Agreement sets forth the entire agreement of
the parties with respect to the transactions contemplated hereby and supersedes
all prior agreements, arrangements and understandings with respect thereto
between ITN and the Executive. No modification, amendment, addition to or
termination of this Agreement, nor waiver of any of its provisions shall be
valid or enforceable unless in writing and signed by both parties.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
constitute one instrument.
15. Headings. The underlined headings herein are for convenience only
and shall not affect the interpretation of this Agreement.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas.
17. Notice. Any notice to be delivered under this Agreement shall be
given in writing and delivered personally or by leaving the same at or by
sending the same first-class mail, postage prepaid:
(a) in the case of ITN, at its principal executive office at the
time and to the current Chairman of ITN's Board of Directors; and
(b) in the case of the Executive, at his address on ITN's
records;
(c) in the case of either party, such other address as shall
have been notified in writing to the other of them for the purposes of
service hereunder.
The Executive agrees to notify ITN, in writing, of any change in address
since the date of this Agreement.
WITNESS the following signatures as of the day first above written.
INDEPENDENT TELECOMMUNICATIONS NETWORK, INC.
By
------------------------------------------
David J. Nicol
--------------------------------------------
Dennis D. Parker, President and
Chief Executive Officer
4
<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 incorporation by reference in the Registration Statement (Form
S-8 No. 333-88869) pertaining to the Illuminet Holdings, Inc. 1997 Equity
Incentive Plan and the Illuminet Holdings, Inc. 1999 Stock Purchase Plan of our
reports dated January 20, 2000, with respect to the consolidated financial
statements and schedule of Illuminet Holdings, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
Seattle, Washington
March 14, 2000
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ILLUMINET HOLDINGS, INC. AS OF DECEMBER 31,
1999, AND FOR THE TWELVE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 22,903
<SECURITIES> 79,738
<RECEIVABLES> 32,860
<ALLOWANCES> (1,944)
<INVENTORY> 0
<CURRENT-ASSETS> 136,500
<PP&E> 97,306
<DEPRECIATION> (52,177)
<TOTAL-ASSETS> 183,657
<CURRENT-LIABILITIES> 30,813
<BONDS> 11,025
0
0
<COMMON> 108
<OTHER-SE> 136,858
<TOTAL-LIABILITY-AND-EQUITY> 183,657
<SALES> 0
<TOTAL-REVENUES> 100,594
<CGS> 0
<TOTAL-COSTS> 80,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,889
<INTEREST-EXPENSE> 1,611
<INCOME-PRETAX> 20,671
<INCOME-TAX> 7,666
<INCOME-CONTINUING> 13,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,005
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.48
</TABLE>
