<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-3842
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
USCS INTERNATIONAL, INC.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 94-1727009
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)
</TABLE>
2969 PROSPECT PARK DRIVE
RANCHO CORDOVA, CA 95670-6148
(916) 636-4500
(Address and telephone number of principal executive offices)
JAMES C. CASTLE, PH.D.
CHIEF EXECUTIVE OFFICER
USCS INTERNATIONAL, INC.
2969 PROSPECT PARK DRIVE
RANCHO CORDOVA, CA 95670-6184
(916) 636-4500
(Name, address and telephone number, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GILLES S. ATTIA, ESQ. MARK A. BERTELSEN, ESQ.
KEVIN A. COYLE, ESQ. ANN YVONNE WALKER, ESQ.
Graham & James, LLP Wilson Sonsini Goodrich & Rosati
400 Capitol Mall Professional Corporation
Suite 2400 650 Page Mill Road
Sacramento, CA 95814-4411 Palo Alto, CA 94304-1050
(916) 558-6700 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE ON OR AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
TITLE OF OFFERING MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT BEING PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED SHARE (1) OFFERING PRICE FEE (2)
<S> <C> <C> <C> <C>
Common Stock, Par Value
$.05 per share.......... 5,520,000 Shares $17.00 $93,840,000 $32,359
<FN>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Of which $25,281 was previously paid.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
USCS INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus....................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges............................ Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Principal and Selling Stockholders
8. Plan of Distribution.................................. Underwriting
9. Description of Securities to be Registered............ Description of Capital Stock
10. Interests of Named Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant............ Outside Front Cover Page; Prospectus Summary; Risk
Factors; Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Underwriting; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 29, 1996
PROSPECTUS
4,800,000 SHARES
[LOGO]
COMMON STOCK
--------------
Of the 4,800,000 shares of Common Stock, par value $.05 per share (the
"Common Stock"), being offered hereby, 2,756,865 shares are being offered by
USCS International, Inc. ("USCS" or the "Company") and 2,043,135 shares are
being offered by the Selling Stockholders (as defined herein). The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Stockholders. See "Principal and Selling Stockholders." Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$15.00 and $17.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "USCS," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,500,000.
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 720,000 shares of Common Stock solely to cover over-allotments,
if any. If all of such additional shares are purchased, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that the delivery of shares of Common Stock will be made in New York, New York,
on or about , 1996.
-------------------
MERRILL LYNCH & CO. MONTGOMERY SECURITIES
------------
The date of this Prospectus is , 1996.
<PAGE>
[INSIDE FRONT COVER PAGE OF PROSPECTUS]
[ARTWORK]
[PHOTOGRAPH SHOWS COLLAGE OF IMAGES INCLUDING CELLULAR PHONE, COMPUTER MONITOR,
COMPUTER CABLES, A SATELLITE DISH, NUMBERS IN BINARY CODE, SITTING HUMAN FIGURE
AT A COMPUTER AND THE COMPANY'S LOGO; TEXT IN PHOTO IS AS FOLLOWS:
SERVING THE GLOBAL
COMMUNICATIONS MARKET INCLUDING:
* CABLE TELEVISION
* TELEPHONY
* MULTI-SERVICE PROVIDERS
CUSTOMER MANAGEMENT
SOFTWARE
* multi-service integration
* order processing
* customer service
* management reporting
CUSTOMER MANAGEMENT
SERVICES
* bill presentment
* statement production
* statement-based marketing
PROFESSIONAL SERVICES
* training and consulting
* custom programming
* statement design]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
CableData-Registered Trademark- is a registered trademark of the Company.
CableData's Intelecable-TM- ("Intelecable"), DDP/SQL-TM-, VantagePLUS-TM-,
International Billing Services-TM- ("IBS"), Dynamic Due Date-TM- and
ClassROM-TM- are trademarks or tradenames of the Company. The IBS servicemark is
a registered servicemark of the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
USCS is a leading provider of customer management software and services to
the global communications industry. The Company's clients include providers of
cable television, wireless and land-line telephony, direct-broadcast satellite
("DBS") and multiple communications services in the U.S. and 13 other countries.
The Company's software-based solutions enable its clients to manage critical
customer relationship functions, including new account set-up, order processing,
customer support, management reporting and marketing analysis. The Company also
provides bill presentment services, which include generation of high quality,
customized billing statements that are produced in automated facilities designed
to minimize turnaround time and mailing costs. USCS also offers a variety of
complementary professional services, including consulting, application
development and client training, as well as statement design services that allow
clients to use the billing statement as a communication and marketing tool.
The Company's clients typically enter into contracts with terms ranging from
three to seven years. Clients are billed monthly, generally based on the number
of end-users they serve. As a result, a significant portion of the Company's
revenue is recurring and increases as the service provider's customer base
grows. In 1995, the Company's revenue totaled $229.3 million, of which 73% was
generated from companies that have been clients of USCS for three or more years.
USCS has been providing comprehensive customer management software and services
to the cable television industry for more than 25 years and has been profitable
in every year since 1973.
The Company's software currently supports 53% of U.S. cable television
subscribers and is used by 15 of the 20 largest cable television service
providers in the U.S., including Adelphia Communications Corporation
("Adelphia"), Cablevision Systems Corporation ("Cablevision Systems"), Comcast
Cable Communications, Inc. ("Comcast"), Tele-Communications, Inc. ("TCI") and
Time Warner, Inc. ("Time Warner"). The Company provides bill presentment
services to clients serving 53% of U.S. cable television subscribers, 33% of
U.S. cellular users and 9% of U.S. land-line telephony customers and to a
variety of other service providers. The Company's bill presentment clients
include substantially all of its domestic customer management software clients
and other service providers such as AirTouch Paging ("AirTouch"), Ameritech
Corporation ("Ameritech") and Frontier Corporation ("Frontier"). The Company
currently processes over 60 million bills per month and is the largest
centralized first class mailer in the U.S., responsible for generating more than
1.5% of the total volume of all U.S. first class mail, including customer
remittance volume.
The Company has extended its leadership position by introducing products and
services that address the rapidly changing global communications market.
Technological advances, regulatory changes and international growth are
transforming the structure and competitive dynamics of the industry. Markets
that were once segmented by service and geographic location are converging into
a single global communications market, which includes traditional service
providers and new entrants offering a combination of services. The rapidly
shifting and increasingly complex nature of the converging communications market
has increased the need among service providers for sophisticated and flexible
customer management software and services.
3
<PAGE>
In 1993, the Company deployed Intelecable, which the Company believes is the
first customer management software product designed for providers of multiple
communications services ("multi-service providers"). The Company also believes
that Intelecable is the only integrated multi-service customer management
software system currently operational and commercially available. Intelecable is
presently installed for 17 clients worldwide, including combined cable/telephony
service providers in the U.K., a combined cable/wireless cable/DBS provider in
Australia and two interactive video providers in the U.S., including BellSouth
Interactive Media Services, Inc. ("BellSouth Interactive"). The Company has also
expanded its bill presentment services to support multi-service providers by
offering consolidated billing statements that combine data from multiple
services, such as wireless and land-line telephony, into a single integrated
billing statement.
Since its founding, the Company has been a leader in providing customer
management software and services. The Company's record of achievement includes
what USCS believes is:
- The first customer management software system for multi-service
providers, including support of combined cable/telephony sites;
- The first contract with a regional bell operating company
("RBOC") to outsource all bill presentment functions for
telephony services; and
- The first installation and operation of customer management
software for interactive video trials in the U.S.
The Company's strategy to maintain and enhance its industry position
includes the following key elements: (i) focus on recurring revenue, (ii) focus
on the needs of multi-service providers, (iii) increase international revenue,
(iv) expand bill presentment market opportunities, (v) increase professional and
strategic services revenue, and (vi) continue to develop leading-edge software
and services.
The Company conducts its business primarily through two wholly-owned
subsidiaries: CableData, Inc. and International Billing Services, Inc. The
Company's principal executive offices are located at 2969 Prospect Park Drive,
Rancho Cordova, California 95670, and its telephone number is (916) 636-4500.
The Company's international headquarters are located at Spectrum Point, 279
Farnborough Road, Farnborough, Hampshire GU14 7LS England, U.K. U.S. Computer
Services, the predecessor to USCS International, Inc., was incorporated under
California law on November 18, 1969. USCS International, Inc., which was
incorporated under Delaware law on April 10, 1996, succeeded to the business of
the California corporation pursuant to a reincorporation to be effected in June
1996. Unless the context otherwise requires, all references in this Prospectus
to "USCS" or the "Company" refer to USCS International, Inc., a Delaware
corporation, its predecessor, U.S. Computer Services, a California corporation,
and their consolidated subsidiaries.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................... 2,756,865 Shares
The Selling Stockholders...................... 2,043,135 Shares
Common Stock to be outstanding after this 22,228,584 Shares (1)
offering........................................
Use of proceeds................................. Repayment of certain indebtedness
(approximately $38.0 million as of March
31, 1996) and working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... USCS
</TABLE>
- ------------------------------
(1) Based on shares outstanding as of May 20, 1996. Excludes an aggregate of
5,178,119 shares reserved as of May 20, 1996 for future issuance under the
Company's 1988 Incentive Stock Option Plan, 1990 Nonstatutory Stock Option
Plan, 1993 Incentive Stock Option Plan, 1996 Incentive Stock Option Plan,
1996 Directors' Stock Option Plan and Employee Stock Purchase Plan. See
"Management -- Employee and Director Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- --------- ---------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue.................................... $ 143,513 $ 146,087 $ 166,064 $ 188,805 $ 229,263 $ 53,012 $ 60,255
Gross profit............................... 51,754 53,086 61,745 66,283 82,023 19,498 22,094
Operating income (1)....................... 12,905 16,299 13,494 15,787 22,106 4,937 5,443
Income before income taxes and cumulative
effect of accounting change (2)........... 8,160 11,250 8,885 11,503 17,140 3,769 4,237
Income before cumulative effect of
accounting change (2)..................... 5,053 6,895 4,555 6,169 10,370 2,281 2,563
Net income................................. 5,053 6,895 6,963 6,169 10,370 2,281 2,563
Income before cumulative effect of
accounting change per share (3)........... $ 0.20 $ 0.30 $ 0.20 $ 0.28 $ 0.49 $ 0.11 $ 0.12
Net income per share (3)................... $ 0.20 $ 0.30 $ 0.31 $ 0.28 $ 0.49 $ 0.11 $ 0.12
Shares used in per share computation (3)... 25,149 22,675 22,129 21,882 21,138 21,494 20,659
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
---------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................................................. $ 5,930 $ 7,452
Working capital....................................................................... 28,343 29,865
Total assets.......................................................................... 182,824 184,346
Long-term debt less current portion (5)............................................... 53,090 15,090
Stockholders' equity.................................................................. 49,087 88,609
</TABLE>
- ------------------------------
(1) In 1993, the Company charged to expense $4.1 million for the consolidation
of customer support activities and relocation expenses.
(2) In 1993, the Company adopted SFAS 109 resulting in an accumulated credit to
income for an adjustment in the calculation of income tax expense.
(3) Per share data is based on the weighted average number of shares of Common
Stock and dilutive common equivalent shares from stock options outstanding
during the period using the treasury stock method. Pursuant to certain
Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued during the 12-month period prior to the
date of the initial filing of the Registration Statement have been included
in the calculation as if they were outstanding for all periods prior to
their issuance. See Note 2 of Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 2,756,865 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $16.00 per share and the anticipated application of the estimated net
proceeds therefrom. See "Use of Proceeds."
(5) See Note 5 of Notes to Consolidated Financial Statements.
------------------------------
THE STATEMENTS THAT ARE NOT HISTORICAL FACTS OR STATEMENTS OF CURRENT STATUS
CONTAINED IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS (AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE RISKS SET FORTH IN "RISK
FACTORS." ACTUAL RESULTS MAY DIFFER MATERIALLY. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH IN "RISK FACTORS." EXCEPT AS OTHERWISE
INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS: (I) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) HAS BEEN ADJUSTED TO GIVE
EFFECT TO (A) THE REINCORPORATION OF THE COMPANY UNDER DELAWARE LAW, (B) A
2.1-FOR-1 STOCK SPLIT OF THE COMPANY'S VOTING COMMON STOCK, (C) A 2-FOR-1 STOCK
SPLIT OF THE COMPANY'S NON-VOTING COMMON STOCK, AND (D) THE CONVERSION OF ALL
OUTSTANDING SHARES OF NON-VOTING COMMON STOCK INTO COMMON STOCK ON A 1-FOR-1
BASIS. SEE "CAPITALIZATION," "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
5
<PAGE>
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
THE STATEMENTS THAT ARE NOT HISTORICAL FACTS OR STATEMENTS OF CURRENT STATUS
CONTAINED IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE FACTORS SET FORTH BELOW.
ACTUAL RESULTS MAY DIFFER MATERIALLY.
DEPENDENCE ON THE CABLE TELEVISION MARKET
The Company is highly dependent on the cable television market. During 1995,
approximately two-thirds of the Company's revenue was derived from sales to
cable television service providers. Revenue from cable television providers is
based primarily on the number of subscribers served by such providers, typically
calculated monthly. Due primarily to recent consolidation, the number of
providers of cable television service in the U.S. is declining, resulting in a
reduction of the number of potential cable television clients in the U.S. As the
number of companies serving the available subscriber base decreases, the loss of
a single client could have a greater adverse impact on the Company than in the
past. Even if the number of clients remains the same, a decrease in the number
of subscribers served by the Company's cable television clients would result in
lower revenue for the Company. Furthermore, any adverse development in the cable
television market could have a material adverse effect on the financial
condition and results of operations of the Company.
CHANGING COMMUNICATIONS MARKET
The communications market is characterized by rapid technological
developments, changes in client requirements, evolving industry standards and
frequent new product introductions. The Company's future success will depend, in
part, upon its ability to enhance its existing applications, develop and
introduce new products that take advantage of technological advances and respond
promptly to new client requirements and evolving industry standards. The Company
has expended considerable funds to develop products to serve the changing
communications market. If the communications market fails to converge or grows
more slowly than anticipated or the Company's products and services fail to
achieve market acceptance, there could be a material adverse effect on the
financial condition and results of operations of the Company. Furthermore, there
can be no assurance that the Company's clients will be successful in expanding
into other segments of the converging communication markets, or that the Company
will be successful in selling its products to new entrants in the cable
television market.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by rapid
technological changes. The Company believes that its future success depends in
part upon its ability to enhance its current products and services and develop
new products and services that address the increasingly complex needs of its
clients. The Company's development projects are subject to all of the risks
associated with the development of new software and other products based on
innovative technologies, including (i) unanticipated technical or other problems
that could result in a change in the design, delay in the development or
abandonment of such products, (ii) unanticipated integration, compatibility or
similar problems, such as difficulties in porting to additional hardware
platforms, (iii) problems that arise during implementation, and (iv) possible
insufficiency of development funds. Certain of the Company's development
contracts provide for reimbursement of a portion of the research and development
expenditures by third parties, subject to meeting performance milestones.
Failure to meet such milestones may result in a loss of the third party funds
and the need for the Company to reallocate Company resources to complete the
project. Products, if any, resulting from research and development activities
may not produce revenue for a substantial time, if at all. In addition, the
introduction by third parties of new products or services could render the
Company's existing products and services obsolete or unmarketable. The Company's
ability to anticipate changes in technology and successfully develop and
introduce new or enhanced products incorporating such technology on a timely
basis will be significant factors in the Company's ability to remain
competitive. There can be no assurance that the Company will timely or
successfully complete the development of new or enhanced products or services or
successfully manage transitions from one product release to the next, that the
6
<PAGE>
Company will not encounter difficulties that could delay introduction of new or
enhanced products in the future or that errors will not be found in new or
enhanced products after installation, resulting in a loss of or a delay in
market acceptance. If the Company is unable to develop new or enhanced products
on a timely basis or to meet development contract milestones, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" and "Business --
Research and Development."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate from quarter to
quarter depending on various factors, including the impact of significant
start-up costs associated with initiating the delivery of contracted services to
new clients, the hiring of additional staff, new product development and other
expenses, introduction of new products by competitors, pricing pressures, the
evolving and unpredictable nature of the markets in which the Company's products
and services are sold and general economic conditions. The Company may invest
significant time and financial resources towards securing and implementing
contracts or developing new products and services. Revenue from such activities
may be received, if at all, only in future quarters. Thus, the Company may incur
significant expenses in a particular quarter that are not offset by
corresponding revenue and conversely may receive additional revenue in future
quarters for which related expenses were incurred in prior quarters. For
example, in the first quarter of 1994, the Company added Ameritech as a bill
presentment client, resulting in a significant increase in expenses in late 1993
and the first quarter of 1994 and a significant increase in revenue in the
second quarter of 1994. Revenue from Ameritech represented approximately 16% and
13% of the Company's revenue for the years ended December 31, 1995 and 1994,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION; DEVELOPMENT OF IN-HOUSE SYSTEM BY SIGNIFICANT CLIENT
The market for the Company's products and services is highly competitive,
and competition is increasing as additional market opportunities arise. The
Company competes with independent providers of customer management software and
services and with in-house systems. The Company believes its most significant
competitors for customer management software are Information Systems Development
(owned by Cincinnati Bell Information Systems ("CBIS")), CSG Systems
International, Inc., and the Company's own clients to the extent such clients
develop in-house systems. In addition, certain of the Company's competitors,
including CBIS, have contracted with the Company to provide bill presentment
services to their own software customers. The most significant competitors for
bill presentment services are in-house services and, to a lesser extent, other
third-party providers. It is also possible that new competitors may emerge and
acquire market share as the communications market expands. TCI, which
represented approximately 17% and 18% of the Company's revenue for 1995 and
1994, respectively, has announced that it is developing and testing an in-house
customer management software system and plans to begin deploying it nationwide
by 1997. The contracts between the Company and TCI are scheduled to expire in
June and October 1996. The Company expects revenue from TCI will be reduced or
eliminated in the future if TCI is successful in developing its in-house system
and such in-house system replaces the Company's system. Another client, which
accounted for 4% of total revenue in 1995 and recently extended its contract
with the Company to early 1997, has orally advised the Company that it may
select an alternative solution for its customer management software
requirements. In addition, competitive factors could influence or alter the
Company's overall revenue mix between customer management software, services,
including bill presentment services, and equipment sales and leasing. Any of
these events could have a material adverse effect on the financial condition and
results of operations, including gross profit margins, of the Company. See "--
Reliance on Significant Clients," "Business -- Clients," "Business --
Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CONCENTRATION OF CLIENT BASE
Aggregate revenue from the Company's ten largest clients accounted for
approximately 63% of total revenue in both 1995 and 1994. TCI accounted for 17%
and 18% and Ameritech accounted for 16% and 13% of the Company's revenue for
1995 and 1994, respectively. Loss of all or a significant part of the
7
<PAGE>
business of any of these clients or a decrease in their respective customer
bases could have a material adverse effect on the financial condition and
results of operations of the Company. See "-- Variability of Quarterly Operating
Results" and "-- Competition; Development of In-House System by Significant
Client."
MANAGEMENT OF GROWTH
The Company's strategy is to grow through maximizing recurring revenue,
focusing on the needs of multi-service providers in the converging
communications market, increasing international revenue, expanding the market
for its bill presentment services, increasing professional and strategic
services revenue and continuing to develop leading-edge technologies. Management
of the Company's growth may place a considerable strain on the Company's
management, operations and systems. The Company's ability to execute its
business strategy will depend in part upon its ability to manage the demands of
a growing business. Any failure of the Company's management team to effectively
manage growth could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- USCS Strategy."
CLIENT FAILURE TO RENEW OR UTILIZE CONTRACTS
Substantially all of the Company's revenue is derived from the sale of
services or products under long-term contracts with its clients. The Company
typically does not have the unilateral option to extend the terms of such
contracts upon their expiration. In addition, most of the Company's software and
services contracts have no minimum purchase requirements. Other contracts
require minimum purchases that are substantially below the current level of
business under such contracts and all contracts are cancelable by clients under
certain conditions. The failure of clients to renew contracts, a reduction in
usage by clients under any contracts or the cancellation of contracts could have
a material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
INTERNATIONAL BUSINESS ACTIVITIES
The Company markets its products in a variety of international markets. To
date, the Company's primary customer management software has been installed and
is generating revenue in 13 countries. While less than 5% of the Company's
customer management software and services revenue in 1995 came from
international sources, the Company is expanding its international presence,
primarily through third party marketing and distribution alliances. The
Company's practice is to bill international clients in U.S. dollars and revenue
not billed in U.S. dollars is not material to the Company as a whole. Risks
inherent in the Company's current and proposed international business activities
in general, and in its activities in the converging communications market, in
particular, include the possible failure to develop and maintain international
marketing and distribution alliances, unexpected changes in regulatory
requirements, difficulties in managing international operations, longer accounts
receivable payment cycles, potential adverse tax consequences, restrictions on
the conversion of currencies or the repatriation of earnings, the imposition of
tariffs or other trade barriers, the burdens of complying with a wide variety of
foreign laws and regulations and, in some countries, economic and political
instability. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, the Company's business, operating results and financial condition.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key management, sales, product development and operational personnel. The
Company believes that its future success also depends on its ability to attract
and retain skilled technical, managerial and marketing personnel, including, in
particular, additional personnel in the areas of research and development and
technical support. Competition for qualified personnel is intense. The Company
has from time to time experienced difficulties in recruiting qualified skilled
technical personnel. Failure by the Company to attract and retain the personnel
it requires could have a material adverse effect on the financial condition and
results of operations of the Company.
8
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of patent, trade secret and copyright
laws, nondisclosure agreements, and other contractual and technical measures to
protect its proprietary technology. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. Although the
Company believes that its products and services do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company or the Company's
clients. A significant cable television client has advised the Company that
Ronald A. Katz Technology Licensing, L.P. ("RAKTL") has asserted that patents
held by RAKTL may be infringed by the client's use of certain interfaces offered
by the Company. The patents relate to telephone call processing with audio
response unit and automatic number identification capabilities of certain
interfaces offered by the Company. The client recently informed the Company
that, should it become necessary, it would seek indemnification from the
Company. The Company believes that, if the patents are valid and if they apply
to the Company's business, they would also apply to many users and suppliers of
interactive computer telephony systems, including the Company's competitors. The
Company believes that it is adequately protected by its patent position and, as
of the date of this Prospectus, no legal proceedings have been instituted
against the Company, but, to the extent that the RAKTL patents are valid and
apply to the Company's business, the Company could be required to seek licenses
from RAKTL and provide indemnification to its clients. Such licenses may not be
available on commercially reasonable terms, if at all. Although the Company
believes that it has sufficient rights to conduct its current business and that
its clients have sufficient rights to use USCS products and services without
infringing upon the patent rights of such third party, there can be no
assurances that the Company or its clients will prevail in any patent
infringement dispute with such third party or that, if the Company does not
successfully resolve such dispute, the terms of any settlement with such third
party would not have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Intellectual
Property."
GOVERNMENT REGULATION
The Company's business is not subject to direct government regulation. The
Company's existing and potential clients, however, are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued regulatory changes in the worldwide communications industry. In
addition, the Company's clients are subject to certain regulations governing the
privacy and use of the customer information that is collected and managed by the
Company's products and services. Regulatory changes that adversely affect the
Company's existing and potential clients could have a material adverse effect on
the financial condition and results of operations of the Company.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; SUBSTANTIAL
DILUTION
There has been no prior public market for the Company's Common Stock, and
there can be no assurance that a viable public market for the Common Stock will
develop or be sustained after this offering. The Company believes that factors
such as announcements of developments related to the Company's business,
fluctuations in the Company's quarterly or annual operating results, failure to
meet securities analysts' expectations, general conditions in the international
communications marketplace or the worldwide economy, announcements of
technological innovations or new systems or enhancements by the Company or its
competitors, developments in patents or other intellectual property rights and
developments in the Company's relationships with clients and suppliers could
cause the price of the Company's Common Stock to fluctuate, perhaps
substantially. In addition, in recent years the stock market has experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect the
market price of the Company's Common Stock. In addition, investors participating
in this offering will incur immediate and substantial dilution of book value.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Common Stock in the public market
after this offering could adversely affect the market price of the Common Stock.
In addition to the 4,800,000 shares to be sold in this offering, approximately
809,000 additional shares issued and outstanding as of May 20, 1996 will be
eligible for immediate sale in the public market without restriction following
consummation of this offering pursuant
9
<PAGE>
to Rule 144(k) of the Securities Act of 1933, as amended (the "Securities Act").
Commencing 30 days and 60 days after the date of this Prospectus, an additional
50,000 shares and 50,000 shares, respectively, will be eligible for immediate
sale in the public market without restriction pursuant to Rule 144(k).
Commencing 90 days after the date of the Prospectus, approximately 172,000
shares outstanding and 18,000 shares subject to options (if exercised) will be
eligible for sale in the public market pursuant to Rule 701 or Rule 144 of the
Securities Act. Commencing 120 days after the date of this Prospectus, an
additional 50,000 shares will be eligible for immediate sale in the public
market without restriction pursuant to Rule 144. Commencing 180 days after the
date of the Prospectus, upon the expiration of lock-up agreements with the
Underwriters, approximately 16,297,000 shares of Common Stock issued and
outstanding as of May 20, 1996 will be eligible for immediate sale in the public
market pursuant to Rule 144 or Rule 701, subject to compliance with certain
volume limitations and other restrictions under Rule 144. The Company intends to
register a total of approximately 6,534,500 shares of Common Stock that have
been issued, that are reserved for issuance or that it intends to reserve for
issuance under its 1988 Incentive Stock Option Plan, 1990 Non-Qualified Stock
Option Plan, 1993 Incentive Stock Option Plan, 1996 Directors' Stock Option
Plan, 1996 Incentive Stock Option Plan and Employee Stock Purchase Plan no
earlier than 90 days after the date of this Prospectus. Holders of an aggregate
of approximately 9,907,062 shares of Common Stock issued and outstanding as of
May 20, 1996 have rights under certain circumstances to require the Company to
register their shares for future sale. See "Management -- Employee and Director
Plans," "Description of Capital Stock -- Registration Rights," "Shares Eligible
for Future Sale" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS
The Company's executive officers and directors will beneficially own
approximately 45.8% of the Company's outstanding shares of Common Stock
immediately following this offering (including 39.2% owned by Westar Capital
("Westar")), and the Company's Employee Stock Ownership Plan ("ESOP") will own
approximately 17.7% of the Company's outstanding shares of Common Stock
immediately following this offering. Purchasers of the shares offered hereby
will own approximately 22% of the Company's outstanding shares of Common Stock
immediately following this offering, and although entitled to vote on matters
submitted for a vote of the shareholders, will not control the outcome of such a
vote. Management, Westar and the ESOP will thus exert significant influence over
the affairs of the Company. See "Dilution," "Management -- Executive Officers
and Directors," "Certain Transactions" and "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION, BYLAWS, PROPOSED
STOCKHOLDERS' RIGHTS PLAN AND DELAWARE LAW
Under the Company's Certificate of Incorporation, the Board of Directors of
the Company has the authority, without action by the Company's stockholders, to
fix certain terms of, and to issue, shares of Preferred Stock. In addition, the
Company currently contemplates adopting a Stockholders' Rights Plan, which, if
adopted, would under certain circumstances significantly dilute the interest in
the Company of persons seeking to acquire control of the Company without prior
approval of the Board. The Company has also recently reincorporated under
Delaware law. The Stockholders' Rights Plan, certain provisions of the
Certificate of Incorporation and certain provisions of Delaware law may have the
effect of delaying, deterring or preventing a change in control of the Company.
Other provisions in the Company's Certificate of Incorporation and Bylaws and
Delaware law impose procedural and other requirements that could make it more
difficult to effect certain corporate actions, including replacing incumbent
directors. Further, the Board is divided into three classes, each of which is to
serve for a staggered three-year term after the initial classification and
election, which may make it more difficult for a third party to gain control of
the Board. By virtue of these provisions, the Board of Directors of the Company
may be able to take or prevent actions affecting unaffiliated stockholders
without such stockholders' approval or consent. In addition, these provisions
may adversely affect the market price of the Company's Common Stock and reduce
the possibility that an investor may receive a premium for his or her shares in
a tender offer. See "Management -- Executive Officers and Directors,"
"Description of Capital Stock -- Preferred Stock" and "Description of Capital
Stock -- Anti-takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and the Proposed Stockholders' Rights Plan."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,756,865 shares of
Common Stock offered by the Company hereby are estimated to be $39.5 million
(approximately $50.2 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $16.00 per
share, after deducting the underwriting discount and estimated offering expenses
payable by the Company. The Company intends to use the net proceeds from this
offering to repay certain outstanding indebtedness (including amounts incurred
after March 31, 1996) under its unsecured lines of credit, of which
approximately $38.0 million was outstanding as of March 31, 1996. Such
indebtedness bears interest at LIBOR (plus a margin ranging from .75% to 1.25%)
or the bank's reference rate. At March 31, 1996, the rates were 6.25% to 8.25%
per annum. The lines of credit mature on February 17, 1999 and 2001. The Company
expects to use the balance of the net proceeds, if any, for working capital and
other general corporate purposes, including acquisitions of complementary
businesses, products or technologies, although there are no current agreements,
arrangements or understandings with respect to any material acquisitions.
Pending use of the excess proceeds for the above purposes, the Company intends
to invest such funds in short-term, interest-bearing, investment grade
obligations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company will not receive any proceeds from the sale of shares of Common
Stock offered by the Selling Stockholders. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock to date. The
Company currently intends to retain any future earnings for its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's bank credit agreements restrict
the Company's ability to pay dividends.
11
<PAGE>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and the
capitalization of the Company (i) at March 31, 1996 and (ii) as adjusted to
reflect the sale of the 2,756,865 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $16.00 per share and the
application of the estimated net proceeds therefrom as set forth under "Use of
Proceeds" and to reflect the conversion of Non-Voting Common Stock into Common
Stock subsequent to March 31, 1996. This table should be read in conjunction
with the Consolidated Financial Statements of the Company, including the related
Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Current portion of long-term debt (1)..................................................... $ 10,143 $ 10,143
---------- ----------
---------- ----------
Long-term debt (1)........................................................................ 53,090 15,090
Stockholders' equity (2):
Preferred Stock, $.05 par value, 10,000,000 shares authorized; no shares issued and
outstanding............................................................................ -- --
Common Stock, $.05 par value:
Voting: 40,000,000 shares authorized; 12,812,404 shares issued and outstanding
21,791,451 as adjusted............................................................... 641 1,090
Non-Voting: 12,000,000 shares authorized; 6,222,182 shares
issued and outstanding; none authorized, issued or
outstanding as adjusted.............................................................. 311 --
Additional paid-in capital.............................................................. -- 39,384
Retained earnings....................................................................... 48,487 48,487
Foreign currency translation adjustment................................................. (352) (352)
---------- ----------
Total stockholders' equity............................................................ 49,087 88,609
---------- ----------
Total capitalization................................................................ $ 102,177 $ 103,699
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 2,312,898 shares reserved as of March 31, 1996 for future
issuance under the Company's 1988 Incentive Stock Option Plan, 1990
Nonstatutory Stock Option Plan and 1993 Incentive Stock Option Plan and (ii)
3,290,000 shares reserved for issuance under the 1996 Incentive Stock Option
Plan, the 1996 Directors' Stock Option Plan and the Employee Stock Purchase
Plan, which plans were adopted by the Board of Directors after March 31,
1996.
12
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996, was
$46,125,000, or $2.42 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's total tangible net worth (tangible
assets less total liabilities), divided by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 2,756,865 shares
of Common Stock offered hereby at an assumed initial public offering price of
$16.00 per share (after deducting the underwriting discount and estimated
offering expenses) the net tangible book value, as adjusted, of the Company as
of March 31, 1996, would have been approximately $85,647,000 or $3.93 per share
of Common Stock. This represents an immediate increase from net tangible book
value per share to net tangible book value, as adjusted, of $1.51 per share to
existing stockholders and immediate dilution of $12.07 per share to new
investors purchasing shares in this offering. If the initial public offering
price is higher or lower, the dilution to new investors will be greater, or
less, respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 16.00
Net tangible book value per share as of March 31, 1996............ $ 2.42
Increase per share attributable to new stockholders............... 1.51
---------
Adjusted net tangible book value after this offering................ 3.93
---------
Dilution per share to new stockholders (1).......................... $ 12.07
---------
---------
</TABLE>
- ------------------------
(1) Dilution is determined by subtracting adjusted net tangible book value per
share of Common Stock after the offering from the initial public offering
price paid by new investors for a share of Common Stock.
The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock purchased from the Company, the total cash paid to the Company
and the average price paid per share by existing stockholders and by purchasers
of shares offered by the Company hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PER
------------------------- -------------------------- SHARE
NUMBER PERCENT AMOUNT PERCENT PRICE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (1)................ 19,034,586 87.3% $ 1,611,000 3.5% $ 0.08
New Investors............................ 2,756,865 12.7 44,110,000 96.5 16.00
------------ ----- ------------- ----- -----------
Total................................ 21,791,451 100.0% $ 45,721,000 100.0% $ 2.10
------------ ----- ------------- ----- -----------
------------ ----- ------------- ----- -----------
</TABLE>
- ------------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 16,991,451, or approximately 78.0%
of the total number of shares to be outstanding after this offering, and
will increase the number of shares held by new investors to 4,800,000, or
approximately 22.0% of the total number of shares to be outstanding after
this offering. If the Underwriters' over-allotment option is exercised in
full, the number of shares held by the new investors will increase to
5,520,000 shares, or approximately 24.5% of the total number of shares to be
outstanding after this offering.
The foregoing tables assume no exercise of the Underwriters' over-allotment
option or options to purchase shares of Common Stock outstanding and exercisable
under the Company's 1988 Incentive Stock Option Plan, 1990 Nonstatutory Stock
Option Plan, 1993 Incentive Stock Option Plan, 1996 Incentive Stock Option Plan
and 1996 Directors' Stock Option Plan. As of March 31, 1996, there were
outstanding under the Company's 1988 Incentive Stock Option Plan, 1990
Nonstatutory Stock Option Plan and 1993 Incentive Stock Option Plan, options to
purchase an aggregate of 1,745,136 shares of Common Stock at exercise prices
ranging from $0.20 to $7.38 per share, or a weighted average exercise price of
$3.31 per share. To the extent that such options are exercised, there will be
further dilution to new investors. See "Management -- Employee and Director
Plans" and Note 7 of Notes to Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The consolidated statements of operations data presented below for the years
ended December 31, 1993, 1994 and 1995 and the consolidated balance sheet data
as of December 31, 1994 and 1995 are derived from the consolidated financial
statements of the Company, included elsewhere in this Prospectus, that have been
audited by Price Waterhouse LLP, independent accountants. The consolidated
financial data presented below for the years ended December 31, 1991 and 1992
and the consolidated balance sheet data as of December 31, 1991, 1992 and 1993
are derived from audited consolidated financial statements not included in this
Prospectus. The consolidated financial data as of March 31, 1996 and for the
three months ended March 31, 1995 and 1996 were derived from unaudited
consolidated financial statements prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations. The results of
operations for any interim period are not necessarily indicative of results to
be expected for a full year. The data set forth below should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Software and services............................ $ 90,532 $ 106,348 $ 116,563 $ 155,247 $ 197,282 $ 46,484 $ 55,421
Equipment sales and services..................... 52,981 39,739 49,501 33,558 31,981 6,528 4,834
--------- --------- --------- --------- --------- --------- ---------
Total........................................ 143,513 146,087 166,064 188,805 229,263 53,012 60,255
Cost of revenue:
Software and services............................ 58,360 65,904 72,758 103,046 127,702 29,813 35,228
Equipment sales and services..................... 33,399 27,097 31,561 19,476 19,538 3,701 2,933
--------- --------- --------- --------- --------- --------- ---------
Total........................................ 91,759 93,001 104,319 122,522 147,240 33,514 38,161
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 51,754 53,086 61,745 66,283 82,023 19,498 22,094
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development......................... 11,121 12,170 16,007 16,700 17,815 4,504 5,642
Selling, general and administrative.............. 27,728 24,617 28,148 34,160 42,102 10,057 11,009
Consolidation and relocation..................... -- -- 4,096 (364) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total........................................ 38,849 36,787 48,251 50,496 59,917 14,561 16,651
--------- --------- --------- --------- --------- --------- ---------
Operating income................................... 12,905 16,299 13,494 15,787 22,106 4,937 5,443
Interest expense................................... 4,745 5,049 4,609 4,284 4,966 1,168 1,206
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative effect of
accounting change................................. 8,160 11,250 8,885 11,503 17,140 3,769 4,237
Income tax provision............................... 3,107 4,355 4,330 5,334 6,770 1,488 1,674
Income before cumulative effect of accounting
change (1)........................................
Cumulative effect of accounting change (1)......... -- -- 2,408 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 5,053 $ 6,895 $ 6,963 $ 6,169 $ 10,370 $ 2,281 $ 2,563
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting
change
per share (2)..................................... $ 0.20 $ 0.30 $ 0.20 $ 0.28 $ 0.49 $ 0.11 $ 0.12
--------- --------- --------- --------- --------- --------- ---------
Net income per share (2)........................... $ 0.20 $ 0.30 $ 0.31 $ 0.28 $ 0.49 $ 0.11 $ 0.12
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in per share computation............... 25,149 22,675 22,129 21,882 21,138 21,494 20,659
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash................................................. $ 2,334 $ 9,053 $ 8,158 $ 1,966 $ 6,627 $ 5,930
Working capital...................................... 23,801 23,757 20,029 11,454 23,440 28,343
Total assets......................................... 117,485 125,997 140,922 157,331 180,450 182,824
Long-term debt less current portion (3).............. 43,070 42,734 40,167 37,647 51,155 53,090
Stockholders' equity................................. 27,099 29,445 35,633 39,861 46,590 49,087
</TABLE>
- ------------------------------
(1) In 1993, the Company adopted SFAS 109, resulting in an accumulated credit
to income for an adjustment in the calculation of income tax expense.
(2) Net income per share is based on the weighted average number of shares of
Common Stock and dilutive common equivalent shares from stock options and
warrants outstanding during the period using the treasury stock method.
Pursuant to certain Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued during the 12-month
period prior to the date of the initial filing of the Registration
Statement have been included in the calculation as if they were outstanding
for all periods prior to their issuance. See Note 2 of Notes to
Consolidated Financial Statements.
(3) See Note 5 of Notes to Consolidated Financial Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Founded in 1969, USCS is a leading provider of customer management software
and services to the global communications industry. Revenue is derived primarily
from providing software and bill presentment services to cable television and
multi-service providers in the U.S. and 13 other countries and bill presentment
services to telecommunication companies in the U.S. Most of the Company's
revenue is derived based on the number of subscribers or end-users of the
Company's clients, the number of billing statements mailed and/or the number of
images, generally one page side, produced. Most of the Company's revenue is
derived under long-term contracts with terms ranging from three to seven years.
Over the three years ended December 31, 1995, the Company's revenue from
software and services has increased at an average rate of 23% per year and has
grown from approximately 70% of the Company's total revenue in 1993 to over 86%
in 1995. The increase in revenue was attributable primarily to the addition of
Ameritech as a significant client in 1994 and increased bill presentment
services volume from cellular clients. Also contributing to the growth in
revenue was an increase in sales of the Company's software and services in the
international marketplace following the introduction of Intelecable in 1993. Two
significant clients represented an aggregate of 33% and 31% of the Company's
revenue in 1995 and 1994, respectively. Revenue from the ten largest accounts
aggregated 63% of the Company's total revenue in 1995 and 1994. See Note 11 of
Notes to Consolidated Financial Statements.
The Company sells its software and services to North American cable
television and multi-service providers primarily through a direct sales force.
Outside of North America, the Company markets its software services primarily
through strategic partners, such as system integrators and computer hardware
manufacturers, which provide local sales and support. Building and maintaining
relationships with its clients is an important part of the Company's strategy
because selling cycles can extend a year or longer. The Company has committed
increased resources to the international, multi-service and telecommunications
markets because it believes these represent opportunities to grow at rates
greater than in the U.S. cable television marketplace alone. In 1993, the
Company increased its annual expenditures for research and development by over
30% in support of its Intelecable software product, which is being marketed to
cable television companies outside the U.S. and multi-service providers in the
U.S. and internationally.
Revenue from selling computer hardware and providing associated maintenance
and leasing services has been declining in absolute dollars and as a percentage
of total revenue. Revenue from these activities was 30% of total revenue in 1993
and had declined to less than 10% in the first quarter of 1996. The Company
expects that equipment sales and services revenue will continue to decline as a
percentage of revenue.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated statements of operations and the percentage of revenue represented
by each line item:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- ---------------------
1993 1994 1995 1995
--------------------- --------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software and services......... $ 116,563 70.2% $ 155,247 82.2% $ 197,282 86.1% $ 46,484 87.7%
Equipment sales and
services..................... 49,501 29.8 33,558 17.8 31,981 13.9 6,528 12.3
--------- ----- --------- ----- --------- ----- --------- -----
Total....................... 166,064 100.0 188,805 100.0 229,263 100.0 53,012 100.0
Cost of revenue:
Software and services......... 72,758 43.8 103,046 54.6 127,702 55.7 29,813 56.2
Equipment sales and
services..................... 31,561 19.0 19,476 10.3 19,538 8.5 3,701 7.0
--------- ----- --------- ----- --------- ----- --------- -----
Total....................... 104,319 62.8 122,522 64.9 147,240 64.2 33,514 63.2
--------- ----- --------- ----- --------- ----- --------- -----
Gross profit.................... 61,745 37.2 66,283 35.1 82,023 35.8 19,498 36.8
--------- ----- --------- ----- --------- ----- --------- -----
Operating expenses:
Research and development...... 16,007 9.6 16,700 8.8 17,815 7.8 4,504 8.5
Selling, general and
administrative............... 28,148 17.0 34,160 18.1 42,102 18.3 10,057 19.0
Consolidation and
relocation................... 4,096 2.4 (364) (0.2) -- -- -- --
--------- ----- --------- ----- --------- ----- --------- -----
Total....................... 48,251 29.0 50,496 26.7 59,917 26.1 14,561 27.5
--------- ----- --------- ----- --------- ----- --------- -----
Operating income................ 13,494 8.2 15,787 8.4 22,106 9.7 4,937 9.3
Interest expense................ 4,609 2.8 4,284 2.3 4,966 2.2 1,168 2.2
--------- ----- --------- ----- --------- ----- --------- -----
Income before income taxes and
cumulative effect of accounting
change......................... 8,885 5.4 11,503 6.1 17,140 7.5 3,769 7.1
Income tax provision............ 4,330 2.6 5,334 2.8 6,770 3.0 1,488 2.8
--------- ----- --------- ----- --------- ----- --------- -----
Income before cumulative effect
of accounting change........... 4,555 2.8 6,169 3.3 10,370 4.5 2,281 4.3
Cumulative effect of accounting
change (1)..................... 2,408 1.4 -- -- -- -- -- --
--------- ----- --------- ----- --------- ----- --------- -----
Net income...................... $ 6,963 4.2% $ 6,169 3.3% $ 10,370 4.5% $ 2,281 4.3%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
<CAPTION>
1996
---------------------
<S> <C> <C>
Revenue:
Software and services......... $ 55,421 92.0%
Equipment sales and
services..................... 4,834 8.0
--------- -----
Total....................... 60,255 100.0
Cost of revenue:
Software and services......... 35,228 58.5
Equipment sales and
services..................... 2,933 4.8
--------- -----
Total....................... 38,161 63.3
--------- -----
Gross profit.................... 22,094 36.7
--------- -----
Operating expenses:
Research and development...... 5,642 9.4
Selling, general and
administrative............... 11,009 18.3
Consolidation and
relocation................... -- --
--------- -----
Total....................... 16,651 27.7
--------- -----
Operating income................ 5,443 9.0
Interest expense................ 1,206 1.9
--------- -----
Income before income taxes and
cumulative effect of accounting
change......................... 4,237 7.1
Income tax provision............ 1,674 2.8
--------- -----
Income before cumulative effect
of accounting change........... 2,563 4.3
Cumulative effect of accounting
change (1)..................... -- --
--------- -----
Net income...................... $ 2,563 4.3%
--------- -----
--------- -----
</TABLE>
- ------------------------------
(1) In 1993, the Company adopted SFAS 109, resulting in an accumulated credit of
$2.4 million.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUE. Revenue is derived primarily from providing customer management
software and services to cable television and multi-service providers in the
U.S. and 13 other countries and from providing bill presentment services
primarily to telecommunications companies in the U.S. In addition, the Company
sells computer hardware and associated maintenance and leasing services to cable
television service providers in connection with providing the Company's software
and provides design, printing and graphics services in connection with its bill
presentment services. Most of the software and services revenue is derived based
on the number of end-users of the services of the Company's clients, the number
of bills mailed and/or the number of images produced under long-term contracts,
which usually have terms ranging from three to seven years. The Company
generally recognizes software and bill presentment services revenue as services
are performed. Certain of the Company's software licenses provide for fixed or
minimum fees. Fixed fees and the present value of minimum fees under software
licenses are recognized as revenue upon installation. Such amounts have not been
material. Most contracts include provisions for inflation-based adjustments,
including changes in paper costs.
Total revenue increased by 14% to $60.3 million in the first quarter of 1996
from $53.0 million in the comparable quarter in 1995. The increase was
attributable to growth in revenue from software and services partially offset by
a decline in equipment sales and services revenue. Software and services
revenue, which was 92% of total revenue in the first quarter of 1996 versus 88%
in the comparable 1995 quarter, increased in the first quarter of 1996 by 19%
over the comparable 1995 quarter. Customer management software and services
revenue increased by 13% to $32.5 million in the first quarter of 1996 from
$28.8 million in the
16
<PAGE>
comparable 1995 quarter. The increase is attributable to growth in sales to U.S.
domestic cable television and multi-service providers, and to international
clients. Bill presentment revenue provided primarily to telecommunications
companies increased by 30% to $14.2 million in the first quarter of 1996 from
$12.3 million in the comparable quarter of the prior year. Equipment sales and
services declined in the first quarter of 1996 by 26% from the comparable
quarter in 1995.
TCI, which accounted for $9.8 million or 16% of total revenue in the first
quarter of 1996 and $10.2 million or 19% in the first quarter of 1995, has
announced a plan to begin the replacement of the Company's software with an
in-house system. TCI contracts are scheduled to expire in June and October 1996.
The Company cannot estimate when this alternative system will become available
to TCI and when they would be successful in converting their subscriber base to
the TCI system. Another client, which accounted for 4% of total revenue in the
first quarter of 1996 and recently extended its contract with the Company to
early 1997, has orally advised the Company that it may select an alternative
system for its customer management software requirements.
The Company's largest bill presentment client, Ameritech, accounted for 16%
of total revenue in the first quarter of 1996 and 13% in the comparable quarter
of 1995. Ameritech became a client early in 1994 and has long-term contracts
with the Company expiring in 2000 and 2001.
COST OF REVENUE AND GROSS PROFIT. Cost of software and services revenue
consists primarily of direct labor, equipment-related expenses, cost of
materials such as paper and facilities expense. Cost of equipment sales and
services revenue consists primarily of computer hardware purchased for resale or
lease and third party maintenance.
The Company's gross profit margin of approximately 37% in the first quarter
of 1996 remained unchanged from the first quarter of 1995. Customer management
software and services gross profit margin declined to 44% in the first quarter
of 1996 from 45% in the comparable quarter of 1995. Bill presentment services
gross profit margin increased to 26% in the first quarter of 1996 from 22% in
the comparable 1995 quarter due to economies of scale resulting from increased
revenue. The gross profit margin on equipment related revenue declined to 39% in
1996 from 43% in 1995 because of lower prices realized on equipment sales.
RESEARCH AND DEVELOPMENT. Research and development costs relate primarily
to on-going product development and consist of personnel costs, consulting,
testing, supplies, facilities and depreciation expenses. Once the product under
development reaches technological feasibility, the development expenditures are
capitalized and amortized. See Note 2 of Notes to Consolidated Financial
Statements.
Under certain development agreements, a portion of software development
expense is shared by development partners. The Company retains the rights to any
development and third-party funds may be subject to certain performance
milestones, which, if not met, may require the Company to repay the partner or
to expend its own capital for the development without reimbursement from the
partner.
The Company is currently in discussions with a development partner to revise
the milestone schedule for the completion of the porting and the enhancement of
Intelecable on that partner's computer platform. In the event it is unable to
reach an understanding for a revised milestone schedule, the Company's
capitalized development cost would not be reduced by the remaining unreimbursed
portion under this agreement, of up to $3.2 million, and will be expensed over
the life of the product.
The Company spent $5.9 million in the first quarter of 1996, inclusive of
amounts reimbursable by development partners on research and development versus
$4.6 million in the comparable quarter of 1995. This represents an increase of
27% primarily from increased spending on Intelecable.
SELLING, GENERAL AND ADMINISTRATIVE. Selling expenses consist of
compensation for sales and marketing personnel including commissions and related
bonuses, travel, trade shows and promotional expenses. General and
administrative expenses consist of compensation for administration, finance and
general management personnel, as well as legal and accounting fees.
17
<PAGE>
Total sales and marketing expenses increased by 28% in the first quarter of
1996 in comparison to the first quarter of 1995. The increase in sales and
marketing expenditures was primarily because of the addition of sales and
marketing personnel committed to the international, multi-service and
telecommunications market. General and administrative expenses remained
unchanged between the quarters.
INCOME TAXES. The Company's provision for income taxes represents estimated
federal, state and foreign income taxes. The effective income tax rate of 39.5%
in the first quarter of 1996 was unchanged from the comparable quarter in 1995
and was based on the Company's anticipated effective rate for the full year.
NET INCOME. Net income in the first quarter of 1996 increased by 12% to
$2.6 million from $2.3 million in the comparable 1995 quarter primarily because
of the factors cited above.
THE YEAR 1995 COMPARED TO 1994
REVENUE. Total revenue increased by 21% to $229.3 million in 1995 from
$188.8 million in 1994. The increase was attributable to growth in revenue from
software and services, partially offset by a decline in equipment sales and
services revenue. Software and services revenue, which was 86% of total revenue
in 1995 versus 82% in 1994, increased in 1995 by 27% over the prior year.
Customer management software and services revenue increased by 15% to $116.9
million in 1995 from $101.4 million in 1994. The increase was attributable to
growth in sales to international and multi-service clients and the migration of
U.S. clients to expanded services for which higher fees are charged.
Bill presentment services revenue increased by 49% to $80.4 million in 1995
from $53.8 million in 1994. Ameritech accounted for 16% and 13% of total revenue
in 1995 and 1994, respectively. Revenue from Ameritech, which became a client in
1994, increased in 1995 by $12.6 million reflecting a full year of service and
growth in its volume of bills presented. Revenue derived from wireless service
providers, exclusive of Ameritech, also increased in 1995 reflecting an increase
in the numbers of clients served by the Company and growth in the number of
wireless service users. Another significant client, TCI, accounted for $39.3
million or 17% of total revenue in 1995, and $34.8 million or 18% in 1994.
Equipment sales and services revenue declined in 1995 by 5% from the prior
year, primarily due to lower equipment sales.
COST OF REVENUE AND GROSS PROFIT. The Company's gross profit margin in 1995
increased to approximately 36% from approximately 35% in 1994. Customer
management software and services gross profit margin increased to 43% in 1995
from 40% in 1994. The improvement is primarily related to increased efficiencies
in operations and higher prices. Bill presentment services gross profit margin
increased to 24% in 1995 from 21% in 1994 because of efficiencies related to
increased volume. Depreciation and amortization expenses included in cost of
revenue were $12.6 million in 1995 and $11.0 million in 1994, an increase of
15%. Such expenses have increased because of the Company's capital expenditures
for equipment and facilities to support primarily bill presentment services. The
gross profit margin on equipment-related revenue was 39% in 1995 versus 42% in
1994. The margins decreased because of lower prices realized on equipment sales.
RESEARCH AND DEVELOPMENT. The Company spent $19.8 million in 1995 on
research and development versus $18.0 million in 1994, an increase of 10%.
Included in 1995 and 1994 were expenditures of $2.0 million and $1.3 million,
respectively, that were reimbursable by development partners. See Note 2 of
Notes to Consolidated Financial Statements.
SELLING, GENERAL AND ADMINISTRATIVE. Total sales and marketing expenses
increased by 30% in 1995 in comparison to 1994. The increase in personnel and
sales and marketing expenditures was due primarily to the Company's addition of
sales and marketing personnel, reflecting an increased commitment to the
international, multi-service and telecommunications market. General and
administrative expenses increased by 21% in 1995 compared to 1994 to support
higher levels of sales, but remained constant as a percentage of total revenue.
18
<PAGE>
INCOME TAXES. In 1995, the Company's effective tax rate was less than 40%
in comparison to 46% in 1994. In 1994, losses in a foreign subsidiary were
incurred and not tax effected. The Company anticipates the 1995 effective income
tax rate to be indicative of the rate in future periods.
NET INCOME. Net income in 1995 increased by 68% from $6.2 million in 1994
to $10.4 million. Net income per share in 1995 increased 75% from $0.28 in 1994
to $0.49 because of the higher earnings and the Company's redemption of
1,044,521 shares pursuant to its obligation under the ESOP. See "Management --
Employee and Director Plans."
THE YEAR 1994 COMPARED TO 1993
REVENUE. Total revenue increased by 14% to $188.8 million in 1994 from
$166.1 million in 1993. This increase was attributable to an increase in
software and services revenue, partially offset by a decrease in revenue from
equipment sales and services. Software and services revenue increased by 33%
over 1993 and represented 82% of total revenue in 1994 as compared to 70% in
1993.
Customer management software and services revenue increased by 6% to $101.4
million in 1994 from $95.9 million in 1993. Expansion into new countries and
sales to multi-service clients contributed to the increase. Bill presentment
services revenue increased by 160% to $53.8 million in 1994 from $20.7 million
in 1993. The addition of Ameritech, which accounted for 13% of total revenues in
1994, as a client and growth in services to the cellular market accounted for
the increase. In 1994, equipment sales and services decreased by 32% as compared
to 1993.
COST OF REVENUE AND GROSS PROFIT. The Company's gross profit margin
decreased to approximately 35% in 1994 from 37% in 1993. Software and services
gross profit margin was 34% in 1994 versus 38% in 1993 due to decreased gross
margins on customer management software and services and a revenue mix that
included a higher proportion of lower-margin bill presentment services. Customer
management software and services gross profit margin declined to 40% in 1994
from 41% in 1993. Bill presentment services gross profit margin increased to 21%
in 1994 from 20% in 1993. The gross profit margin on equipment-related revenue
increased to 42% in 1994 from 36% in 1993. The improved margin percentage
resulted from higher margins on equipment sold despite the decreased total
revenue.
RESEARCH AND DEVELOPMENT. The Company spent $18.0 million in 1994 on
research and development versus $16.6 million in 1993, an increase of 8%.
Included in 1994 were expenditures of $1.3 million and $0.6 million,
respectively that were reimbursable by development partners. See Note 2 of Notes
to the Consolidated Financial Statements.
SELLING, GENERAL AND ADMINISTRATIVE. Selling and marketing expenses
increased by 22% in 1994 in comparison to the prior year. This increase was
attributable primarily to additional selling efforts to the international,
multi-service and telecommunications markets. General and administrative
expenses increased 18% in 1994 over 1993 because of the growth of the overall
business.
CONSOLIDATION AND RELOCATION. In 1993, the Company charged to expense
approximately $4.1 million pertaining to the consolidation and relocation of
customer support activities in the U.S. and relocation of the Company's offices
in the U.K.
INCOME TAXES. In 1993, the Company adopted SFAS 109, resulting in an
accumulated credit to income of $2.4 million. Income tax expense in 1993,
exclusive of the change in accounting, was 49% of pretax income, versus 46% in
1994. In both years, losses in a foreign subsidiary were incurred and not tax
effected.
NET INCOME. Net income in 1994 increased 35% from $4.6 million in 1993 to
$6.2 million, exclusive of the accounting change. Net income per share in 1994
increased 33% from $0.21 in 1993 to $0.28, exclusive of the accounting change
which was $2.4 million or $0.11 per share. During 1994, the number of shares
outstanding were reduced by 560,067 primarily from the Company's redemption of
shares pursuant to its obligation under the ESOP. See "Management -- Employee
and Director Plans."
19
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly financial data
for each quarter of 1994 and 1995 and the first quarter of 1996 and the
percentage of revenue represented by each line item. The Company believes that
all necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the selected
quarterly information when read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere herein. The operating
results for any quarter are not necessarily indicative of results for any
subsequent period or for the entire fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
1994 1995
-------------------------------------------- ---------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30
----------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software and services................... $ 32,688 $ 38,777 $ 40,352 $ 43,430 $ 46,484 $ 46,129 $ 50,218
Equipment sales and services............ 8,004 11,140 5,234 9,180 6,528 10,022 6,459
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 40,692 49,917 45,586 52,610 53,012 56,151 56,677
Cost of revenue:
Software and services................... 22,024 24,972 26,455 29,595 29,813 31,102 32,509
Equipment sales and services............ 5,031 6,560 2,830 5,055 3,701 5,996 4,124
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 27,055 31,532 29,285 34,650 33,514 37,098 36,633
----------- --------- --------- --------- ----------- --------- ---------
Gross profit.............................. 13,637 18,385 16,301 17,960 19,498 19,053 20,044
----------- --------- --------- --------- ----------- --------- ---------
Operating expenses:
Research and development................ 4,072 4,052 4,570 4,006 4,504 3,917 4,295
Selling, general and administrative..... 7,537 8,427 7,530 10,302 10,057 10,120 9,784
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 11,609 12,479 12,100 14,308 14,561 14,037 14,079
----------- --------- --------- --------- ----------- --------- ---------
Operating income.......................... 2,028 5,906 4,201 3,652 4,937 5,016 5,965
Interest expense.......................... 1,034 985 1,116 1,149 1,168 1,236 1,346
----------- --------- --------- --------- ----------- --------- ---------
Income before income taxes................ 994 4,921 3,085 2,503 3,769 3,780 4,619
Income tax provision...................... 463 2,283 1,431 1,157 1,488 1,493 1,825
----------- --------- --------- --------- ----------- --------- ---------
Net income................................ $ 531 $ 2,638 $ 1,654 $ 1,346 $ 2,281 $ 2,287 $ 2,794
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Net income per share...................... $ 0.02 $ 0.12 $ 0.08 $ 0.06 $ 0.11 $ 0.11 $ 0.13
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Shares used in per share calculation...... 21,995 21,963 21,864 21,707 21,494 21,186 21,078
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
1994 1995
-------------------------------------------- ---------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30
----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software and services................... 80.3% 77.7% 88.5% 82.6% 87.7% 82.2% 88.6%
Equipment sales and services............ 19.7 22.3 11.5 17.4 12.3 17.8 11.4
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software and services................... 54.1 50.1 58.0 56.3 56.2 55.4 57.3
Equipment sales and services............ 12.4 13.1 6.2 9.6 7.0 10.7 7.3
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 66.5 63.2 64.2 65.9 63.2 66.1 64.6
----------- --------- --------- --------- ----------- --------- ---------
Gross profit.............................. 33.5 36.8 35.8 34.1 36.8 33.9 35.4
----------- --------- --------- --------- ----------- --------- ---------
Operating expenses:
Research and development................ 10.0 8.1 10.1 7.6 8.5 7.0 7.6
Selling, general and administrative..... 18.5 16.9 16.5 19.6 19.0 18.0 17.3
----------- --------- --------- --------- ----------- --------- ---------
Total................................. 28.5 25.0 26.6 27.2 27.5 25.0 24.9
----------- --------- --------- --------- ----------- --------- ---------
Operating income.......................... 5.0 11.8 9.2 6.9 9.3 8.9 10.5
Interest expense.......................... 2.6 1.9 2.4 2.1 2.2 2.2 2.4
----------- --------- --------- --------- ----------- --------- ---------
Income before income taxes................ 2.4 9.9 6.8 4.8 7.1 6.7 8.1
Income tax provision...................... 1.1 4.6 3.2 2.2 2.8 2.6 3.2
----------- --------- --------- --------- ----------- --------- ---------
Net income................................ 1.3% 5.3% 3.6% 2.6% 4.3% 4.1% 4.9%
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
1996
-----------
DEC. 31 MAR. 31
--------- -----------
<S> <C> <C>
Revenue:
Software and services................... $ 54,451 $ 55,421
Equipment sales and services............ 8,972 4,834
--------- -----------
Total................................. 63,423 60,255
Cost of revenue:
Software and services................... 34,278 35,228
Equipment sales and services............ 5,717 2,933
--------- -----------
Total................................. 39,995 38,161
--------- -----------
Gross profit.............................. 23,428 22,094
--------- -----------
Operating expenses:
Research and development................ 5,099 5,642
Selling, general and administrative..... 12,141 11,009
--------- -----------
Total................................. 17,240 16,651
--------- -----------
Operating income.......................... 6,188 5,443
Interest expense.......................... 1,216 1,206
--------- -----------
Income before income taxes................ 4,972 4,237
Income tax provision...................... 1,964 1,674
--------- -----------
Net income................................ $ 3,008 $ 2,563
--------- -----------
--------- -----------
Net income per share...................... $ 0.14 $ 0.12
--------- -----------
--------- -----------
Shares used in per share calculation...... 20,796 20,659
--------- -----------
--------- -----------
1996
-----------
DEC. 31 MAR. 31
--------- -----------
<S> <C> <C>
Revenue:
Software and services................... 85.9% 92.0%
Equipment sales and services............ 14.1 8.0
--------- -----------
Total................................. 100.0 100.0
Cost of revenue:
Software and services................... 54.1 58.4
Equipment sales and services............ 9.0 4.9
--------- -----------
Total................................. 63.1 63.3
--------- -----------
Gross profit.............................. 36.9 36.7
--------- -----------
Operating expenses:
Research and development................ 8.0 9.4
Selling, general and administrative..... 19.1 18.3
--------- -----------
Total................................. 27.1 27.7
--------- -----------
Operating income.......................... 9.8 9.0
Interest expense.......................... 2.0 1.9
--------- -----------
Income before income taxes................ 7.8 7.1
Income tax provision...................... 3.1 2.8
--------- -----------
Net income................................ 4.7% 4.3%
--------- -----------
--------- -----------
</TABLE>
20
<PAGE>
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on various factors. These factors include
the number of subscribers or end-users serviced by the Company's clients, the
timing and size of new or expiring contracts, the effort involved in converting
new clients to the Company's systems, labor and material costs, the volume of
custom design, graphics and printing services contracted by the Company's
clients, and the success of current clients' migration to alternative software
and services. The Company may invest significant time and financial resources
towards securing and implementing contracts and potential contracts, such as the
addition of Ameritech in 1994 as a client, or developing new products and
services. Revenue from such activities may be received, if at all, only in
future quarters. Thus, the Company may incur significant expenses in a
particular quarter that are not offset by corresponding revenue and conversely
may receive additional revenue in future quarters for which related expenses
were incurred in prior quarters.
Over the nine quarters ended March 31, 1996, the most significant quarterly
variances in revenue have been the addition of Ameritech as a bill presentment
client in early 1994, which resulted in the increase in software and services
revenue in the second quarter of 1994, and the variation in computer hardware
sales from quarter to quarter. In general, the Company has experienced lower
revenue from equipment sales in the second half, and particularly the third
quarter, of each year. In the third quarters of 1994 and 1995, equipment sales
and services revenue declined by $5.9 million or 53% and $3.6 million or 36%,
respectively, over the immediate prior quarters.
The overall gross margin increased to 37% and 36% in the second and third
quarters of 1994 from 34% in the first quarter. The lower margin in the first
quarter resulted from labor and equipment costs incurred in adding Ameritech as
a client. In the fourth quarter of 1994, the gross margin was reduced to 34% as
the Company incurred additional costs and increased staffing in connection with
adding approximately 287,000 square feet of leased facilities to accommodate the
expansion of bill presentment services. Gross margin improved to 37% in the
first quarter of 1995 as the facilities became operational and software and
services revenue increased. In the second quarter of 1995, gross margin declined
to 34%. The Company was anticipating the addition of a large bill presentment
services client and, accordingly, added the necessary equipment and personnel.
When it became evident that the prospective client would not outsource its
business, the equipment and personnel were redeployed or eliminated, helping to
improve gross margin in the third and fourth quarters of 1995 and the first
quarter of 1996.
Research and development expenses can vary from quarter to quarter depending
on changing priorities and client needs. In the fourth quarter of 1995, the
Company increased its spending level primarily to upgrade its Intelecable
software product. Selling, general and administrative expenses can vary from
quarter to quarter based on revenue, contract signings and the initiation of
market and promotional programs. In the fourth quarter of 1994, the Company
increased its selling and marketing expenditures by 66% over the average of the
first three quarters of that year. This increase was directed at expanding the
Company's international presence, marketing Intelecable in the U.S. and
increasing its focus on selling bill presentment services.
LIQUIDITY AND CAPITAL RESOURCES
From 1993 through the first quarter of 1996, the primary sources of
financing of the Company's growth has been cash provided by operations and
borrowings from banks and financial institutions. During the 13-quarter period,
the Company generated $82.7 million in net cash from operations and increased
its net borrowings by $10.1 million. In the same period, net capital
expenditures were $86.8 million, and repurchases by the Company of its common
stock were $8.9 million.
The Company collects from its clients and remits to the U.S. Postal Service
a substantial amount of postage. All contracts allow the Company to pre-bill
and/or require deposits from its clients to mitigate the effect on cash flow. As
of March 31, 1996, 35% of the Company's accounts receivable represented amounts
due from clients for postage. Postage collections and remittances are not
included in the Company's statements of operations.
21
<PAGE>
At March 31, 1996, the Company had $5.9 million of cash, $62.8 million of
accounts receivable (including postage receivable of $22.2 million), $5.7
million of current net investment in leases, and $28.3 million of working
capital. At the end of the first quarter of 1996, the Company and a subsidiary
had combined borrowings of $38.0 million under unsecured bank credit
arrangements with a total borrowing availability of $65.0 million. Of the $63.2
million of total debt outstanding at March 31, 1996, $10.1 million is due over
the following 12-month period. The Company plans to use a portion of the
proceeds from this offering to repay borrowings under the bank credit
agreements. See "Use of Proceeds."
The Company plans to continue making significant investments in capital
equipment, facilities and research and development. The Company believes that
the proceeds of this offering, together with net cash flow from operations and
borrowing availability, will be sufficient to support operations through the
next twelve months. The above statements that are not historical facts or
statements of current status are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995 and as such are subject to the
risks and uncertainties set forth under "Risk Factors" herein. Actual results
may differ materially.
22
<PAGE>
BUSINESS
USCS is a leading provider of customer management software and services to
the global communications industry. The Company's clients include cable
television, wireless and land-line telephony, DBS and multi-service providers in
the U.S. and 13 other countries. The Company's software-based solutions enable
its clients to manage critical customer relationship functions, including new
account set-up, order processing, customer support, management reporting and
marketing analysis. The Company also provides bill presentment services, which
include generation of high quality customized billing statements that are
produced in automated facilities designed to minimize turnaround time and
mailing costs. USCS also offers a variety of complementary professional
services, including consulting, application development and client training, as
well as statement design services that allow clients to use the billing
statement as a communication and marketing tool. The Company's clients typically
enter into contracts with terms ranging from three to seven years. Clients are
billed monthly, generally based on the number of end-users they serve. As a
result, a significant portion of the Company's revenue is recurring and
increases as the service provider's customer base grows. In 1995, the Company's
revenue totaled $229.3 million, of which 73% was generated from companies which
have been clients of USCS for three or more years.
USCS has been providing comprehensive customer management software and
services to the cable television industry for more than 25 years. The Company's
software currently supports 53% of U.S. cable subscribers and is used by 15 of
the 20 largest cable television service providers in the U.S. The Company
provides bill presentment services to clients serving 53% of U.S. cable
television subscribers, 33% of U.S. cellular users and 9% of U.S. land-line
telephony customers and to a variety of other service providers. The Company's
bill presentment clients include substantially all of its domestic customer
management software clients and other service providers such as Ameritech,
AirTouch and Frontier. The Company currently processes over 60 million bills per
month and is the largest centralized first class mailer in the U.S., responsible
for generating more than 1.5% of the total volume of all U.S. first class mail,
including customer remittance volume.
The Company has extended its leadership position by introducing products and
services that address the rapidly changing global communications market.
Technological advances, regulatory changes and international growth are
transforming the structure and competitive dynamics of the industry. Markets
that were once segmented by service and geographic location are converging into
a single global communications market which includes traditional service
providers and new entrants offering a combination of services. The rapidly
shifting and increasingly complex nature of the converging communications market
has increased the need among service providers for sophisticated and flexible
customer management software and services.
In 1993, the Company deployed Intelecable, which the Company believes is the
first customer management software product designed for multi-service providers.
The Company also believes that Intelecable is the only integrated multi-service
customer management software system currently operational and commercially
available. Intelecable is presently installed for 17 clients worldwide,
including combined cable/telephony service providers in the U.K., a combined
cable/wireless cable/DBS provider in Australia and two interactive video
providers in the U.S., including BellSouth Interactive. The Company has also
expanded its bill presentment services to support multi-service providers by
offering consolidated billing statements that combine data from multiple
services, such as wireless and land-line telephony, into a single integrated
billing statement.
COMMUNICATIONS MARKET DYNAMICS
The communications industry includes cable television, wireless and
land-line telephony, paging, personal communications services ("PCS"), DBS,
wireless cable, interactive broadband and other services. Technological advances
and regulatory changes in the U.S. and internationally have transformed the
structure and competitive dynamics of the industry. Markets that were formerly
segmented by service and geographical location are converging into a single,
worldwide communications market, which includes both traditional service
providers and a variety of new entrants. Communications service providers can
now offer expanded combinations of services in numerous locations.
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In the U.S., cable television and telecommunications companies traditionally
operated in a highly regulated environment that often limited the number of
service providers for a particular service in a given geographical area and also
limited the types of services that could be provided by single companies.
Passage in February 1996 of the Telecommunications Act of 1996 and other recent
deregulatory measures, however, have removed some of the barriers that
previously prevented telephony companies from providing cable television service
and cable television companies from providing telephony service in the U.S.
RBOCs for example, which provided local telephony services to 78 million
households in the U.S. in 1995, now have the opportunity to offer video services
in the U.S.
The regulatory changes redefining the U.S. market have in many cases already
affected the foreign marketplace. In recent years, some countries have
authorized cable and telephony companies to compete. In the U.K., for example,
seven companies currently offer combined cable/telephony services to over one
million customers.
Improving price/performance characteristics of communications hardware have
also contributed to growth in the worldwide communications market. For example,
the retail price of cellular handsets has declined significantly in recent years
and in some instances handsets are now given away free of charge to encourage
new subscriber growth. Due in part to such developments, the number of cellular
customers increased by approximately 40% in the U.S. and 80% internationally in
1995. In addition, governments in the U.S. and other countries have recently
allocated additional bandwidth for new wireless communications services such as
PCS. In the U.S., nearly 100 PCS licenses were awarded in Federal Communications
Commission auctions in the first quarter of 1995 alone.
Historically limited availability of many traditional communications
services outside of the U.S. offers significant opportunities for local and
U.S.-based communications service providers. Many countries outside the U.S.
have recently passed legislation designed to increase availability and usage of
video-based services such as cable television and DBS. In other countries,
governments are privatizing their formerly state-owned telecommunications
monopolies to increase the quality and availability of services. Additionally,
cable television regulations have recently been approved in some countries
legalizing the construction of cable systems.
The rapidly shifting dynamics of the converging communications marketplace
have resulted in an increased emphasis on effective customer management software
and services. Companies competing in this deregulated and increasingly
competitive environment require customer management software and services that
are flexible, scaleable and capable of supporting multi-service providers.
CUSTOMER MANAGEMENT SOFTWARE AND SERVICES
Customer management software systems enable a communications service
provider to manage critical customer relationship functions, including new
account set-up, order processing, customer service and support, management
reporting, marketing analysis and accounts receivable management. Effective
customer management software systems are generally flexible, modular and
scaleable, allowing clients to manage increasing customer bases. In addition,
such systems are generally interoperable with the service provider's other
information systems such as decision support software. Customer management
services include bill presentment, the process by which electronic billing data
are analyzed, verified, formatted and presented to the end user for payment.
Billing statements are generally printed and mailed to customers, although in
recent years, service providers have begun to explore alternative presentment
methods, including electronic presentment via a PC or other communications
device. The bill presentment process must be cost-effective and produce easily
understandable bills quickly and accurately. As customer management software and
services often form the basis of the only regular communication between service
providers and their customers, the interaction enabled by these systems can be a
critical marketing tool.
Customer management software and services can either be developed and
managed by the communications service provider, outsourced to one or more third
parties or apportioned between internal and external systems. Software systems
can be operated on a stand-alone basis, using hardware located at the client's
facility, or provided on a service bureau basis using third party computer
systems located at the
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supplier's facility and linked to the client by a wide area network. Development
and implementation of a customer management software system is a costly and
time-consuming effort. The Company believes that third party customer management
software systems developed independently often provide a higher level of
price/performance, flexibility and scaleability than in-house systems. The
Company also believes that, as new communications service providers enter the
market and the amount of new services being provided by both new and established
companies increases, the demand for systems with expanded functionality,
flexibility and scaleability will also increase.
Land-line telephony service providers in the U.S. have traditionally used
customer management software systems developed internally or through cooperative
joint ventures. These so-called "legacy" systems, many of which were developed
over 10 years ago, are designed for a single-service market and do not provide
the scaleability, flexibility and service integration capability required in a
multi-service environment. Significant resources would be required to transition
most legacy systems to a multi-service environment. The Company believes that
the inherent limitations of legacy systems may encourage telephony service
providers to seek outsourcing alternatives to support new or expanded offerings
in a multi-service environment.
Unlike land-line telephony service providers, cable television, wireless and
DBS service providers in the U.S. have typically outsourced customer management
software and services, preferring to allocate resources to other aspects of
their business, including network build-out. New companies entering the market
will be required to decide between developing their own in-house systems or
outsourcing, and established companies that are expanding their service
offerings will be required to upgrade their in-house systems or seek outsourcing
alternatives. The Company believes that the enhanced functionality and features,
lower start-up cost and rapid implementation capability of outsourced solutions
will be an attractive alternative for such companies.
In non-U.S. markets, land-line telephony service providers have typically
developed in-house single-service customer management systems, while cable
television, wireless and DBS providers have typically outsourced. The Company
believes that the rapid growth of cable television, wireless and DBS providers
internationally will result in substantially increased outsourcing
opportunities. In addition, as U.S. cable companies continue to enter
international markets through acquisitions and alliances, the Company believes
that such companies will continue to outsource customer management software
systems. Non-U.S. communications companies have also historically used
internally developed bill presentment solutions. However, the Company believes
that increased activity in non-telephony services and the expansion of U.S.
companies into non-U.S. markets will increase outsourcing opportunities for bill
presentment services in non-U.S. markets.
THE USCS SOLUTION
USCS provides customer management software and services to single and
multi-service providers in the U.S. and 13 other countries. The Company's
software and related products are flexible, modular, interoperable with other
information systems and scaleable to an expanding customer base. The Company's
bill presentment services offer its clients a variety of options for generating
informative, easy-to-read and customized billing statements that maximize
marketing impact and minimize overall production cost. The Company offers its
customer management software to U.S. and international clients on a stand-alone
basis while offering U.S. clients both stand-alone and service-bureau
alternatives. USCS also offers a variety of complementary professional services,
including consulting, application development and client training, as well as
statement design services that allow clients to use the billing statement as a
communication and marketing tool.
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USCS is a leading provider of customer management software and services to
the global communications industry. In 1995, the Company was the largest
provider of customer management software systems to U.S. cable television
service providers, supporting 53% of U.S. cable subscribers. The Company's bill
presentment services generated statements for 53% of U.S. cable subscribers, 33%
of U.S. cellular customers and 9% of U.S. land-line telephony users. The
Company's record of achievement includes what USCS believes is:
-The first customer management software system for multi-service
providers, including support of combined cable television/telephony
sites;
-The first contract with an RBOC to outsource all bill presentment
functions for telephony services;
-The first installation and operation of customer management software
for interactive video trials in the U.S.;
-The first on-line processing system for the cable industry;
-The first pay-per-view module for on-line subscribers; and
-The first incorporation of a relational database into a customer
management software application which allows the user to query logical
relationships without the need to predefine or describe a specific
access path to the data.
USCS STRATEGY
The Company's strategy to maintain and enhance its industry position
includes the following key elements:
FOCUS ON RECURRING REVENUE. The Company's clients typically enter into
contracts with terms ranging from three to seven years. Clients are billed
monthly, generally based on the number of end-users they serve. As a result, a
significant portion of the Company's revenue is recurring and increases as the
service provider's customer base grows. In addition, the Company focuses on
client care and service to encourage long-term relationships and contract
renewals. In 1995, the Company's revenue totaled $229.3 million, of which 73%
was generated from companies that have been USCS clients for three or more
years. The Company will continue to focus on building recurring revenue through
long-term contracts and enhanced client care.
FOCUS ON NEEDS OF MULTI-SERVICE PROVIDERS. The Company is a pioneer in
providing integrated customer management software and services to both single
and multi-service communications providers. The Company intends to leverage its
technology, multi-service experience and installed base of clients to rapidly
expand its base of multi-service clients.
INCREASE INTERNATIONAL REVENUE. The Company currently provides customer
management software and services to clients in 13 foreign countries and is
seeking to expand its international presence, both in software and bill
presentment services, using direct and indirect sales channels. The Company has
entered into alliances with established international distributors such as Bull
Argentina S.A., Sema Group and IBM to market Intelecable. The Company intends to
target additional distribution alliances for Intelecable and to market its bill
presentment services in selected international markets, primarily through
licensing arrangements.
EXPAND BILL PRESENTMENT MARKET OPPORTUNITIES. The Company provides bill
presentment services to a variety of communications service providers,
generating billing statements for 53% of U.S. cable subscribers, 33% of U.S.
cellular users and 9% of U.S. land-line telephony customers. The Company also
services several non-communications clients, including financial service
providers and utility companies. The Company intends to target clients in both
communications and other industries to expand the market for its bill
presentment services.
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INCREASE PROFESSIONAL AND STRATEGIC SERVICES REVENUE. The Company provides
its customers with a variety of professional and strategic services, including
application development, consulting, support, training, software design,
statement design and marketing services. The Company intends to leverage its
installed client base and capitalize on the professional and strategic expertise
of its personnel to increase revenue from these activities.
CONTINUE TO DEVELOP LEADING-EDGE SOFTWARE AND SERVICES. The Company
regularly develops and incorporates new and diverse technologies into its
customer management software products and its bill presentment processes. The
Company's product development strategy is based on open systems architecture and
relational databases, which facilitate operation on multiple hardware platforms
and interoperability with other information systems. The Company has entered
into alliances with IBM and Tandem Computers Incorporated ("Tandem") in
connection with the development of customer management software. The Company is
also continually seeking to enhance its bill presentment services to increase
client interaction and reduce turnaround time and mailing costs. Additionally,
the Company is exploring electronic statement presentment alternatives. USCS
intends to use both its internal development team and strategic alliances to
maintain its technological leadership.
USCS PRODUCTS AND SERVICES
USCS offers customer management software systems, bill presentment services
and a variety of related professional and support services. The Company's
products and services enable communications service providers to manage critical
customer relationship functions, including new account set-up, order processing,
customer support, management reporting, marketing analysis and design and
generation of customized billing statements. The Company also offers a variety
of fee-based professional services, including worldwide consulting, application
development, client training and statement design services that allow clients to
use the billing statement as a communication and marketing tool.
CUSTOMER MANAGEMENT SOFTWARE
The Company's primary customer management software products are DDP/SQL and
Intelecable. The Company markets DDP/SQL to the traditional U.S. cable
television provider market while Intelecable is targeted to single and
multi-service providers in the U.S. and internationally. The Company also offers
CableWorks, a PC-based system for smaller operators. Additionally, certain
clients continue to use earlier generations of the Company's software that are
no longer marketed to new clients. Both DDP/SQL and Intelecable are scaleable
and are available in basic systems with optional modules, allowing the service
provider to design a customized system which can effectively manage a growing
customer base. Both systems were developed in compliance with ISO 9001
international quality process standards for design, production, installation and
servicing.
The Company licenses its software products to its clients under multi-year
license agreements. License fees are generally paid monthly based on the number
of subscribers or end-users served by the client. These agreements are typically
subject to periodic renewals and inflation-based license fee adjustments.
DDP/SQL. DDP/SQL is the Company's primary software system for cable
television companies in North America. Currently, 15 of the 20 largest cable
television service providers in the U.S. use the DDP/ SQL system. DDP/SQL offers
a basic system with optional modules for expanded functionality. DDP/SQL uses a
relational database which allows the user to query logical relationships without
the need to predefine or describe a specific access path to the data.
Information generated by DDP/SQL can be used with the client's internal
information systems and off-the-shelf software programs. This interoperability
allows users, for example, to easily create financial spreadsheets based on
information generated by DDP/SQL.
The Company offers DDP/SQL on either a stand-alone or a service bureau
basis. Stand-alone systems currently support approximately 75% of the Company's
client subscriber base while 25% are supported on a service bureau basis. For
stand-alone clients, the Company installs a complete DDP/SQL system at the
provider's facility, including necessary hardware and peripherals. Clients using
a service bureau arrangement access the Company's on-line processors via wide
area networks. The Company's Technical Response Center monitors traffic and
network availability to identify and respond to outages in the system. See "--
USCS Products and Services -- Hardware Leasing and Sales" and "-- Client Support
and Care."
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DDP/SQL runs on massively parallel processing hardware manufactured by
Tandem. The Company is a value-added reseller of Tandem equipment. The Company
also sells to its clients peripheral hardware made by manufacturers other than
Tandem, and generally enters into hardware maintenance agreements with its
clients. The Company also provides lease financing and maintenance services for
companies operating systems on a stand-alone basis. See "-- USCS Products and
Services -- Hardware Leasing and Sales."
INTELECABLE. The Company believes that Intelecable is the world's first
customer management software system designed for multi-service providers in the
converging communications marketplace. The Company also believes that
Intelecable is the only integrated multi-service software system currently
operational and commercially available. First installed in 1993, Intelecable
supports a diverse array of communications services, including cable television,
telephony, combined cable/telephony, interactive video and DBS. The Company has
installed Intelecable for 17 clients worldwide, including combined
cable/telephony service providers in the U.K., a combined cable/wireless
cable/DBS provider in Australia and two sites in the U.S. that support
interactive video operations.
The Company has installed Intelecable for Birmingham Cable Communications
Ltd. ("Birmingham Cable") in Birmingham, U.K. The Birmingham site became
operational in August 1993 and over 275,000 homes have been passed in its
region. At the Birmingham site, Intelecable supports 80,000 cable subscribers
and handles over 8.3 million telephone calls per month.
In addition to Birmingham Cable, Intelecable is being deployed to support
combined cable/telephony operations for Optus Vision in Australia, which is
expected to be the world's first nationwide integrated cable/telephony system.
Other sites include a nationwide cable/wireless cable/DBS operation in Australia
and cable-television-only sites in Australia, Chile, Japan, Portugal, the U.K.
and Venezuela. Intelecable is enabled with National Language Support double-byte
capability, which allows operation in a variety of foreign languages, including
Japanese, Chinese and Arabic. In the U.S., Intelecable has recently been
deployed to support an interactive video trial by BellSouth Interactive in
Chamblee, Georgia.
The Company believes that Intelecable is the only customer management
software system currently operational that has multi-platform capabilities.
Initially offered on IBM's AIX (UNIX) operating system, Intelecable is being
ported to Tandem's Integrity NR and is expected to be available on Tandem's OSS
platform. The Tandem OSS port is expected to provide a migration path to
Intelecable for DDP/ SQL users requiring multi-service customer management
software capabilities.
Intelecable is based on an open systems architecture, which facilitates
customization and interoperability with other information systems. The
Intelecable system has been developed using standard design methodologies and
transaction processing monitor architecture. Intelecable also uses an embedded
standard query language (SQL), which facilitates access to the database by
user-created applications. The design of Intelecable delivers a high-level
programming interface, which allows extensive customization without complex code
changes. Intelecable uses an Oracle relational database, which allows clients to
maintain an integrated database for each service offered by the client.
CABLEWORKS. The Company markets its CableWorks PC-based customer management
software product to domestic and international cable operators that have lower
transaction volume requirements than operators supported by DDP/SQL or
Intelecable. CableWorks is designed to introduce smaller cable operators to the
Company's products, with the expectation that such operators will migrate to
Intelecable or DDP/SQL as their business grows. CableWorks is installed in sites
in the U.S. and 26 other countries and has been translated into eight foreign
languages.
DOCUMENTATION AND TRAINING. The Company provides, at an additional charge,
complete product documentation and training services to users of its software
products. The Company has recently added CD-ROM-based product documentation. The
Company's "ClassROM" software provides interactive instruction and product
training on CD-ROM. The Company maintains training facilities in California and
the U.K. See "-- USCS Products and Services -- Professional Services and
Support."
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BILL PRESENTMENT SERVICES
The Company provides bill presentment services in a fully integrated and
automated production environment that rapidly and cost-effectively transforms
electronic data received from the client into informative, accurate and
customized billing statements. In addition, the Company's statement-based
marketing services allow clients to use the billing statement as a marketing
tool to reinforce a corporate image, advertise special offers and features and
otherwise market its services to its customers. To address the needs of
multi-service providers, the Company offers billing statements that combine data
from multiple services, such as wireless and land-line telephony, into a
consolidated billing statement.
The Company's automated bill presentment services offer several advantages
over typical in-house services, including the following:
-SHORTENED BILLING CYCLES. The "billing cycle" refers to the time
between receipt of the electronic billing data from the service
provider and the date the service provider receives payment of the bill
from its customer. By rapidly generating billing statements and
presorting to reduce mailing time, the Company's systems can
significantly reduce the time required to place a statement in the
postal stream, thereby shortening the client's billing cycle. In
addition, the Company has the ability to dynamically change the due
date of a particular batch of statements to allow a previously produced
batch of statements to have an earlier due date than later batches,
further shortening the overall billing cycle.
-MINIMIZED MAILING COSTS. The Company has developed procedures, such as
certified Manifest Mailing, that allow the Company's clients to secure
the lowest available postal rate for their statements. Additionally,
the Company's systems can automatically calculate the maximum number of
inserts that can be placed in an envelope without causing the envelope
to exceed certain specified weights.
-STATEMENT-BASED MARKETING CAPABILITIES. The Company offers custom
statement and envelope design services, custom formatting, insert
production services, selective inserting capability and a variety of
other services that enhance its clients' statement-based marketing
activities.
-REDUCED CUSTOMER CARE COSTS. By providing custom formatting and other
design services, the Company has helped certain of its clients achieve
demonstrated savings in customer care costs by substantially reducing
the number of customer inquiries and complaints regarding their bill
and the billing process.
STATEMENT PRODUCTION. The Company, which currently generates statements for
53% of U.S. cable television subscribers, 33% of U.S. cellular customers and 9%
of U.S. land-line telephony users, has achieved its industry position in part
through the development and deployment of technologically innovative systems and
software. The Company operates two statement production facilities in the
Northern California area. These facilities receive a data stream from the
client's customer management software (whether a client's legacy system, a
competitor's system or the Company's software), manipulate the data into a
usable format, create cost-effective, informative, easy-to-read and accurate
customized billing statements and mail the statements to the end-users. The
Company is the largest centralized first class mailer in the U.S., responsible
for generating more than 1.5% of the total volume of all U.S. first class mail,
including customer remittance volume. The Company processes over 60 million
statements containing approximately 200 million images (generally one page side)
per month. The Company generates bill presentment revenue based on the number of
statements and/or images produced and mailed. The Company has developed
automation technologies that have led to a demonstrated 99.9% statement accuracy
level for the 12 months ended March 31, 1996, based on reported client
complaints.
Using patented processes and technologies, the Company provides a
fully-integrated, computerized and automated production environment that (i)
processes, logs, verifies and authenticates all customer data, (ii) creates
automated production controls for every statement, including form bar codes,
weight and
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thickness parameters, unique statement tracking numbers, "due out" dates,
address correction, carrier route/delivery point bar codes and postal processing
parameters, (iii) models every production run on-line before printing and (iv)
enables postal processing, sorting and discounting to be performed on-line.
Full real-time automation enables the Company to monitor quality, control
remakes, predict and schedule production loading, verify customer data, forecast
production volumes and maintain production system history on-line. The system is
controlled by an on-line production control system that is based on advanced
client/server architecture and has high-speed data transmission capabilities. A
local area network links the production equipment to the production control
system. To provide clients with real-time information regarding the progress of
the billing statement production process, the Company has developed its
"VantagePLUS" client information system, which provides a customized "view into
the facility" to allow clients to monitor the status of their jobs. VantagePLUS,
which is currently undergoing final testing with selected clients, includes a
client/server architecture and a PC-based graphical user interface that provides
traceability of an individual statement from the beginning of statement
production until 45 days after distribution. VantagePLUS is expected to provide
clients with greater control over the billing process in an outsourced
environment. See "Risk Factors -- New Products and Technological Changes."
The Company also offers consolidated billing statements for multi-service
providers, which combine data from multiple services, such as wireless and
land-line telephony, into a single integrated statement. Consolidated statements
can offer clients significant savings both in paper and mailing costs.
Consolidated statements can also be a powerful marketing tool for companies
seeking to establish brand name recognition and sell combined services.
STATEMENT-BASED MARKETING SERVICES. The Company provides statement-based
marketing services that allow its clients to transform regular customer billing
statements into communication tools. The billing statement is often the only
form of regular communication between a service provider and its customers. Many
clients have the opportunity, through the Company's statement-based marketing
and creative design services, to use the billing statement to reinforce a
corporate image, advertise special offers and features, deliver
customer-specific messages and otherwise market their services to their
customers. The Company believes that as competition in the communications market
increases, the ability to differentiate based on marketing and service will
become increasingly critical.
Statement design and marketing services are provided by the Company's
Creative Design Group, which works with clients to design flexible,
user-friendly statements. The Company offers its clients a choice of statement
sizes and formats, on-site forms analysis, logo and graphic design and
customer-specific messaging and advertising options. The Company also offers
custom envelope and forms design and manufacturing services.
The Company operates a full service graphics and printing facility through
which the Company offers color electronic publishing and pre-press and
multi-color printing of inserts. The Company works with its clients to design
and produce high-quality inserts that feature special offerings, promotions or
other messages from the client to its customers. The Company uses proprietary
selective inserting technology, which allows each statement to have a unique
combination of marketing inserts at the time the billing statement is produced.
The automated insert process allows clients to define an insert mailing with
precision, offering over 100 insert combinations in any given statement run.
FUTURE ELECTRONIC DELIVERY ALTERNATIVES. The Company's automated
information and technology infrastructure, which electronically prepares and
monitors the statement until final printing, provides the basis for the
Company's planned development of an electronic bill presentment alternative. The
proliferation of on-line services and the Internet provides an opportunity for
communications service providers to bill customers electronically through a PC
or other device. The Company believes that as electronic billing and payment
solutions become more accepted, communications service providers will require
electronic statement presentment capabilities. USCS is in preliminary
discussions with potential strategic partners to begin integrating electronic
presentment technologies into the Company's systems and is currently developing
a prototype. See "Risk Factors -- New Products and Rapid Technological Changes."
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PROFESSIONAL SERVICES AND SUPPORT
The Company has expanded and refocused its fee-based professional services
and support functions to better serve the needs of its clients in the global
communications industry and to expand its revenue base. The Company maintains a
Professional Services Group to provide global consulting services to its
software customers. This group provides assistance with database definition and
initialization, system operations, network consolidation and performance and
decision support services. This group also offers a variety of consulting,
educational and technical writing services. See "-- Customer Management Software
- -- Product Documentation and Training."
The Company's Integration Strategies Group assists clients in developing
custom-tailored applications and interfaces that are interoperable with the
Company's customer management software to enhance client operations. The
Integration Strategies Group is comprised of experienced developers who provide
clients with client specific software modules.
The Company's Customer Systems Group provides a full range of technical
support for the Company's bill presentment clients. This group has developed
customized programming tools that allow it to receive electronic information
streams from a variety of client systems without the need to make changes to the
customer's system. These tools allow for rapid and smooth transitions when
clients outsource bill presentment functions to the Company.
HARDWARE LEASING AND SALES
The Company sells computer equipment and provides leasing and maintenance
services to selected software clients which purchase stand-alone systems
primarily in the U.S. Maintenance is typically billed in advance of providing
the service. Revenue from sales of computer hardware and providing associated
maintenance and leasing services has been declining in absolute dollars and as a
percentage of total revenue. In 1995, revenue from these activities was less
than 14% of total revenue as compared to 30% in 1993. While the Company will
continue to offer hardware and services to current and future clients, the
Company expects the decline as a percentage of total revenue to continue.
CLIENTS
The Company sells customer management software and services to clients in
the U.S. and 13 other countries. The following are selected clients of the
Company:
<TABLE>
<CAPTION>
CABLE TELEVISION CLIENTS TELEPHONY CLIENTS MULTI-SERVICE PROVIDERS
- ----------------------------- ------------------------ ------------------------
<S> <C> <C>
Adelphia AirTouch Paging BellSouth Interactive
Cablevision Systems Ameritech Birmingham Cable
Comcast CBIS GTE Video
Continental Cablevision Frontier Optus Vision
TCI
Time Warner
</TABLE>
In addition to communications service providers, the Company provides bill
presentment services to companies in other industries, including Amerigas
Corporation (utilities) and GT Global Investor Services, Inc. (financial
services). The Company intends to seek additional non-communications clients for
its bill presentment services. See "-- USCS Strategy."
CLIENT SUPPORT AND CARE
USCS provides worldwide training and support to its clients. As of December
31, 1995, USCS employed 192 persons in its client service groups, representing
9% of its total employees. In the U.S., client care is divided into product
specific teams, with one team focusing on customer management software and the
other team focusing on bill presentment services. Both teams provide broadbased,
24 hour, 7 day support and technical assistance. The Company has developed a
full range of training products and documentation including what the Company
believes to be the first CD-ROM based training product for its software clients.
31
<PAGE>
Supplementing the front line software support groups for service bureau software
customers is the Company's Technical Response Center, which monitors traffic and
network availability to identify and respond to outages in the system.
Internationally, Intelecable is supported by teams located in the U.S. and the
U.K. as well as by alliance partners.
SALES AND MARKETING
The Company markets its products and services in the U.S. with a 72-person
direct sales force, including account management and technical support teams,
and internationally through partners supported by an 11-person sales staff. The
Company's sales and marketing teams are coordinated by the Company's Strategic
Accounts Council to promote a unified marketing and sales effort to its clients.
A marketing communications group, resident in both the U.S. and the U.K.,
supports the Company's sales teams.
Software and services are sold primarily to cable, DBS and multi-service
providers through direct sales channels and in conjunction with international
alliance partners. In North America the Company operates a 42-person software
and services sales and marketing team, including account management and
technical support teams.
The Company's international sales staff is coordinated by geographic area,
including dedicated account and technical support personnel located in the U.K.
office. In addition to direct sales, the Company has allied with 10 distribution
partners throughout the world who are responsible for sales, marketing, support
and local customization.
The Company believes that sales of separate bill presentment services to
telecommunications service providers such as RBOCs and cellular providers offers
both increased revenue opportunities as well as increased visibility for the
Company. The Company maintains a 30-person sales staff, including account
management and technical support teams and significant design resources, to
target this market. The Company has also begun a bill presentment international
marketing effort that seeks to exploit what the Company believes is significant
growth potential in that market. The Company is currently pursuing opportunities
for technology licensing and joint ventures for bill presentment in Europe and
South America. See "Risk Factors -- Technological Advances and New Product
Development."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on introducing
new products and services as well as ongoing enhancement of its existing
products and services. The Company believes that its investment in research and
development is critical to maintaining its leadership position. The Company
works closely with development partners such as Tandem and IBM to enhance its
products. The Company's research and development partnerships typically provide
for funding by development partners and include joint marketing and other
arrangements. In software product development, significant emphasis is placed on
compliance with world wide development standards and quality benchmarks. The
Company's processes used at its Research and Development Center in El Dorado
Hills, California, have received ISO 9001 certification, the globally recognized
quality standard. The Company also continually enhances its bill presentment
services by developing software and processes that increase production
efficiency and aid clients in accessing bill processing information. See "--
USCS Strategy."
The Company's research and development staff consisted of 223 employees as
of December 31, 1995, compared to 165 as of December 31, 1993. The Company's
total expenses for Company-sponsored research and development were $17.8
million, $16.7 million, and $16.0 million for the years ended December 31, 1995,
1994 and 1993, respectively. In addition, the Company spent $2.0 million, $1.3
million and $0.6 million in 1995, 1994 and 1993, respectively, for further
development of Intelecable, which amounts are reimbursable by third parties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and Note 2 of Notes to Consolidated Financial Statements.
32
<PAGE>
COMPETITION
The market for the Company's products and services is highly competitive,
and competition is increasing as additional market opportunities arise. The
Company competes with both independent providers and developers of in-house
systems. The Company believes its most significant competitors for software
systems are Information Systems Development (owned by CBIS), CSG Systems
International, Inc., and its own clients to the extent such clients develop
in-house systems. The most significant competitors for bill presentment services
are in-house service providers.
The Company believes that the principal competitive factors in the market
for customer management software include functionality and features of software,
quality of client care and support, type of hardware platform used and quality
of research and development. The principal competitive factors for bill
presentment services include statement production accuracy, ability to meet
statement production deadlines, product quality and price. The Company believes
that it competes favorably with respect to these factors. However, the Company
believes that to remain competitive, it will require significant financial
resources in order to market its existing products and services, to maintain
customer service and support and to invest in research and development. Many of
the Company's existing and potential competitors may have greater resources than
the Company. The Company expects its competitors to continue to improve the
design and performance of their current systems and processes and to introduce
new systems and processes with improved price/performance characteristics. No
assurance can be given that the Company will be able to compete successfully in
the U.S. or internationally. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY
The Company holds eight U.S. patents covering various aspects of its bill
presentment services. In addition, the Company has applied for 13 additional
U.S. patents. The Company has no foreign patents. The Company believes that
although the patents it holds are valuable, they will not determine the
Company's success, which depends principally upon its product quality, marketing
and service skills. However, despite patent protection, the Company may be
vulnerable to competitors who attempt to imitate the Company's systems or
processes and manufacturing techniques and processes. In addition, other
companies and inventors may receive patents that contain claims applicable to
the Company's system and processes. The sale of the Company's systems covered by
such patents could require licenses that may not be available on acceptable
terms, if at all. In addition, there can be no assurances that patent
applications will result in issued patents.
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
There can be no assurance that any patent applications that the Company may file
will be issued or that foreign intellectual property laws will protect the
Company's intellectual property rights. There can be no assurance that others
will not independently develop similar systems, duplicate the Company's systems
or design around the patents licensed by or issued to the Company.
A significant cable television client has advised the Company that RAKTL has
asserted that patents held by RAKTL may be infringed by the client's use of
certain interfaces offered by the Company. The patents relate to telephone call
processing with audio response unit and automatic number identification
capabilities of certain interfaces offered by the Company. The client recently
informed the Company that, should it become necessary, it would seek
indemnification from the Company. The Company believes that if the patents are
valid, and if they apply to the Company's business, they would also apply to
many users and suppliers of interactive computer telephony systems, including
the Company's competitors. The Company believes that it is adequately protected
by its patent position, but, to the extent that the RAKTL patents are valid and
apply to the Company's business, the Company could be required to seek licenses
from RAKTL and provide indemnification to its customers.
Although there currently are no pending claims or lawsuits against the
Company regarding possible infringement claims, there can be no assurance that
infringement claims by third parties, or claims for indemnification resulting
from infringement claims, will not be asserted in the future or that such
assertions,
33
<PAGE>
if proven to be true, will not materially adversely affect the Company's
business, financial condition and results of operations. In the future,
litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company or to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of others. Any such litigation could result
in substantial cost and diversion of effort by the Company, which by itself
could have a material adverse effect on the Company's financial condition and
operating results. Further, adverse determinations in such litigation could
result in the Company's loss of proprietary rights, subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties or prevent the Company from manufacturing or selling its
systems, any of which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, there can be no
assurance that a license under a third party's intellectual property rights will
be available on reasonable terms, if at all. See "Risk Factors -- Dependence on
Proprietary Technology."
EMPLOYEES
Many of the Company's employees are highly skilled, and the Company's
success will depend in part upon its ability to attract, retain and develop such
employees. Skilled employees, especially employees with extensive technological
backgrounds, are currently in great demand. There can be no assurance that the
Company will be able to attract or retain the skilled employees which may be
necessary to continue its research and development or marketing programs. See
"Risk Factors -- Attraction and Retention of Key Personnel."
As of April 30, 1996, the Company had 2,181 employees, of which 1,943 were
full-time employees and 238 were part-time employees. None of the Company's
employees are represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
FACILITIES
The Company owns two buildings in El Dorado Hills, California on
approximately 29 acres. One building of approximately 245,050 square feet is
utilized for statement production operations and supporting activities and the
other of approximately 48,200 square feet is the Company's system and software
research and development center. In addition, the Company owns approximately 278
acres of undeveloped land adjacent to its buildings. The Company leases a total
of approximately 476,000 square feet in Rancho Cordova and El Dorado Hills,
California of which approximately 287,000 square feet is utilized primarily for
statement production operations and warehousing. The other 189,000 square feet
is utilized primarily for corporate headquarters, sales and marketing, customer
support, and research and development.
The Company leases approximately 14,891 square feet in Norcross, Georgia for
its Eastern Regional Data Center, 1,762 square feet in Englewood, Colorado for a
sales office and approximately 2,000 square feet in Harrison, Arkansas for use
by its subsidiary, CUO, Inc. The Company also leases approximately 9,420 square
feet in the U.K. The leases for these facilities expire in the years 1997
through 2018.
The Company believes that its facilities are adequate for its proposed needs
through 1996 and that additional suitable space will be available as required.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of May
20, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
James C. Castle, Ph.D. 59 Chairman of the Board, Chief Executive Officer and Director
Michael F. McGrail 49 President of CableData, Inc. and Director
C. Randles Lintecum 51 President of International Billing Services, Inc.
Douglas L. Shurtleff 49 Senior Vice President, Finance and Chief Financial Officer
Claudia D. Coleman 44 Vice President, Corporate Development
George L. Argyros, Sr. (1)(2) 59 Director
George M. Crandell, Jr. (1)(2) 50 Director
Charles D. Martin (1)(2) 59 Director
Larry W. Wangberg 53 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JAMES C. CASTLE, PH.D. joined the Company as Chairman of the Board, Chief
Executive Officer and Director in August 1992. Prior to joining USCS, Dr. Castle
served as Chief Executive Officer and Director of Teradata Corporation, a
manufacturer of high capacity, high performance parallel processing database
systems, from August 1991 until April 1992. Dr. Castle served as President and
Chief Executive Officer of Infotron Systems Corporation, a manufacturer of data
and voice transmission equipment, from October 1987 until August 1991 and was
named Chairman of the Board in May 1989. Prior to October 1987, Dr. Castle held
various senior management positions with TBG Information Systems, Inc., Memorex
Corporation, Honeywell, Inc. and General Electric. Dr. Castle is also a Director
of PAR Technology Corp., Leasing Solutions, Inc. and ADC Telecommunications,
Inc. Dr. Castle received his B.S. from the U.S. Military Academy at West Point
and a M.S.E.E. and Ph.D. in Computer and Information Sciences from the
University of Pennsylvania.
MICHAEL F. MCGRAIL has been President of CableData, Inc., the Company's
wholly owned subsidiary, and a Director of the Company since April 1995. From
December 1993 to March 1995, Mr. McGrail was President of CableData
International, Ltd., a wholly-owned subsidiary of CableData, Inc. From August
1991 to December 1993, Mr. McGrail served as President of Gandalf International,
Ltd. ("Gandalf"), a wide and local area network communications products company.
From January 1988 to July 1991, Mr. McGrail was Managing Director of Infotron
Systems International Ltd., which was acquired by Gandalf in 1991. Mr. McGrail
received a B.Sc. with honors from the University of Sussex and a M.Sc. in
Management from Trinity College, Dublin.
C. RANDLES LINTECUM has been the President of International Billing
Services, Inc. ("IBS"), a wholly-owned subsidiary of the Company, since July
1995. From February 1995 to July 1995, Mr. Lintecum was Senior Vice President,
Marketing and Business Development of USCS and from May 1993 to February 1995
Mr. Lintecum was Vice President, Corporate Development of USCS. From June 1985
to May 1993, Mr. Lintecum was Executive Vice President of Corporate Marketing
for Infonet Services Corporation ("Infonet"), an international data network
services company. Mr. Lintecum received a B.S. in Business Administration from
the University of Kansas and a M.B.A. from the University of Missouri.
DOUGLAS L. SHURTLEFF has been Senior Vice President, Finance and Chief
Financial Officer of the Company since May 1995. From September 1988 to May
1995, Mr. Shurtleff was Vice President, Finance and Administration of Infonet.
From October 1984 to September 1988, Mr. Shurtleff was Group Vice President,
Finance and Administration of Computer Sciences Corporation, a computer services
company. Previously, Mr. Shurtleff held various senior management positions at
Pacesetter Systems, Inc., and Deloitte & Touche. Mr. Shurtleff received a B.S.
in Accounting and his M.B.A. from the University of Southern California and is a
certified public accountant.
35
<PAGE>
CLAUDIA D. COLEMAN has been Vice President, Corporate Development of the
Company since December 1995. From March 1988 to December 1995, Ms. Coleman held
various positions, including Principal, at Alex. Brown & Sons ("Alex. Brown"),
an investment banking firm. Prior to joining Alex. Brown, Ms. Coleman was a Vice
President at Drexel Burnham Lambert from 1984 to 1988. From 1979 to 1984, Ms.
Coleman held various positions, including Vice President, at Bank of America.
Ms. Coleman received a B.A. from the University of California, Davis and a
M.B.A. from the University of California, Berkeley.
GEORGE L. ARGYROS, SR. has been a Director of the Company since November
1990. Mr. Argyros is Chairman and Chief Executive Officer of Arnel & Affiliates,
a West Coast diversified investment company. Mr. Argyros is sole shareholder of
GLA Financial Corp. ("GLA Financial"), a general partner of Westar Capital
Associates, which is the sole general partner of Westar Capital ("Westar"), a
private equity investment firm and a principal shareholder of the Company. Mr.
Argyros is also a limited partner of Westar. Mr. Argyros is a Director of First
American Financial Corporation, The Newhall Land and Farming Company, Tecstar
Corporation, All Post Corporation ("All Post"), Dogloo, Inc. and El Dorado
Communications. Mr. Argyros is President and Chief Executive Officer of the
Horatio Alger Association of Distinguished Americans, is Chairman of the Board
of Trustees of Chapman University, a Trustee of the California Institute of
Technology (CalTech), Chairman of the Board of Directors of The Beckman
Foundation, director of the Beckman Laser Institute and Medical Clinic, Vice
Chairman of the Estele Doheny Eye Foundation, and Chairman of the Orange County
Business Committee for the Arts. See "Certain Transactions" and "Principal and
Selling Stockholders."
GEORGE M. CRANDELL, JR. has been a Director of the Company since March 1989.
Mr. Crandell is President of George M. Crandell, Jr., A Law Corporation and is a
limited partner of Westar Capital Associates, the general partner of Westar.
Prior to joining Westar in 1988, Mr. Crandell was a partner of Brentwood
Associates ("Brentwood"), an investment firm. Prior to joining Brentwood, Mr.
Crandell was a Senior Consultant with the international consulting firm of
McKinsey & Company. He also held positions at Planning Research Corporation and
IBM. Mr. Crandell is on the Board of Directors of Tecstar Corporation and All
Post. He is also a board member and past President of the California State
Sacramento Trust Foundation and a board member of the Dean's Advisory Council of
the University of California, Davis Graduate School of Management. See "Certain
Transactions."
CHARLES D. MARTIN has been a Director of the Company since November 1990.
Mr. Martin has been a general partner of the general partner of Enterprise
Partners, a Southern California-based venture capital firm, since its formation
in 1985. He is a general partner of Westar Capital Associates, which is the sole
general partner of Westar. Mr. Martin also serves on the Board of Directors of
Apria Healthcare, Inc., Premier Ambulatory Systems, Pages Software, Tecstar,
Inc., All Post, Dogloo and El Dorado Communications. He is also a Director and
stockholder of Vedax Sciences Corporation, a firm that operates the TEC
Organization, the largest proprietary membership program in the nation for
company Presidents and Chief Executive Officers. Mr. Martin also serves as a
Trustee of Chapman University and the Newport Harbor Art Museum. See "Certain
Transactions" and "Principal and Selling Stockholders."
LARRY W. WANGBERG has been a Director of the Company since April 1996. Mr.
Wangberg has served as President, Chief Executive Officer and a Director of
StarSight Telecast, Inc. ("StarSight"), a developer of interactive electronic
television program guides and other navigation tools and services since
February, 1995. From November 1983 to February 1995, Mr. Wangberg was Senior
Vice President of The Times Mirror Company and President and Chief Executive
Officer of Times Mirror Cable Television. Mr. Wangberg has also served as
President and Chief Operating Officer (Metro Division) of Warner Amex Cable
Communications and President and COO of Coaxial Communications, Inc. Mr.
Wangberg is also on the Board of Directors of Zilog, Inc. Mr. Wangberg recently
served as Chairman of the National Cable Television Association.
36
<PAGE>
Upon completion of this offering, the Company's Board will be classified
into three classes. Class one, whose terms will expire at the conclusion of the
1997 Annual Meeting, consists of Dr. Castle and Mr. Martin. Class two, whose
terms will expire at the conclusion of the 1998 Annual Meeting, consists of
Messrs. Crandell and Wangberg. Class three, whose terms will expire at the
conclusion of the 1999 Annual Meeting, consists of Messrs. Argyros and McGrail.
See "Description of Capital Stock -- Anti-takeover Effects of Provisions of the
Certificate of Incorporation, Bylaws and the Proposed Stockholders' Rights
Plan."
There are no family relationships between any directors or executive
officers of the Company.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. Argyros, Crandell and
Martin, reviews the adequacy of internal controls and the results and scope of
the audit and other services provided by the Company's independent auditors. The
Audit Committee meets periodically with management and the independent auditors.
The Compensation Committee, consisting of Messrs. Argyros, Crandell and
Martin, establishes salaries, incentives and other forms of compensation for
officers and other employees of the Company and administers the incentive
compensation and benefit plans of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company is party to a letter agreement with Westar pursuant to which
Westar provides financial, management and strategic advisory services to the
Company for a monthly fee of $35,875 plus out-of-pocket expenses. The agreement
may be terminated at any time, with or without cause, by either the Company or
Westar. The Company paid Westar approximately $430,500 for such advisory
services during 1995. George L. Argyros, a Director of the Company, is sole
shareholder of GLA Financial, which is a general partner of Westar Capital
Associates, which is the general partner of Westar. Charles D. Martin, a
Director of the Company, is a general partner of Westar Capital Associates.
George M. Crandell, a Director of the Company, is a limited partner of Westar
Capital Associates. Messrs. Argyros, Crandell and Martin are members of the
Compensation Committee. See "Certain Transactions" and "Principal and Selling
Stockholders."
NON-EMPLOYEE DIRECTOR COMPENSATION
On April 12, 1996, the Company adopted a non-employee director compensation
plan pursuant to which the non-employee directors will be compensated as
follows: (1) $20,000 annual retainer payable in quarterly installments; (ii)
$1,500 per day for each physical Board meeting and $1,000 per day for each
physical committee meeting held on a different day; (iii) $250 for each
telephonic Board meeting; and (iv) options to purchase 10,000 shares of Common
Stock issued pursuant to the 1996 Directors Stock Option Plan upon joining the
Board. This plan was approved by the Company's stockholders on May 16, 1996. No
amounts have been paid or options issued pursuant to this plan as of the date of
this Prospectus. See "-- Employee and Director Plans -- 1996 Directors' Stock
Option Plan."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
Company's certificate of incorporation may contain a provision eliminating or
limiting the personal liability of directors for monetary damages for breach of
their fiduciary duties as directors, except for liability (i) for any breach of
their 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) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which a director derived an
improper personal benefit. The Company's Certificate of Incorporation and Bylaws
also provide that the Company shall indemnify its directors and officers and may
indemnify its employees and agents to the fullest extent permitted by law.
37
<PAGE>
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and officers for certain expenses (including
attorney's fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for fiscal 1995 of the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company whose total salary and bonus for fiscal 1995
exceeded $100,000 or would have exceeded $100,000 on an annualized basis
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- NUMBER OF
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS (#) ($)
- ----------------------------------- --------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Castle, Ph.D. 1995 $ 300,000 $ 102,337 $ 57,146(1) 94,500 $ 23,623(2)
Chairman of the Board and Chief
Executive Officer
Michael F. McGrail 1995 168,311 97,033 100,484(3) -- 11,732(4)
President of CableData, Inc.
C. Randles Lintecum 1995 171,223 51,048 9,230(5) 18,900 11,012(6)
President of International Billing
Services, Inc.
Douglas L. Shurtleff (7) 1995 111,000 43,652 84,399(8) 94,500 2,243(9)
Senior Vice President, Finance and
Chief Financial Officer
Claudia D. Coleman 1995 -- (10) -- -- 63,000 --
Vice President, Corporate
Development
</TABLE>
- ------------------------
(1) The amount represents a $24,839 relocation payment, $23,077 in lieu of paid
time off and a $9,230 car allowance.
(2) The amount represents a contribution by the Company of $12,000 to the
Company's 401(k) Plan, $10,699 in imputed interest payable on deferred
compensation, and payment by the Company of a $924 life insurance premium.
(3) The amount represents $77,289 of relocation expenses, $15,780 in imputed
income with respect to a leased vehicle and $7,415 in lieu of paid time off.
(4) The amount represents contributions by the Company to Mr. McGrail's
self-funded pension plan.
38
<PAGE>
(FOOTNOTES FROM PRECEDING PAGE)
(5) The amount represents a car allowance.
(6) The amount represents a contribution by the Company of $10,536 to the
Company's 401(k) Plan and payment by the Company of a $476 life insurance
premium.
(7) Mr. Shurtleff joined the Company in May 1995. Salary represents amounts
actually paid to Mr. Shurtleff during 1995.
(8) The amount represents $79,145 of relocation payments and a $5,254 car
allowance.
(9) The amount represents payment by the Company of a $333 life insurance
premium and $1,910 in imputed interest payable on deferred compensation.
(10) Ms. Coleman joined the Company in late December 1995. Ms. Coleman's annual
salary for 1996 is $160,000.
OPTION GRANTS DURING 1995
The following table sets forth for each of the Named Officers certain
information concerning stock options granted during 1995:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE PRICE FOR OPTION TERM (5)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ----------------------
NAME GRANTED(#)(1) 1995(2) ($/SH.)(3) DATE(4) 5%($) 10%($)
- ----------------------------- ------------- --------------- ----------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James C. Castle.............. 94,500 17.1% $ 5.05 2/12/05 $ 300,000 $ 761,000
Michael F. McGrail........... -- -- -- -- -- --
C. Randles Lintecum.......... 18,900 3.4 5.05 5/23/05 60,000 152,000
Douglas L. Shurtleff......... 94,500 17.1 5.05 7/20/05 300,000 761,000
Claudia D. Coleman........... 63,000 11.4 5.05 12/29/05 200,000 507,000
</TABLE>
- ------------------------
(1) These options are incentive stock options granted pursuant to the 1988 or
1993 Incentive Stock Option Plans and have ten year terms. The options vest
over four to five years.
(2) In 1995, the Company granted options to purchase an aggregate of 551,775
shares.
(3) In determining the fair market value of the Company's Common Stock, the
Board of Directors considered various factors, including the Company's
financial condition and business prospects, its operating results, the
absence of a market for its Common Stock, the risks normally associated with
high technology companies and the report of an independent appraisal firm
with respect to the shares of the Company's Common Stock held by the
Company's ESOP. The exercise price may be paid in cash, check, shares of the
Company's Common Stock, through a cashless exercise procedure involving
same-day sale of the purchased shares or such other method as determined by
the Board of Directors.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
(5) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the Securities and Exchange Commission (the
"SEC"). Actual gains, if any, on stock option exercises are dependent on the
future performance of the stock. There can be no assurance that the amounts
reflected in this table will be achieved. In accordance with rules
promulgated by the SEC, Potential Realizable Value is based upon the
exercise price of the options, which is substantially less than the expected
initial public offering price. If the Potential Realizable Value is
calculated based on an assumed initial public offering price of $16.00 per
share and the assumed rates of appreciation over the ten-year term of the
options, the resulting stock price at the end of the term would be $21.01
and $41.50 per share at 5% and 10%, respectively. This would result in the
following Potential Realizable Values: Dr. Castle ($1,985,000; $3,445,000);
Mr. Lintecum ($397,000; $689,000); Mr. Shurtleff ($1,985,000; $3,445,000);
and Ms. Coleman ($1,324,000; $2,296,000).
39
<PAGE>
OPTION GRANTS DURING 1996
In April 1996, the Company granted incentive stock options to each of the
Named Officers as follows: Dr. Castle (420,000 shares); Mr. McGrail (154,770
shares); Mr. Lintecum (117,810 shares); Mr. Shurtleff (43,050 shares) and Ms.
Coleman (21,000 shares). Such options vest annually over a period of five years
and have an exercise price of $12.50 per share.
AGGREGATED OPTION EXERCISES DURING 1995 AND YEAR-END OPTION VALUES
The following table sets forth for each of the Named Officers certain
information concerning options exercised during fiscal year 1995 and the number
of shares subject to both exercisable and unexercisable stock options as of
December 31, 1995. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding options and the fair market value of the Company's Common Stock as
of December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
VALUE
REALIZED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF (MARKET PRICE OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES AT EXERCISE DECEMBER 31, 1995 DECEMBER 31, 1995(1)
ACQUIRED ON LESS EXERCISE -------------------------- --------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Castle.............. 189,000 $ 493,000 12,214 201,986 $ 146,000 $ 2,463,000
Michael F. McGrail........... -- -- 29,484 46,116 362,000 546,000
C. Randles Lintecum.......... -- -- 60,480 52,920 790,000 665,000
Douglas L. Shurtleff......... -- -- -- 94,500 -- 1,035,000
Claudia D. Coleman........... -- -- -- 63,000 -- 690,000
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1995 and the exercise
price of the Named Officer's option. There was no established public trading
market for the Common Stock underlying the options as of December 31, 1995.
Accordingly, the amounts set forth have been calculated based on the
difference between an assumed initial public offering price of $16.00 per
share and the exercise price of the option.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has an employment agreement with James C. Castle, Ph.D., the
Company's Chairman of the Board and Chief Executive Officer, terminable at will
by either the Company or Dr. Castle. The agreement provides for an initial base
salary of $22,500 per month and an annual bonus of up to 40% of base salary,
contingent on meeting certain performance targets. The agreement may be
terminated at any time by either the Company or Dr. Castle upon 30 days' notice.
In connection with such agreement, Dr. Castle was granted an option to purchase
283,500 shares of the Company's Common Stock at an exercise price of $2.44 per
share, vesting over five years. Upon termination for any reason, Dr. Castle will
receive $0.35 per share for all unvested options. If Dr. Castle is terminated
without cause he will receive one year's salary, which will cease to be paid
upon Dr. Castle starting new employment. Upon a change of control, defined as a
sale of substantially all assets, certain mergers or acquisition by any person
of 50% or more of the Company's voting securities, such options immediately
vest.
The Company has entered into an agreement with Michael F. McGrail, President
of Cabledata, Inc. and a Director of the Company. The Company may terminate Mr.
McGrail's employment upon 12 months notice, with or without cause. The Company
shall have the right to pay salary in lieu of any notice. Mr. McGrail may
terminate his employment with the Company at any time, with or without cause.
The Company has entered into severance agreements with C. Randles Lintecum,
Douglas L. Shurtleff and Claudia D. Coleman, the President of IBS, the Company's
Chief Financial Officer and the Company's Vice President, Corporate Development,
respectively, pursuant to which Mr. Lintecum, Mr. Shurtleff and Ms. Coleman are
entitled to receive certain benefits in the event of termination without cause
upon a change
40
<PAGE>
of control. Benefits consist primarily of a lump-sum payment of one year's
compensation. Change of control is defined as sale of substantially all assets,
merger or upon 50% of outstanding stock of the Company becoming held by a person
or entity other than Westar, Enterprise Partners, the ESOP or any employee stock
purchase plan.
EMPLOYEE AND DIRECTOR PLANS
1988 STOCK OPTION PLAN. The Board of Directors adopted the 1988 Incentive
Stock Option Plan (the "1988 Plan") in May 1988. A total of 945,000 shares have
been authorized for issuance under the 1988 Plan, of which 227,115 shares are
subject to outstanding options, 161,952 shares are available for future grant
and 555,933 shares have been issued on exercise of options as of May 20, 1996.
The 1988 Plan provides for the grant of "incentive stock options" as defined in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), to
key employees and officers of the Company (including any director who is also an
employee). The exercise price of any option granted under the 1988 Plan may not
be less than 100% of the fair market value of the Company's Common Stock on the
date of grant and, in the case of a participant owning stock possessing more
than 10% of the voting rights of the Company's outstanding capital stock, the
exercise price shall be 110% of the fair market value of the Company's Common
Stock on the date of grant. Shares subject to an option granted under the 1988
Plan may be purchased for cash, in exchange for shares of Common Stock owned by
the optionee, or such other consideration as set forth in the 1988 Plan. The
1988 Plan is administered by the Compensation Committee. Under the 1988 Plan,
options generally vest over two to five years and have a term of ten years
(except with respect to 10% stockholders, which have five-year terms). All
shares received upon exercise of an option under the 1988 Plan are subject to a
right of first refusal by the Company. Shares subject to outstanding options
held at least six months prior to an acquisition of the Company by merger or
sale of all or substantially all of the Company's assets shall be exercisable
pro rata plus one year vesting acceleration. Shares subject to outstanding
options held less than six months prior to such event will be canceled.
1990 NONQUALIFIED STOCK OPTION PLAN. The Board of Directors adopted the
1990 Nonqualified Stock Option Plan (the "1990 Plan") in December 1990. A total
of 1,039,500 shares have been authorized under the 1990 Plan, of which 301,589
shares are subject to outstanding options, 88,074 shares are available for
future grant and 649,837 shares have been issued on exercise of options as of
May 20, 1996. The 1990 Plan provides for the grant of options to senior
executives of the Company subject to terms and conditions set forth in
individual option plan agreements between the Company and each optionee. Options
granted under the 1990 Plan do not qualify as incentive stock options under
Section 422A of the Code.
1993 STOCK OPTION PLAN. The Board of Directors adopted the 1993 Incentive
Stock Option Plan (the "1993 Plan") in April 1993. A total of 1,260,000 shares
have been authorized for issuance under the 1993 Plan, of which 806,352 shares
are subject to outstanding options, 303,036 shares are available for future
grant and 150,612 shares have been issued on exercise of options as of May 20,
1996. The 1993 Plan provides for the grant of "incentive stock options" as
defined in Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"), to senior executives of the Company. The exercise price of any option
granted under the 1993 Plan may not be less than 100% of the fair market value
of the Company's Common Stock on the date of grant and 110% of fair market value
in the case of a participant owning stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock. Shares subject to an option
granted under the 1993 Plan may be purchased for cash, in exchange for shares of
Common Stock owned by the optionee, or other consideration as set forth in the
1993 Plan. The 1993 Plan is administered by the Compensation Committee. Under
the 1993 Plan, options generally vest over three to five years and have ten-year
terms (except with respect to 10% stockholders, which have five-year terms).
Shares subject to outstanding options held at least six months prior to an
acquisition of the Company by merger or sale of all or substantially all of the
Company's assets shall be exercisable pro rata plus one year vesting
acceleration. Shares subject to outstanding options held less than six months
prior to such event will be canceled.
1996 STOCK OPTION PLAN. The Board of Directors adopted the 1996 Incentive
Stock Option Plan (the "1996 Plan") in April 1996. A total of 2,940,000 shares
have been authorized for issuance under the 1996 Plan, of which 974,694 shares
are subject to outstanding options and 1,965,306 shares are available for future
41
<PAGE>
grant as of May 20, 1996. The 1996 Plan provides for the grant of "incentive
stock options" as defined in Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"), to employees of the Company. The 1996 Plan also
provides for the grant of options which are not intended to qualify as incentive
stock options under Section 422A of the Code to employees, non-employee
directors and consultants of the Company. The exercise price of any option
granted under the 1996 Plan may not be less than 100% of the fair market value
of the Company's Common Stock on the date of grant and 110% of fair market value
in the case of a participant owning stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock. Shares subject to an option
granted under the 1996 Plan may be purchased for cash, in exchange for shares of
Common Stock owned by the optionee, or other consideration as set forth in the
1996 Plan. The 1996 Plan is administered by the Board of Directors. Under the
1996 Plan, options generally vest 20% per year over 5 years and have ten year
terms (except with respect to 10% stockholders which have five-year terms). If
the Company dissolves, sells substantially all of its assets, is acquired in a
stock-for-stock or security exchange or is party to a merger or reorganization
in which it is not the surviving corporation (a "Change of Control"), then 50%
of the unvested portion of each option held 6 months prior to the effective date
of a Change of Control shall immediately vest and shall be exercisable by the
holder thereof for a period of not less than thirty (30) days prior to the
effective date of such Change of Control. All options shall terminate in their
entirety to the extent not exercised on or prior to the last day of such 30 day
period.
1996 DIRECTORS' STOCK OPTION PLAN. The Board of Directors adopted the 1996
Directors' Stock Option Plan (the "Directors' Plan") in April 1996. A total of
150,000 shares have been authorized for issuance under the Directors' Plan, of
which no shares are subject to outstanding options. Effective upon completion of
an initial public offering, the Directors' Plan provides for the grant to each
non-employee director of the Company upon joining the Board of a stock option to
purchase 10,000 shares of the Company's Common Stock. Under the Directors' Plan,
the exercise price of each option is 100% of the fair market value of the
Company's Common Stock on the date of grant. Options vest annually over three
years and have a term of five years. If an optionee ceases to serve as a
director for any reason, the option may be exercised, to the extent vested,
within 90 days after the date such individual ceases to be a director. In the
event of a Change of Control, then 50% of the unvested portion of each option
held at least six months prior to the effective date of a Change of Control
shall immediately vest and shall be exercisable by the holder thereof for a
period of not less than 30 days prior to the effective date of such Change of
Control. All options shall terminate in their entirety to the extent not
exercised on or prior to the last day of such 30-day period.
EMPLOYEE STOCK PURCHASE PLAN. The Board adopted the Employee Stock Purchase
Plan (the "Purchase Plan") in April 1996. A total of 200,000 shares have been
authorized for issuance under the Purchase Plan, of which none have been issued.
The Purchase Plan provides for employees of the Company to purchase shares of
the Company's Common Stock through payroll deductions. Under the Purchase Plan,
shares are purchased on a quarterly basis at the lower of 95% of the fair market
value of the Company's Common Stock on the first and last business days of each
calendar quarter. Shares purchased under the Purchase Plan may not be sold or
otherwise transferred for six months after issuance under the Purchase Plan. The
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Sections 421 and 423 of the Code.
DEFERRED COMPENSATION PLAN. The Board adopted the Deferred Compensation
Plan (the "Deferred Plan") effective as of August 1994. The Deferred Plan
permits senior executives of the Company to defer any portion of their
compensation until their termination of employment and allows such executives to
elect to receive the deferred payment in a lump sum or in five, ten or fifteen
annual installments. All deferred payments accrue deemed interest as the Board
of Directors may determine from time to time. The current interest rate is 9.5%.
401(K) RETIREMENT PLAN. The Company has a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering substantially all of the
Company's employees. Pursuant to the 401(k) Plan, employees may elect to
contribute up to 12% of their compensation, up to the statutorily prescribed
limit, to the 401(k) Plan as a savings contribution. The Company matches
employee contributions of up to 6% of compensation at a ratio of fifty percent.
The plan has a profit sharing element whereby the Company can make a
contribution of up to 5% of each eligible employee's compensation determined at
the discretion of
42
<PAGE>
the Board of Directors and limited in the aggregate to up to 10% of the
Company's consolidated pretax income effective January 1, 1996. The Company is
required to make an additional contribution of 3% of each eligible employee's
annual compensation. The Company's contribution to the 401(k) Plan was
$4,204,000 in 1995. An employee's interest in the savings contributions made by
the employee and matching contributions made by the Company of the 401(k) Plan
are 100% vested when contributed. An employee's interest in profit-sharing and
the Company's required contributions under the 401(k) Plan vest over five years
from date of employment. The 401(k) Plan is intended to qualify under Section
401 of the Code such that contributions made by the employees of the Company to
the 401(k) Plan and income earned on such contributions are not taxable to the
employees until withdrawn from the 401(k) Plan and contributions made by the
Company to the 401(k) Plan are deductible by the Company when made.
The 401(k) Plan is administered by an Administrative Committee composed of
ten members. The current members of the Administrative Committee are Andrew
Beard, Deborah Beitz, Shelley Butler, Randy Gorrell, Arthur Hawkins, Mary
Jordan, Richard Langan, Terence Rooney, Douglas Shurtleff and David Smith, all
of whom are officers or employees of the Company. CG Trust Company serves as
trustee of the 401(k) Plan (the "401(k) Plan Trustee") and follows the
directions of the Administrative Committee with respect to administration of the
401(k) Plan. The 401(k) Plan Trustee, at the direction of each participant, may
invest the assets of the 401(k) Plan in any of six investment options.
EMPLOYEE STOCK OWNERSHIP PLAN. Effective January 1, 1974, the Company
established the ESOP to provide for the accumulation of Company Stock for the
benefit of eligible employees. The ESOP is a non-contributory, individual
account retirement plan which is qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended. Effective as of January 1, 1992, the Company
ceased making contributions to the ESOP and replaced such contributions with
increased Company contributions to the Company's 401(k) Retirement Plan. The
ESOP will be selling shares of Common Stock in this offering based upon
elections of the ESOP participants (who have been given the opportunity to
direct the sale of a portion of the shares allocated to their individual ESOP
accounts).
The ESOP is administered by an Administrative Committee composed of six
members. The current members of the Administrative Committee are Andrew Beard,
Deborah Beitz, Randy Gorrell, Arthur Hawkins, Mary Jordan and Douglas Shurtleff,
all of whom are officers or employees of the Company. Imperial Trust Company
serves as the trustee of the ESOP (the "ESOP Trustee") and follows the
directions of the Administrative Committee with respect to ESOP investments and
benefit distributions. The ESOP provides that participating employees are
entitled to direct the ESOP Trustee as to the voting of shares of Common Stock
allocated to their ESOP Accounts on all matters presented for a vote of
stockholders. The Administrative Committee directs the ESOP Trustee as to the
voting of any shares with respect to which participants do not provide voting
directions. Following retirement, disability, death or other termination of
employment, a participant's ESOP Account is made available for distribution. Any
ESOP participant who has attained age 55 and has participated in the ESOP for at
least ten years is entitled to request that a portion of his ESOP Account be
transferred to the 401(k) Retirement Plan for investment in assets other than
Common Stock.
43
<PAGE>
CERTAIN TRANSACTIONS
The Company is party to a letter agreement with Westar pursuant to which
Westar provides financial management and strategic advisory services to the
Company for a monthly fee of $35,875 plus out-of-pocket expenses. The agreement
may be terminated at any time, with or without cause, by either the Company or
Westar. The Company paid Westar approximately $430,500 for advisory services
during 1995. George L. Argyros, a Director of the Company, is sole shareholder
of GLA Financial, which is a general partner of Westar Capital Associates, which
is the general partner of Westar. Charles D. Martin, a Director of the Company,
is a general partner of Westar Capital Associates. George M. Crandell, a
Director of the Company, is a limited partner of Westar Capital Associates.
The Company, Westar and Enterprise Partners have entered into a Shareholder
Rights Agreement dated December 30, 1988 pursuant to which Westar and Enterprise
Partners have certain registration rights with respect to shares of the
Company's Common Stock owned by them. Charles D. Martin is a general partner of
Enterprise Partners. See "Management -- Executive Officers and Directors,"
"Description of Capital Stock -- Registration Rights" and "Principal and Selling
Stockholders."
In August 1992, the Company entered into an employment agreement with James
C. Castle, Chairman of the Board and Chief Executive Officer. In June 1995, the
Company entered into an employment agreement with Michael McGrail, President of
CableData, Inc. and a Director of the Company. In April, 1996, the Company
entered into severance agreements with C. Randles Lintecum, Douglas L. Shurtleff
and Claudia D. Coleman pursuant to which such individuals will be paid one
year's compensation upon a change of control, as defined in such agreements. See
"Management -- Employment and Severance Agreements." The Company has also
entered into indemnification agreements with each of its officers and directors.
See "Management -- Limitation of Liability and Indemnification Matters."
In March 1995, U.S. Computer Services, the predecessor to the Company,
entered into asset acquisition agreements with two new wholly-owned
subsidiaries, CableData, Inc. ("CableData") and IBS, whereby U.S. Computer
Services transferred the net assets of its Cable Division to CableData and the
net assets of its billing division to IBS in consideration for the issuance of
shares of CableData and IBS, respectively, and the assumption of specified
obligations and liabilities of U.S. Computer Services by CableData and IBS.
Additionally, U.S. Computer Systems Leasing ("USCSL"), a subsidiary of U.S.
Computer Services, entered into asset acquisition agreements with CableLease,
Inc. ("CableLease"), and RPA, Inc. ("RPA"), whereby USCSL transferred its
equipment leasing assets to CableLease and its real property and associated
assets to RPA in consideration for the issuance of shares of CableLease and RPA,
respectively, and the assumption of specified obligations and liabilities of
USCSL by CableLease and IBS.
With respect to each transaction between the Company and an affiliate of the
Company, the Company believes that such transactions were on terms at least as
favorable to the Company as they would have been had they been consummated with
unrelated third parties under similar circumstances. Under Delaware law, a
transaction between the Company and any of its officers or directors or
affiliates of any officer or director may be void or voidable unless the
transaction is approved by a majority of the disinterested directors or a
majority of the stockholders after disclosure of material facts or is fair to
the Company at the time it is authorized.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of May 20,
1996, and as adjusted to reflect the sale of the shares offered hereby by the
Company and the Selling Stockholders, of (i) each Selling Stockholder, (ii) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (iii) each of the Company's directors, (iv)
each of the Named Executive Officers and (v) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the securities listed below, based on
information furnished by such owner, have sole investment and voting power with
respect to the Common Stock shown as being beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED NUMBER OF OWNED
PRIOR TO OFFERING SHARES AFTER OFFERING (2)
NAME AND ADDRESS OF --------------------------- BEING ---------------------------------
BENEFICIAL OWNER NUMBER PERCENT (1) OFFERED NUMBER PERCENT (1)
- ------------------------------------------ ------------ ------------- ---------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Westar Capital,
a California limited partnership (3)
Attn: Charles Martin
950 S. Coast Drive, Suite 165
Costa Mesa, CA 92626..................... 8,718,276 44.8% -- 8,718,276 39.2%
ESOP -- Imperial Trust Co.,
Trustee for U.S. Computer Services
Employee Stock Ownership Plan (4)
456 Montgomery Street, Suite 600
San Francisco, CA 94101.................. 5,558,645 28.5 1,616,998 3,941,647 17.7
Gerald S. Knapp (5)
P.O. Box 65929
Tuscon, AZ 85728......................... 1,153,219 5.9 200,000 953,219 4.3
George L. Argyros, Sr. (6)................ 8,718,276 44.8 -- 8,718,276 39.2
Charles D. Martin (7)..................... 9,907,062 50.9 -- 9,907,062 44.6
George M. Crandell, Jr.................... -- -- -- -- --
Larry W. Wangberg......................... -- -- -- -- --
Frank Delfer (8).......................... 369,940 1.9 156,744 213,196 1.0
James C. Castle, Ph.D. (9)................ 232,415 1.2 -- 232,415 1.0
C. Randles Lintecum (10).................. 60,480 * -- 60,480 *
Michael F. McGrail (11)................... 39,942 * -- 39,942 *
Douglas L. Shurtleff (12)................. 18,900 * -- 18,900 *
Claudia D. Coleman........................ -- -- -- -- --
All current directors and executive
officers as a group (9 persons)
(6)(7)(13)............................... 10,239,899 52.2 % -- 10,239,899 45.8 %
Other Selling Shareholders (each
beneficially owning less than 1% of the
Company's Common Stock)
(16 persons)(14)......................... 197,596 1.0 69,393 128,203 *
----------
Total.............................................................. 2,043,135
----------
----------
</TABLE>
- ------------------------
* Less than 1%.
45
<PAGE>
(FOOTNOTES FROM PRECEDING PAGE)
(1) Applicable percentage of ownership is based on 19,471,719 shares of Common
Stock outstanding (on an as-converted basis) as of May 20, 1996 and
22,228,584 shares of Common Stock outstanding after completion of this
offering. The number of shares of Common Stock beneficially owned and
calculation of percent ownership, in each case, takes into account those
shares underlying stock options that are exercisable within 60 days after
May 20, 1996, but that may or may not be subject to repurchase rights.
(2) Assumes the Underwriters' over-allotment option to purchase up to 720,000
shares of Common Stock is not exercised.
(3) Shares held of record by Westar Capital, a California limited partnership
("Westar"). The sole general partner of Westar is Westar Capital Associates.
GLA Financial, Charles D. Martin and John Clark are general partners of
Westar Capital Associates. George L. Argyros, Jr. is sole shareholder of GLA
Financial and a limited partner of Westar and Westar Capital Associates. GLA
Financial and Messrs. Argyros, Clark and Martin may be deemed to have shared
voting or dispositive power with respect to the shares held by Westar. GLA
Financial and Messrs. Argyros, Clark and Martin disclaim beneficial
ownership of shares held by Westar except to the extent of their interests
described above.
(4) See "Management -- Employee and Director Plans -- Employee Stock Ownership
Plan."
(5) Consists of 772,884 shares held by Gerald S. Knapp and Susan G. Knapp,
Trustees of the Knapp 1996 Revocable Trust and 380,335 shares held by the
Gerald S. Knapp Individual Retirement Account. Mr. Knapp was President of
the Company's CableData subsidiary and a Director of the Company until April
1995.
(6) Consists of 8,718,276 shares held by Westar, a private equity investment
firm. Mr. Argyros disclaims beneficial ownership of the shares held by
Westar, except to the extent of his ownership interests in GLA Financial and
Westar.
(7) Consists of 8,718,276 shares held by Westar, and 691,212 shares held by
Enterprise Partners, 456,183 shares held by Enterprise Partners II, L.P. and
41,391 shares held by Enterprise Partners II Associates, L.P., each a
venture capital firm (collectively, the "Enterprise Entitites"). Mr. Martin
is a general partner of Westar Capital Associates and is a general partner
of each of Enterprise Management Partners (which is general partner of
Enterprise Partners) and Enterprise Management Partners II (which is general
partner of Enterprise Partners II, L.P. and Enterprise Partners II
Associates, L.P.). Mr. Martin disclaims beneficial ownership of the shares
held by Westar and the Enterprise Entities, except to the extent of his
ownership interest in Westar, Enterprise Management Partners and Enterprise
Management Partners II, respectively.
(8) Includes 132,657 shares issuable pursuant to stock options within 60 days
of May 20, 1996 and 16,632 shares of Common Stock held of record by Debbie
Delfer, Mr. Delfer's spouse. Of the 156,744 shares offered by Mr. Delfer
hereby, 16,632 shares are held of record by Mrs. Delfer. Mr. Delfer was
President and General Manager of International Billing Services, a
subsidiary of the Company, until July 1995.
(9) Includes 15,368 shares issuable pursuant to stock options within 60 days of
May 20, 1996.
(10) Includes 58,380 shares issuable pursuant to stock options within 60 days of
May 20, 1996.
(11) Consists of 39,942 shares issuable pursuant to stock options within 60 days
of May 20, 1996.
(12) Consists of 18,900 shares issuable pursuant to stock options within 60 days
of May 20, 1996.
(13) Includes 132,590 shares issuable pursuant to stock options within 60 days
of May 20, 1996. See "Management -- Employee and Director Plans."
(14) Includes 882 shares issuable pursuant to stock options within 60 days of
May 20, 1996.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary is a description of certain provisions of the
Company's Certificate of Incorporation and Bylaws that will be in effect as of
the closing of this offering. Such summary does not purport to be complete and
is subject to, and is qualified in its entirety by, all of the provisions of the
Certificate of Incorporation and Bylaws, including the definitions therein of
certain terms. Copies of the Certificate of Incorporation and Bylaws are filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.05 par value and
10,000,000 shares of Preferred Stock. After this offering, 22,228,584 shares of
Common Stock will be outstanding, after giving effect to the 2-for-1 stock split
of the Common Non-Voting Stock, the 2.1-for-1 stock split of the Common Voting
Stock and the conversion of Common Non-Voting Stock into Common Voting Stock on
a 1-for-1 basis.
COMMON STOCK
As of May 20, 1996, there were 19,471,719 shares of Common Stock outstanding
(as adjusted to reflect the conversion of 3,117,159 shares of Common Non-Voting
Stock into 6,234,318 shares of Common Stock and 6,303,524 shares of Common
Voting Stock into 13,237,401 shares of Common Stock) held of record by
approximately 260 stockholders. Each holder of record of Common Stock is
entitled to one vote per share on all matters submitted to a vote of the
stockholders. There are no cumulative voting or preemptive rights applicable to
any shares of Common Stock. All shares of Common Stock are entitled to
participate pro rata in distributions and in such dividends as may be declared
by the Board of Directors out of funds legally available therefor, subject to
any preferential divided rights of any outstanding shares of Preferred Stock.
Subject to the prior rights of creditors, all shares of Common Stock are
entitled in the event of liquidation, dissolution or winding up of the Company
to participate ratably in the distribution of all the remaining assets of the
Company after distribution in full of preferential amounts, if any, to be
distributed to holders of Preferred Stock. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 10,000,000 shares of Preferred Stock in one or more series and to
fix the designations, powers, preferences, privileges, and relative
participating, optional or special rights and the qualifications, limitations or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which may
be greater than the rights of the Common Stock. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of Common Stock. Preferred Stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the Common Stock,
and may adversely affect the voting and other rights of the holders of Common
Stock. At present, there are no shares of Preferred Stock outstanding and the
Company has no plans to issue any of the Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement among the Company, Westar and Enterprise Partners,
Westar and Enterprise Partners are entitled to certain rights with respect to
the registration of such shares under the Securities Act. If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, Westar and
Enterprise Partners are entitled to notice of such registration and are entitled
to include shares of such Common Stock therein. Additionally, Westar and
Enterprise Partners are also entitled to certain demand registration rights
pursuant to which they may require the Company to file a registration statement
under the Securities Act with respect to their shares of Common Stock, and the
Company is required to use its best efforts to effect such registration. All of
these
47
<PAGE>
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration. Westar and Enterprise Partners have agreed to
waive their registration rights in this offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND THE PROPOSED STOCKHOLDERS' RIGHTS PLAN
CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could be deemed to have an anti-takeover effect. These provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board and in the policies formulated by the Board, and to discourage an
unsolicited takeover of the Company if the Board determines that such takeover
is not in the best interests of the Company and its stockholders. However, these
provisions could have the effect of discouraging certain attempts to acquire the
Company or remove incumbent management even if some or a majority of
stockholders deemed such an attempt to be in their best interests.
The Certificate of Incorporation provides for a classified Board consisting
of three classes, as nearly equal in number as the then authorized number of
directors constituting the Board permits. The initial terms of the first class,
the second class and the third class are set to expire at the conclusion of the
1996 annual meeting, the 1997 annual meeting, and the 1998 annual meeting of
stockholders, respectively. At each annual meeting of stockholders beginning in
1996, successors to the directors whose terms expire at that annual meeting
shall be elected for a three-year term, with each director to hold office until
a successor has been duly elected and qualified. As a result, approximately
one-third of the Board will be elected each year.
The Bylaws provide that stockholders may remove a director with cause only
upon the affirmative vote of a majority of shares entitled to vote at an
election of directors. This provision, combined with the provisions in the
Bylaws authorizing the Board to fill vacant directorships, precludes a
stockholder from removing incumbent directors and simultaneously gaining control
of the Board by filling the vacancies created by such removal with its own
nominees. The Certificate of Incorporation also provides that the affirmative
vote of 66 2/3% of the outstanding shares is required to amend certain
provisions in the Company's Certificate of Incorporation.
The Bylaws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board, of candidates for election as
directors as well as for other stockholder proposals to be considered at annual
meetings of stockholders. Notice must be received by the Company not less than
60 days prior to the annual meeting and must contain certain specified
information concerning the persons to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal. The
Bylaws also provide that special meetings of stockholders of the Company may be
called by a stockholder holding not less than 20% of the Company's outstanding
voting stock only upon 60 days advance notice.
STOCKHOLDERS' RIGHTS PLAN
The Company currently contemplates entering into a Stockholders' Rights Plan
(the "Rights Plan") by and between the Company and a rights agent selected by
the Company prior to the completion of the Offering with the following terms.
Under the Rights Plan as proposed to be entered into, the Board would declare
and distribute a dividend of one right ("Right") for each outstanding share of
the Common Stock to the stockholders of record as of the Company as of the date
selected by the Board. Shares of Common Stock issued in the Offering (assuming
no triggering event) would automatically receive these Rights. The Rights would
not be exercisable or transferrable separately from the shares of Common Stock
until the earlier of (the "Distribution Date"): (i) ten days following a public
announcement that a person or group has acquired or obtained the right to
acquire, beneficial ownership of a designated percentage of the outstanding
shares of the Common Stock; or (ii) ten days following the commencement or
announcement of an intention to make a tender or exchange offer that would
result in an acquiring person or group beneficially owning a designated
percentage of such outstanding shares of the Common Stock, unless the Board sets
a later date in either event. The Board would have the option to redeem the
Rights at a nominal cost or prevent the Rights from
48
<PAGE>
being triggered by designating certain offers for all the outstanding Common
Stock as a permitted offer. Prior to the Distribution Date, the Company would be
able to amend or supplement the Rights Plan without the consent of any of the
holders of the Rights. Following the Distribution Date, the Rights Plan could be
so amended to cure any ambiguity, to correct or supplement any inconsistent
provision or any other provision so long as such amendment or supplement does
not adversely affect the holders of the Rights (other than an acquiring person
or group). The Rights would expire ten years after the date of adoption of the
Rights Plan by the Board unless earlier redeemed by the Company.
The Rights, when exercisable, entitle their holders (other than those held
by an acquiring person or group) to purchase a specified fraction of a share of
Preferred Stock (subject to adjustment) or, in certain instances, other
securities of the Company. In certain circumstances, if the Company is involved
in a merger or consolidation and is not the surviving entity or disposes of more
than 50 percent of the Company's assets or earnings power, the Rights would also
entitle their holders (other than an acquiring person or group) to purchase the
highest priority voting shares in the surviving entity or its affiliates having
a market value of two times the exercise price of the Rights.
The Rights Plan is intended to encourage a potential acquiring person or
group to negotiate directly with the Board, but may have certain anti-takeover
effects. The Rights Plan could significantly dilute the interests in the Company
of an acquiring person or group. The Rights Plan may therefore have the effect
of delaying, deterring or preventing a change in control of the Company.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporations
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
Section 203 defines business combinations to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation, (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder, or (v) the receipt by the
interested stockholder of the benefits of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services has been appointed as the transfer
agent and registrar for the Company's Common Stock.
49
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and Bylaws provide for expanded
indemnification of directors and officers of the Company and limits the
liability of directors of the Company. The Bylaws provide that the Company shall
indemnify each person who is or was an officer or director of the Company, or is
or was serving as an officer, director, employee or agent of any other
corporation, partnership, joint venture, trust or other enterprise at the
request of the Company, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement (if such settlement is approved in advance
by the Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. Such right to indemnification includes the right to
advancement of expenses incurred by such person prior to final disposition of
the proceeding, provided that such director or officer shall provide the Company
with an undertaking to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision that such person is not entitled to be
indemnified for such expenses. The Bylaws also provide that the Company shall
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
Company to procure a judgment in its favor by reason of the fact that he or she
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company 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 or her in connection with the defense or settlement of such action or suit,
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company, 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 to the Company unless
and only to the extent that the Delaware Court of Chancery or 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 Delaware Court of Chancery or such other court shall deem proper. No
person shall be indemnified by the Company for any expenses or amounts paid in
settlement with respect to any action to recover short-swing profits under
Section 16(b) of the Securities Exchange Act of 1934, as amended. The
Certificate of Incorporation provides that if the Delaware General Corporation
Law is amended to further eliminate or limit the personal liability of
directors, then the liability of a director of the Company shall be eliminated
or limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended. The Company has also entered into agreements to indemnify
its officers and directors in addition to the indemnification provided for in
the Company's Bylaws.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that market sales of the
Company's Common Stock or the availability of the Company's Common Stock for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock of the Company in the public
market after the restrictions described below lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of this offering (assuming no exercise of the Underwriters'
over-allotment option), the Company will have outstanding 22,228,584 shares of
Common Stock. In addition to the 4,800,000 shares to be sold in this offering,
approximately 809,000 additional shares issued and outstanding as of May 20,
1996, will be eligible for immediate sale in the public market without
restriction following consummation of this offering pursuant to Rule 144(k) of
the Securities Act. Commencing 30 days and 60 days after the date of this
Prospectus, an additional 50,000 shares and 50,000 shares, respectively, will be
eligible for immediate sale in the public market without restriction pursuant to
Rule 144(k). Commencing 90 days after the date of the Prospectus, approximately
172,000 shares outstanding and 18,000 shares subject to options will be eligible
for sale in the public market pursuant to Rule 701 or Rule 144 of the Securities
Act. Commencing
50
<PAGE>
120 days after the date of this Prospectus, an additional 50,000 shares will be
eligible for immediate sale in the public market without restriction pursuant to
Rule 144. Commencing 180 days after the date of the Prospectus, upon the
expiration of lock-up agreements with the Underwriters, approximately 16,297,000
shares of Common Stock issued and outstanding as of May 20, 1996, will be
eligible for immediate sale in the public market pursuant to Rule 144 or Rule
701, subject to compliance with certain volume limitations and other
restrictions under Rule 144 as well as, in some cases, certain contractual
restrictions on sale. See "Risk Factors -- Shares Eligible for Future Sale."
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including the holding period of any securities which converted into the
Restricted Shares and including the holding period of any prior owner except an
affiliate, will be entitled to sell within any three month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (222,286 shares immediately after this offering assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned shares
for at least three years (including any period of ownership of preceding non-
affiliated holders), will be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliated under Rule 144 without compliance with its two-year minimum holding
period requirements.
The Company intends to file a Registration Statement under the Securities
Act covering approximately 6,534,500 shares of Common Stock which have been
issued, are reserved for issuance or which the Company intends to reserve for
issuance under the Company's 1988 Incentive Stock Option Plan, 1990 Nonstatutory
Stock Option Plan, 1993 Incentive Stock Option Plan, 1996 Incentive Stock Option
Plan, 1996 Directors' Stock Option Plan and the Employee Stock Purchase Plan.
See "Management -- Employee and Director Plans." Such Registration Statement is
expected to be filed as soon as practicable after the date of this Prospectus
and will automatically become effective upon filing. Accordingly, shares
registered under such Registration Statement will be available for sale in the
open market, unless such shares are subject to vesting restrictions and subject
to limitations on resale by affiliates.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company and each of the Selling Stockholders have
agreed to sell to each of the Underwriters named below, and each of the
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Montgomery Securities are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company and the
Selling Stockholders, the aggregate number of shares of Common Stock set forth
opposite its name below. The Underwriters are committed to purchase all of such
shares if any are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased as set forth in the Purchase
Agreement.
<TABLE>
<S> <C>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................................................
Montgomery Securities................................................................................
----------
Total.................................................................................... 4,800,000
----------
----------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $
per share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Company has granted the Underwriters an option, exercisable for 30 days
after the date hereof, to purchase up to 720,000 additional shares of Common
Stock, respectively, solely to cover over-allotments, if any, at the initial
public offering price, less the underwriting discount. If the Underwriters
exercise this option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it in the
foregoing table is of the 4,800,000 shares of Common Stock initially offered
hereby.
The Company's officers and directors, the Selling Stockholders, certain
other stockholders of the Company, and the Company, subject to certain limited
exceptions, have agreed not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer, directly or indirectly, any shares of the Company's Common Stock or
any securities convertible into or exchangeable or exercisable for Common Stock,
or enter into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, without the prior written consent of Merrill
Lynch, for a period of 180 days after the date of this Prospectus. Such
officers, directors and stockholders have executed 180-day lock-up agreements
with respect to an aggregate of approximately 16,297,000 shares of Common Stock.
52
<PAGE>
The Underwriters have reserved for sale at the initial public offering price
up to 300,000 shares which may be sold to the Company's management employees,
customers and suppliers and other persons associated with the Company or
affiliated with any director, officer or management employee of the Company. The
number of shares available for sale to the general public will be reduced to the
extent any reserved shares are purchased. Any reserved shares not so purchased
will be offered by the Underwriters on the same basis as the other shares
offered hereby.
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company, the Selling Stockholders and
the Representatives. Among the factors to be considered in determining the
initial public offering price, in addition to prevailing market conditions, are
price-earnings ratios of publicly traded companies that the Representatives
believe to be comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present state of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to this offering at or above the
initial public offering price.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Graham & James LLP,
Sacramento, California. Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California, are acting as counsel for the Underwriters
in connection with certain legal matters relating to the shares of Common Stock
offered hereby.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act, and the rules and regulations promulgated thereunder,
with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in the Prospectus as to the contents of
any contract or other document that is filed as an exhibit to the Registration
Statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document. For
further information with respect to the Company and the Common Stock, reference
is hereby made to such exhibits and schedules thereto, which may be inspected
and copied at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
53
<PAGE>
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of each
such document may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the charges prescribed by the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the three quarters of each fiscal year.
54
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)................ F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the three
months ended March 31, 1995 (unaudited) and 1996 (unaudited).............................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996 (unaudited)......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the three
months ended March 31, 1995 (unaudited) and 1996 (unaudited).............................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of USCS International, Inc. (formerly U.S. Computer Services)
The stock split as described in Note 13 to the consolidated financial
statements has not been consummated at May 29, 1996. When the stock split has
been consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of USCS International, Inc. (formerly U.S. Computer Services) and
its subsidiaries at December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above."
Price Waterhouse LLP
Sacramento, California
March 4, 1996, except for Note 13 which is as of , 1996
F-2
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash...................................................................... $ 1,966 $ 6,627 $ 5,930
Accounts receivable....................................................... 51,519 59,907 62,768
Current portion of net investment in leases (note 12)..................... 9,705 6,868 5,746
Paper products and other inventory........................................ 4,710 5,608 6,134
Other..................................................................... 4,803 4,904 5,618
---------- ---------- -----------
Total current assets.................................................... 72,703 83,914 86,196
Property and equipment, net (note 3)........................................ 72,256 85,385 86,274
Net investment in leases, net of current portion (note 12).................. 10,998 7,320 6,125
Other....................................................................... 1,374 3,831 4,229
---------- ---------- -----------
Total assets................................................................ $ 157,331 $ 180,450 $ 182,824
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (note 3)............................ $ 44,641 $ 44,974 $ 43,944
Current portion of long-term debt (note 5)................................ 14,711 11,679 10,143
Deferred revenue.......................................................... 1,897 3,821 3,766
---------- ---------- -----------
Total current liabilities............................................... 61,249 60,474 57,853
Long-term debt, net of current portion (note 5)............................. 37,647 51,155 53,090
Customer deposits........................................................... 11,640 13,497 13,364
Other liabilities........................................................... 6,934 8,734 9,430
---------- ---------- -----------
Total liabilities....................................................... 117,470 133,860 133,737
---------- ---------- -----------
Commitments and Contingencies (note 6)
Stockholders' Equity (notes 7, 10 and 13):
Preferred Stock, $.05 par value, 10,000,000 shares authorized; no shares
issued and outstanding................................................... -- -- --
Common Stock, $.05 par value
Voting: Authorized 40,000,000 shares; Issued and outstanding: 12,516,903
shares at December 31, 1994, 12,813,313 shares at December 31, 1995 and
12,812,404 shares at March 31, 1996 (unaudited)........................ 626 641 641
Non-Voting: Authorized 12,000,000 shares; Issued and outstanding:
6,861,240 shares at December 31, 1994, 6,228,702 shares at December 31,
1995 and 6,222,182 shares at March 31, 1996 (unaudited)................ 343 311 311
Retained earnings......................................................... 39,185 45,966 48,487
Foreign currency translation adjustment................................... (293) (328) (352)
---------- ---------- -----------
Total stockholders' equity.............................................. 39,861 46,590 49,087
---------- ---------- -----------
Total liabilities and stockholders' equity.................................. $ 157,331 $ 180,450 $ 182,824
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue:
Software and services.............. $ 116,563 $ 155,247 $ 197,282 $ 46,484 $ 55,421
Equipment sales and services....... 49,501 33,558 31,981 6,528 4,834
------------- ------------- ------------- ------------- -------------
Total revenue.................... 166,064 188,805 229,263 53,012 60,255
Cost of revenue:
Software and services.............. 72,758 103,046 127,702 29,813 35,228
Equipment sales and services....... 31,561 19,476 19,538 3,701 2,933
------------- ------------- ------------- ------------- -------------
Total cost of revenue............ 104,319 122,522 147,240 33,514 38,161
------------- ------------- ------------- ------------- -------------
Gross profit......................... 61,745 66,283 82,023 19,498 22,094
------------- ------------- ------------- ------------- -------------
Operating Expenses:
Research and development........... 16,007 16,700 17,815 4,504 5,642
Selling, general and
administrative.................... 28,148 34,160 42,102 10,057 11,009
Consolidation and relocation
expenses (note 8)................. 4,096 (364) -- -- --
------------- ------------- ------------- ------------- -------------
Total operating expenses......... 48,251 50,496 59,917 14,561 16,651
------------- ------------- ------------- ------------- -------------
Operating income..................... 13,494 15,787 22,106 4,937 5,443
Interest expense..................... 4,609 4,284 4,966 1,168 1,206
------------- ------------- ------------- ------------- -------------
Income before income taxes and
cumulative effect of accounting
change.............................. 8,885 11,503 17,140 3,769 4,237
Income tax provision (note 9)........ 4,330 5,334 6,770 1,488 1,674
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of
accounting change................... 4,555 6,169 10,370 2,281 2,563
Cumulative effect to January 1, 1993
of change in method of accounting
for income taxes (note 9)........... 2,408 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income........................... $ 6,963 $ 6,169 $ 10,370 $ 2,281 $ 2,563
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings per share (note 13):
Income before cumulative effect of
accounting change................. $ 0.20 $ 0.28 $ 0.49 $ 0.11 $ 0.12
Cumulative effect of accounting
change............................ 0.11 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income......................... $ 0.31 $ 0.28 $ 0.49 $ 0.11 $ 0.12
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common shares and
equivalents......................... 22,129,307 21,881,516 21,137,863 21,493,604 20,659,378
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
-------------------------------------- CURRENCY
NUMBER OF PAID-IN RETAINED TRANSLATION
SHARES VOTING NON- VOTING CAPITAL EARNINGS ADJUSTMENT
------------ ----------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993........................ 20,058,219 $ 627 $ 376 $ 4 $ 29,288 $ (850)
Issuance of common stock........................ 10,962 -- -- 15 -- --
Repurchase of common stock...................... (292,377) (3) (11) (19) (1,089) --
Translation adjustment.......................... -- -- -- -- -- 332
Net income...................................... -- -- -- -- 6,963 --
------------ ----- ----- --------- --------- -----
Balance, December 31, 1993...................... 19,776,804 624 365 -- 35,162 (518)
Issuance of common stock........................ 161,406 8 -- 332 -- --
Repurchase of common stock...................... (560,067) (6) (22) (332) (2,146) --
Translation adjustment.......................... -- -- -- -- -- 225
Net income...................................... -- -- -- -- 6,169 --
------------ ----- ----- --------- --------- -----
Balance, December 31, 1994...................... 19,378,143 626 343 -- 39,185 (293)
Issuance of common stock........................ 708,393 35 -- 1,608 --
Repurchase of common stock...................... (1,044,521) (20) (32) (1,608) (3,589) --
Translation adjustment.......................... -- -- -- -- -- (35)
Net income...................................... -- -- -- -- 10,370 --
------------ ----- ----- --------- --------- -----
Balance, December 31, 1995...................... 19,042,015 641 311 -- 45,966 (328)
Repurchase of common stock (unaudited).......... (7,429) -- -- -- (42) --
Translation adjustment (unaudited).............. -- -- -- -- -- (24)
Net income (unaudited).......................... -- -- -- -- 2,563 --
------------ ----- ----- --------- --------- -----
Balance, March 31, 1996 (unaudited)............. 19,034,586 $ 641 $ 311 -- $ 48,487 $ (352)
------------ ----- ----- --------- --------- -----
------------ ----- ----- --------- --------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income............................................ $ 6,963 $ 6,169 $ 10,370 $ 2,281 $ 2,563
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 11,987 13,734 16,000 3,721 4,684
Loss on sale of assets.............................. 74 148 102 -- 35
Provision for consolidation and relocation,
net of payments.................................... 4,028 (364) -- -- --
Cumulative effect of accounting change.............. (2,408) -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable............................... (19,819) (2,955) (8,388) (2,850) (2,861)
Net investment in leases.......................... (11,876) (8,904) (7,230) (715) (512)
Collections on leases............................. 10,651 11,201 13,745 3,486 2,829
Paper products and other inventory................ 4,109 (1,961) (898) (1,923) (526)
Other assets...................................... (294) (372) (558) (1,952) (862)
Customer deposits................................. 8,914 4,820 1,857 195 (133)
Other liabilities................................. 8,967 6,076 4,022 (3,362) (413)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities... 21,296 27,592 29,022 (1,119) 4,804
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures, net........................... (18,546) (33,412) (29,231) (8,427) (5,608)
Capitalized software expenditures................... -- -- (2,000) (128) (250)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities................. (18,546) (33,412) (31,231) (8,555) (5,858)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings under revolving credit agreement..... -- 8,000 22,000 17,164 8,000
Proceeds from issuance of long-term debt............ 11,627 4,678 4,096 -- --
Payments on long-term debt.......................... (14,165) (10,884) (15,620) (7,037) (7,601)
Proceeds from issuance of common stock.............. 15 340 1,643 4 --
Repurchase of common stock.......................... (1,122) (2,506) (5,249) (13) (42)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... (3,645) (372) 6,870 10,118 357
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash....................... (895) (6,192) 4,661 444 (697)
Cash at beginning of period........................... 9,053 8,158 1,966 1,966 6,627
---------- ---------- ---------- ---------- ----------
Cash at end of period................................. $ 8,158 $ 1,966 $ 6,627 $ 2,410 $ 5,930
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental cash flow information:
Cash paid during the year for:
Interest............................................ $ 4,580 $ 4,277 $ 5,145 $ 1,129 $ 1,412
Income taxes........................................ $ 4,783 $ 7,228 $ 4,210 $ 16 $ 60
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. GENERAL
U.S. Computer Services (the Company) was incorporated in California in 1969.
On April 18, 1996, the Board of Directors authorized the reincorporation of the
Company into USCS International Inc., a Delaware corporation. See Note 13. The
Company provides customer management software and services and bill presentment
services to the global communications industry, and sells, maintains and leases
computer systems primarily in North America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the
accounts of USCS International, Inc. and its wholly owned subsidiaries after
elimination of intercompany accounts and transactions.
FINANCIAL STATEMENT PREPARATION -- 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 the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION -- The Company generally recognizes services revenue
monthly as the services are performed. Fixed fees and the present value of
minimum fees under software licenses are recognized as revenue upon
installation. Variable software license fees are recognized as revenue over the
life of the license based on usage. Revenue from equipment sales generally is
recognized as equipment is shipped. Income from sales-type leases is recognized
as revenue at a constant periodic rate of return on the net investment in the
lease. Billing for services in advance of performance is recorded as deferred
revenue.
CONCENTRATION OF CREDIT RISK -- Financial instruments that subject the
Company potentially to significant concentrations of credit risk consist
principally of trade accounts receivable. A majority of the Company's trade
receivables are derived from sales to cable television and telecommunications
companies. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral. The Company
maintains an allowance for doubtful accounts on its receivables based upon
expected collectibility. Uncollectible accounts have not been significant.
PAPER PRODUCTS AND OTHER INVENTORY -- Paper products and other inventory
is stated at the lower of standard cost, which approximates actual cost
(determined on a first-in, first-out basis), or market.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation and amortization expense is recognized on the declining balance and
straight-line methods over useful lives ranging from two to seven years on
equipment and thirty-one to forty years on buildings.
RESEARCH AND DEVELOPMENT -- Research and development costs are expensed as
incurred and consist primarily of product development costs incurred prior to
the achievement of technological feasibility. The Company capitalizes product
development costs after the products reach technological feasibility. These
costs are amortized on a product by product basis using the greater of the
amount computed by taking the ratio of current year net revenue to estimated
future net revenue or the amount computed by the straight-line method over the
estimated life of the product. No amortization has been recorded to date. The
Company has entered into strategic alliances with vendors which underwrite a
portion of the enhancements to the Company's software. The Company retains the
rights to the enhancements and the vendors may be entitled to repayment if
certain milestones are not achieved. Funding not subject to repayment is first
offset
F-7
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT (CONTINUED)
against the related capitalized software and then against the related research
and development expenses. Funding subject to repayment is deferred until the
related repayment obligations lapse. The cost of custom development that is
required by a specific customer is charged to cost of revenue.
CUSTOMER DEPOSITS -- The Company requires postage deposits of its clients
based on long-term contractual arrangements. The Company does not anticipate
repaying in the next year amounts classified as non-current.
FOREIGN CURRENCY TRANSLATION -- The functional currency of the Company's
foreign subsidiaries is the foreign currency. Adjustments arising from the
translation of balance sheets to U.S. dollars at the year-end exchange rates are
included in stockholders' equity. Income and expenses are translated at the
average prevailing rate during the year.
INCOME TAX -- The Company adopted Statement of Financial Accounting
Standards (SFAS) 109, "Accounting for Income Taxes," in 1993. The adoption of
SFAS 109 changed the Company's method of accounting for income taxes from the
deferred method to an asset and liability method. The Company recognizes
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between tax bases and financial reporting bases of assets
and liabilities.
EARNINGS PER SHARE -- Earnings per share are based on the weighted average
number of shares outstanding and common stock equivalents during the respective
periods, including the assumed net shares issuable upon exercise of stock
options when dilutive. Common and common equivalent shares issued during the
twelve month period prior to an initial public offering (IPO) are included in
the calculations as if they were outstanding for all periods presented (using
the treasury stock method at the anticipated public offering price).
INTERIM FINANCIAL DATA (UNAUDITED) -- The unaudited consolidated financial
statements as of March 31, 1996 and for the three months ended March 31, 1995
and 1996 have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the financial position and results of operations, in accordance with generally
accepted accounting principles.
3. BALANCE SHEET COMPONENTS
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer and production equipment....................... $ 90,121 $ 102,381 $ 100,980
Plant and property...................................... 29,957 31,375 31,375
Leasehold improvements.................................. 4,228 10,532 10,508
Office equipment........................................ 5,823 7,271 7,428
Capital projects-in-progress............................ 6,703 6,795 11,373
---------- ---------- -----------
136,832 158,354 161,664
Less accumulated depreciation and amortization.......... 64,576 72,969 75,390
---------- ---------- -----------
$ 72,256 $ 85,385 $ 86,274
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-8
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. BALANCE SHEET COMPONENTS (CONTINUED)
Accounts payable and accrued expenses consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable.................................. $ 22,181 $ 19,981 $ 16,465
Book overdraft.......................................... 3,454 2,720 2,343
Accrued payroll and related expenses.................... 10,709 11,752 12,774
Accrued retirement contributions........................ 3,864 4,419 4,671
Other accrued expenses.................................. 4,433 6,102 7,691
---------- ---------- -----------
$ 44,641 $ 44,974 $ 43,944
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
4. BENEFIT PLANS
The Company has an employee savings and pension benefit plan (known as the
401(k) Retirement Plan). This plan covers substantially all employees. The
Company matches employee contributions of up to six percent of compensation at a
rate of fifty percent. The plan has a profit-sharing element whereby the Company
can make a contribution of up to 3% of each eligible employee's compensation
determined at the discretion of the Board of Directors. The Company is required
to make an additional contribution of 3% of each eligible employee's annual
compensation. The Company's contribution to the 401(k) Retirement Plan was
$2,995,000, $3,763,000, and $4,204,000 in 1993, 1994 and 1995, respectively, and
$1,234,000 and $1,511,000 for the three months ended March 31, 1995 and 1996,
respectively.
The Company also has two defined contribution stock ownership plans covering
substantially all employees who were employed by the Company as of February 18,
1993. There were no contributions to the plans in 1993, 1994, 1995 and the three
months ended March 31, 1995 and 1996. Under the plans, the Company is obligated,
at the employees' option, to repurchase vested shares at the current fair market
value upon termination or retirement. Substantially all share repurchases in
1993, 1994 and 1995 resulted from the repurchase of shares from former
employees. At December 31, 1995, the estimated fair market value of shares
subject to repurchase obligations under the plans totaled approximately
$6,240,000. The Company's repurchase obligations under the plans lapse upon the
effective date of an IPO.
In August 1994, the Company adopted a non-qualified deferred compensation
plan for senior management. The plan permits participants to defer a portion of
their compensation until termination of their employment at which time payment
of amounts deferred is made in a lump sum or annual installments. Deferred
amounts accrue interest at a rate determined by the Board of Directors. At
December 31, 1995, amounts deferred under the plan and the related accrued
interest were not significant.
F-9
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- MARCH 31,
MATURITIES 1994 1995 1996
----------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to insurance companies, without collateral,
interest at 7.91% payable semi-annually, principal payable in 1996 to
five equal annual installments of $4,500. 1999 $ 22,500 $ 18,000 $ 13,500
1999 to
Credit lines with a bank, refinanced in February 1996. 2001 8,000 30,000 38,000
Credit agreement with a finance company, collateralized,
without recourse, by minimum rentals receivable of $12,346.
Principal and interest payable monthly at fixed interest rates
resulting in a weighted average interest rate of 8.75% at 1996 to
December 31, 1995. 1999 11,424 9,486 7,971
Notes payable to a bank, collateralized, without recourse, by
minimum rentals receivable of $2,844. Principal and interest
payable monthly at fixed interest rates resulting in a
weighted average interest rate of 9.69% at December 31, 1995. 1996 5,436 1,653 402
Bonds payable, with interest (rates at 5.75% and 6.83% at
December 31, 1995), principal repayable in approximately equal
monthly installments, collateralized by first deeds of trust 1998 to
on buildings with a net book value of $12,900. 1999 4,998 3,695 3,360
--------- --------- -----------
52,358 62,834 63,233
Less current portion 14,711 11,679 10,143
--------- --------- -----------
Total long-term debt $ 37,647 $ 51,155 $ 53,090
--------- --------- -----------
--------- --------- -----------
</TABLE>
In 1995, the Company entered into a revolving credit agreement which enables
the Company to borrow up to 85% of eligible accounts receivable through July 31,
1995, and 75% of eligible accounts receivable through June 1, 1996, to a maximum
of $35 million. The line of credit was not collateralized and bore interest at
the bank's reference rate, plus percentage points (ranging from .25% to 1.25%)
or one of two optional interest rates if elected by the Company. At December 31,
1995, there were outstanding borrowings of $30 million bearing interest at a
rate of 8.75% per annum.
Subsequent to December 31, 1995, the Company replaced its revolving credit
agreement with a new three year revolving unsecured credit line with a bank in
the amount of $20 million. In addition, a subsidiary entered into a new five
year term agreement with two banks in the amount of $45 million. The amount of
availability is reduced by $5 million per year after the third year. Borrowings
under both agreements bear interest at the Company's choice of LIBOR (plus a
margin ranging from .75% to 1.25%) or the bank's reference rate.
Under the borrowing agreements, the Company and/or its subsidiaries are
required to maintain certain financial ratios and meet certain net worth and
indebtedness tests. In addition, the Company has two outstanding standby letters
of credit totaling $3,244,000 at December 31, 1995.
F-10
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt at December 31, 1995, after the refinancing as
discussed above, are as follows (in thousands):
<TABLE>
<S> <C>
1996....................................................... $ 11,679
1997....................................................... 7,853
1998....................................................... 7,349
1999....................................................... 5,895
2000....................................................... 30,058
---------
$ 62,834
---------
---------
</TABLE>
Based on the borrowing rates currently available to the Company for bank
loans and bonds with similar terms and average maturities, the carrying value of
long-term debt at December 31, 1995, is considered to approximate fair value.
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under operating leases
with terms ranging from one to fifteen years. Rental expense was $5,752,000,
$7,317,000 and $8,798,000 in 1993, 1994 and 1995, respectively and $2,019,000
and $2,255,000 for the three months ended March 31, 1995 and 1996, respectively.
Future minimum rental commitments under operating leases are (in thousands):
<TABLE>
<S> <C>
1996....................................................... $ 6,730
1997....................................................... 4,517
1998....................................................... 3,539
1999....................................................... 2,544
2000....................................................... 1,491
Thereafter................................................. 1,555
</TABLE>
The Company has legal proceedings incidental to its normal business
activities. In the opinion of the Company, the outcome of the proceedings will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
The Company has been advised by a major cable customer that a third party
has asserted that patents held by the third party may be infringed by the
customer's use of interactive computer telephony systems, and that, should it
become necessary, the customer would seek indemnification from the Company. The
Company believes that it has substantial defense against that third party's
patent infringement claims and the Company does not believe that efforts by the
third party to enforce the patents against the Company or its clients are likely
to have a material adverse effect on the Company's financial position, results
of operations or cash flows.
7. STOCK OPTION PLANS
The Company has three stock option plans under which shares of the Company's
voting common stock have been reserved for issuance to officers and key
employees.
Under the Incentive Stock Option Plans, options may be granted at prices not
less than the fair market value at the date of grant. Options granted under the
incentive plans become exercisable generally in annual installments over a
period of two to five years from the date of grant. The options expire ten years
from the date of grant.
F-11
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCK OPTION PLANS (CONTINUED)
Under the Non-Qualified Stock Option Plan, options may be granted at prices
and with terms and conditions established by the Company's Board of Directors at
the date of grant. Options vest over periods of up to sixty months and expire
ten years after the date of grant.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Shares under option:
Outstanding at January 1, 1993................................. 1,749,951 $ .20 - $2.80
Granted...................................................... 585,963 2.80 - 3.73
Exercised.................................................... (10,962) 1.39
Canceled..................................................... (29,169) 1.39 - 1.59
---------- --------------
Outstanding at December 31, 1993............................... 2,295,783 .20 - 3.73
Granted...................................................... 305,550 4.35
Exercised.................................................... (161,406) .20 - 2.62
Canceled..................................................... (257,040) .20 - 4.35
---------- --------------
Outstanding at December 31, 1994............................... 2,182,887 .20 - 4.35
Granted...................................................... 551,775 5.05
Exercised.................................................... (708,393) .20 - 4.35
Canceled..................................................... (243,663) .20 - 4.35
---------- --------------
Outstanding at December 31, 1995............................... 1,782,606 .20 - 5.05
Granted (unaudited).......................................... 6,300 7.38
Canceled (unaudited)......................................... (43,770) 2.62 - 5.05
---------- --------------
Outstanding at March 31, 1996 (unaudited)...................... 1,745,136 $ .20 - $7.38
---------- --------------
---------- --------------
Options exercisable
at December 31, 1995........................................... 880,988 $ .20 - $5.05
at March 31, 1996 (unaudited).................................. 902,423 $ .20 - $7.38
</TABLE>
At December 31, 1995, 569,352 shares were available for future grants under
the stock option plans. Compensation expenses under the non-qualified plan was
$252,000, $140,000 and $296,000 in 1993, 1994 and 1995, respectively. See Note
13 for additional option and purchase plans authorized subsequent to year-end.
8. CONSOLIDATION AND RELOCATION EXPENSES
In 1993, the Company decided to consolidate and reorganize the North
American customer support operations to the Sacramento, California area.
Additionally, the decision was made to relocate the office in Leeds, United
Kingdom, to the London area. Consequently, expenses related to severance and
other compensation, moving and relocation, and early lease terminations are
reflected in the 1993 statement of operations. Expenses were determined to be
less than had been expected and, in 1994, a reversal of the consolidation and
relocation accrual of $364,000 was recorded.
F-12
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
9. INCOME TAXES
The deferred tax assets and liabilities are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Compensation and employee benefits related items................................... $ 3,264 $ 3,527
Differences in revenue recognition for book and tax purposes....................... 453 1,097
Accrual and other non-deductible reserves.......................................... 2,532 2,700
--------- ---------
Total deferred tax assets........................................................ 6,249 7,324
--------- ---------
Deferred tax liabilities:
Tax in excess of book depreciation................................................. 1,517 5,259
Capital leases recorded as operating leases for tax purposes....................... 4,355 2,619
Other.............................................................................. 466 584
--------- ---------
Total deferred tax liabilities................................................... 6,338 8,462
--------- ---------
Net deferred tax liability........................................................... $ 89 $ 1,138
--------- ---------
--------- ---------
</TABLE>
The income tax provision is comprised of the following for the years ended
December 31
(in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................................. $ 3,957 $ 4,644 $ 4,883
State.................................................................... 678 1,033 838
--------- --------- ---------
4,635 5,677 5,721
--------- --------- ---------
Deferred:
Federal.................................................................. (260) 72 924
State.................................................................... (45) (415) 125
--------- --------- ---------
(305) (343) 1,049
--------- --------- ---------
$ 4,330 $ 5,334 $ 6,770
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax rate varies from amounts computed by applying the U.S.
statutory rate to income before provision for income taxes. The tax rates for
the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax computed using U.S. statutory rate.............................. 34.0% 34.1% 34.7%
State income taxes, net of federal benefits................................ 6.1 6.1 6.1
Effect of loss by foreign subsidiary....................................... 7.7 6.6 --
Other...................................................................... .9 (0.4) (1.3)
--- --- ---
Income tax provision..................................................... 48.7% 46.4% 39.5%
--- --- ---
--- --- ---
</TABLE>
F-13
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. STOCK SPLIT
On March 31, 1995, the Board of Directors authorized a thirty-for-one stock
split to be distributed to stockholders of record on May 1, 1995, and increased
the authorized voting and non-voting shares from 2,000,000 shares to 6,000,000
shares, respectively. On May 3, 1995, authorized voting shares were increased to
7,500,000. References in the financial statements to number of shares and per
share amounts have been retroactively reflected. See also Note 13.
11. SIGNIFICANT CUSTOMERS AND RELATED PARTY TRANSACTIONS
During the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 1995 and 1996, revenues from a significant customer totaled
$31,753,000, $34,777,000, $39,253,000, $10,238,000 and $9,840,000 or 19%, 18%,
17%, 19% and 16% of total revenues, respectively. Revenues from another
significant customer totaled $24,569,000, $37,151,000, $7,080,000 and $9,723,000
or 13%, 16%, 13% and 16% of total revenues, for the years ended December 31,
1994 and 1995 and the three months ended March 31, 1995 and 1996, respectively.
Advisory services were provided to the Company in the amount of $300,000,
$400,000, and $430,500 in 1993, 1994 and 1995, respectively, and $107,600 for
each of the three months ended March 31, 1995 and 1996, by Westar Capital, a
shareholder.
12. LEASING ACTIVITIES
LEASES
The net investment in leases held by the Company and its leasing subsidiary
reflects the gross lease receivable and the estimated residual value of the
leased equipment less unearned income. The net investment in sales-type leases
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments receivable.................... $ 23,174 $ 16,100 $ 13,289
Estimated unguaranteed residual value of leased property... 146 203 163
--------- --------- -----------
Gross investment in leases................................. 23,320 16,303 13,452
Less unearned income....................................... 2,617 2,115 1,581
--------- --------- -----------
Net investment in leases................................... 20,703 14,188 11,871
Less current portion....................................... 9,705 6,868 5,746
--------- --------- -----------
Non-current portion........................................ $ 10,998 $ 7,320 $ 6,125
--------- --------- -----------
--------- --------- -----------
</TABLE>
At December 31, 1995, equipment which cost $2,582,000 and has a net book
value of $355,000 is leased to others under non-cancellable and month-to-month
leases.
F-14
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
12. LEASING ACTIVITIES (CONTINUED)
Future payments to be received under leases are (in thousands):
<TABLE>
<CAPTION>
SALES-TYPE OPERATING
----------- -----------
<S> <C> <C>
1996................................................................... $ 7,811 $ 293
1997................................................................... 3,891 225
1998................................................................... 2,754 --
1999................................................................... 1,309 --
2000................................................................... 335 --
----------- -----
$ 16,100 $ 518
----------- -----
----------- -----
</TABLE>
The Company performs ongoing credit evaluations of its clients and generally
maintains a perfected security interest on all equipment leased under sales-type
and operating leases as collateral for lease payments receivable. Substantially
all lease contracts have been pledged and the related receipts have been
assigned to various lenders as collateral for nonrecourse borrowings. The
borrowing agreements provide that the debt is to be satisfied solely from
amounts due under the terms of the lease contracts and the value of the leased
equipment. The lenders' collateral interest in both the lease agreement and the
equipment terminates upon repayment of the debt.
SUBSIDIARY
Condensed balance sheets of the Company's wholly owned leasing subsidiary
and condensed statements of operations are (in thousands):
Condensed Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Assets:
Cash........................................................................................ $ 594 $ 1,876
Net investment in leases.................................................................... 20,703 14,188
Other assets................................................................................ 1,301 2,192
--------- ---------
Total assets............................................................................ $ 22,598 $ 18,256
--------- ---------
--------- ---------
Liabilities and Shareholder's Equity:
Accrued expenses and liabilities............................................................ $ 413 $ 440
Long-term debt.............................................................................. 16,860 11,139
Shareholder's equity........................................................................ 5,325 6,677
--------- ---------
Total liabilities and shareholder's equity.............................................. $ 22,598 $ 18,256
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
USCS INTERNATIONAL, INC.
(FORMERLY U.S. COMPUTER SERVICES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION PRESENTED AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
12. LEASING ACTIVITIES (CONTINUED)
Condensed Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................................................. $ 6,392 $ 5,108 $ 4,437
Interest expense..................................................................... 1,963 1,633 1,120
Other expenses....................................................................... 1,759 1,135 1,064
--------- --------- ---------
Income before income taxes........................................................... 2,670 2,340 2,253
Provision for income taxes........................................................... 1,068 937 901
--------- --------- ---------
Net income....................................................................... $ 1,602 $ 1,403 $ 1,352
--------- --------- ---------
--------- --------- ---------
</TABLE>
13. SUBSEQUENT EVENTS
On April 18, 1996, the Board of Directors authorized the reincorporation of
the Company into USCS International, Inc., a newly formed Delaware corporation.
This reincorporation was approved by a majority of the Company's stockholders on
May 16, 1996. The Board and a majority of the Company's stockholders also
authorized a 2.1 for 1 stock split of the Company's Common Voting Stock and a 2
for 1 stock split of the Common Non-Voting Stock upon the effective date of an
IPO. The Board also increased the authorized amount of Common Voting Stock and
Common Non-Voting Stock to 40,000,000 and 12,000,000, respectively and
authorized 10,000,000 shares of Preferred Stock, par value $.05. The effect of
these transactions has been retroactively reflected in the financial statements.
Also upon the effective date of an IPO, the Common Non-Voting Stock converts to
Common Voting Stock on a one-for one basis.
On April 12, 1996, the Board adopted the 1996 Incentive Stock Option Plan
(1996 Plan), the 1996 Directors Stock Option Plan (1996 Directors Plan) and the
Employee Stock Purchase Plan (ESPP). A total of 3,290,000 shares have been
authorized for issuance under these plans. The options issued under the 1996
Plan and 1996 Directors' Plan must be issued at fair market value, except for
options granted under the 1996 Plan to employees possessing more than 10% of
voting stock, in which case the grant price may not be less than 110% of the
fair market value. Options under the 1996 Plan generally vest 20% per year and
have a ten year term. The Company granted 993,174 options under the 1996 Plan at
$12.50 per share. Options under the 1996 Directors' Plan vest annually over
three years and have a five year term. Stock purchased under the ESPP may be
purchased on a quarterly basis at the lower of 95% of the fair market value of
the Company's common stock on the first and last business days of each calendar
quarter.
F-16
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 11
Dividend Policy................................ 11
Capitalization................................. 12
Dilution....................................... 13
Selected Consolidated Financial Data........... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business....................................... 23
Management..................................... 35
Certain Transactions........................... 44
Principal and Selling Stockholders............. 45
Description of Capital Stock................... 47
Shares Eligible for Future Sale................ 50
Underwriting................................... 52
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 53
Index to Consolidated Financial Statements..... F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
4,800,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
commissions, payable by the Company in connection with the issuance and
distribution of the securities being registered hereunder. All of the amounts
shown are estimates (except for the SEC and NASD registration fees and the
Nasdaq National Market listing fee).
<TABLE>
<CAPTION>
PAYABLE BY
COMPANY
------------
<S> <C>
SEC registration fee............................................................ $ 32,359
NASD fee........................................................................ 9,885
Nasdaq National Market listing fee.............................................. 50,000
Printing and engraving expenses................................................. 250,000
Accounting fees................................................................. 150,000
Legal fees...................................................................... 400,000
Blue Sky fees and expenses...................................................... 10,000
Transfer agent and registrar fees............................................... 10,000
Legal Fees of Selling Stockholders.............................................. 10,000
Director and officer liability insurance premiums............................... 500,000
Stockholder solicitation costs.................................................. 50,000
Fee of Custodian for Selling Stockholders....................................... 5,000
Miscellaneous expenses.......................................................... 22,756
------------
Total....................................................................... $ 1,500,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has provisions in its Certificate of Incorporation which
eliminate the liability of the Company's directors to the Company and its
stockholders for monetary damages to the fullest extent permissible under
Delaware law and provisions which authorize the Company to indemnify its
directors and agents by bylaws, agreements or otherwise, to the fullest extent
permitted by law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. The Company's
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by Delaware law, including circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Company has entered into agreements with its directors and executive officers
that will require the Registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors or executive officers to the fullest extent not prohibited by law.
Reference is made to the form of Purchase Agreement filed as Exhibit 1.1 to
this Registration Statement for certain provisions regarding the indemnification
of officers and directors of the Company by the several Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Between May 20, 1993 and May 20, 1996, the Registrant granted options to
purchase 2,151,849 shares of Common Stock to employees pursuant to its 1988
Incentive Stock Option Plan, 1990 Nonstatutory Stock Option Plan and 1993
Incentive Stock Option Plan and issued an aggregate of 1,301,950 shares subject
to options under such plans at exercise prices ranging from $0.20 to $5.05 per
share. None of these grants or issuances were registered under the Securities
Act of 1933 (the "Securities Act"). Each of the options issued and the shares
issued upon exercise of such options was issued under the exemption afforded
such grants and exercises pursuant to Rule 701 under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
1.1 Form of Purchase Agreement.*
2.1 Agreement and Plan of Merger dated April 18, 1996 among USCS International, Inc., a Delaware
corporation, and U.S. Computer Services, a California corporation.
2.2 Reference exhibits 10.37, 10.38, 10.39 & 10.40.
3.1 First Amended and Restated Certificate of Incorporation of USCS International, Inc.
3.2 Bylaws of the Company.*
4.1 Reference Exhibit 3.1.
4.2 Shareholder Rights Agreement dated December 30, 1988 among U.S. Computer Services, Westar
Capital and Enterprise Partners.*+
4.3 Form of Stockholder Rights Plan.
5.1 Opinion of Graham & James LLP, Counsel to the Registrant, as to legality of securities being
registered.
10.1 1988 Incentive Stock Option Plan.*
10.2 The Company's Employee Stock Ownership Plan as amended and restated as of January 1, 1991, and
as amended effective January 1, 1991, January 1, 1992, January 1, 1993, February 19, 1993,
January 1, 1994, December 31, 1994, January 1, 1995, March 31, 1995, January 1, 1996 and March
21, 1996.*
10.3 1993 Incentive Stock Option Plan.*
10.4 1996 Stock Option Plan.*
10.5 1996 Directors' Stock Option Plan.
10.6 Employee Stock Purchase Plan.
10.7 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Trust Indenture dated as of December 1,
1987 between the Company and Sun Bank, as Trustee.*
10.8 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Reimbursement Agreement dated as of
December 1, 1987 between the Company and Sanwa Bank of California.*
10.9 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Trust Indenture dated as of June 30, 1989
between the Company and Sun Bank, as Trustee.*
10.10 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Reimbursement Agreement dated as of June
30, 1989 between the Company and Sanwa Bank of California.*
10.11 Note Agreement dated as of February 19, 1992 (re: $22,500,000 7.91% Senior Notes due February
19, 1999) between the Company and Great-West Life and Annuity Insurance Company and Phoenix
Mutual Life Insurance Company and as amended as of February 17, 1993, April 30, 1993, August 1,
1994, March 31, 1995 and February 15, 1996.*
10.12 Credit Agreement dated as of February 15, 1996 among IBS, Nationsbank of Texas and the Lender
Parties named therein.*
10.13 Credit Agreement dated as of February 15, 1996 among The Company, Nationsbank of Texas and the
Lender Parties named therein.*
10.14 Form of Standard On/Line Operating and License Agreement.*
10.15 Form of Standard Equipment Maintenance Agreement.*
10.16 Form of Master Lease, Lease Request and Certificate of Acceptance.*
10.17 Form of Standard Agreement for the Sale and Installation of Equipment.*
10.18 Form of Standard Statement Production Services Agreement.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
10.19 Strategic Business Agreement dated January 19, 1992 between the Company and International
Business Machines Corporation and Addendum Number One to Strategic Business Agreement dated
June 4, 1993 between the Company and International Business Machines Corporation.*+
10.20 Business Alliance Program Agreement between Oracle Corporation and CableData.*+
10.21 Development Agreement dated December 5, 1994 between the Company and Tandem Computers
Incorporated.*+
10.22 Porting Agreement dated January 25, 1996 between CableData and Hewlett-Packard Company.*+
10.23 On/Line Exclusive System Operating and License Agreement dated June 6, 1989 between the Company
dba CableData and TCI (by operation of merger with United Artists Entertainment Company).*+
10.24 Master Agreement dated March 13, 1992 between CableData, Inc. and TCI Cable Management
Corporation.*+
10.25 Master Lease Agreement No. DO4347 dated as of April 16, 1993 between the Company and First
Equipment Company.*
10.26 On/Line Operating and Licensing Agreement dated December 17, 1993 between the Company dba
CableData and Continental Cablevision.*+
10.27 Statement Production Services Agreement dated August 20, 1993 between the Company dba
International Billing Services and Ameritech Corporation.*+
10.28 Software Development Agreement dated December 27, 1995 between CableData and BellSouth
Interactive Media Services.*+
10.29 CableData's Intelecable-TM- Operating and License Agreement dated December 27, 1995 between
CableData. and BellSouth Interactive Media Services, Inc.*+
10.30 Software License and Service Agreement and Network User License Addendum dated May 18, 1994
between the Company and Oracle Corporation.*+
10.31 Statement Production Services Agreement dated October 9, 1990 between the Company and CBIS and
First Addendum to Statement Production Services Agreement dated July 17, 1991 between the
Company and CBIS.*+
10.32 Tandem Alliance Agreement dated January 1, 1995, between Tandem and CableData.*+
10.33 Contract for Computer Software (Postalsoft Software License Agreement) dated February 13, 1996
between IBS and Postalsoft, Inc.*+
10.34 Employment Agreement dated August 10, 1992 between the Company and James C. Castle.*
10.35 Employment Agreement dated June 29, 1995 with Michael McGrail.*
10.36 Form of Severance Agreement.*
10.37 Asset Acquisition Agreement dated March 31, 1995 by and between the Company and CableData.*
10.38 Asset Acquisition Agreement dated March 31, 1995 by and between the Company and IBS.*
10.39 Asset Acquisition Agreement dated March 15, 1995 by and between U.S. Computer Systems Leasing
and CableLease, Inc.*
10.40 Asset Acquisition Agreement dated March 15, 1995 by and between U.S. Computer Systems Leasing
and RPA, Inc.*
10.41 Building Lease for property located at 2969 Prospect Park Drive between the Company and F.I.A.
Profile Fund I dated January 19, 1994.*
10.42 Alternate Mailing System Agreement dated March 28, 1996 between the United States Postal Service
and IBS.*+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
10.43 Alternate Mailing Systems Agreement dated April 18, 1996 between the United Postal Service and
International Billing Services, Inc.
10.44 Form of Directors' Indemnification Agreement.*
10.45 Form of Custody and Escrow Agreement for Selling Stockholders.
10.46 Form of Selling Stockholders' Irrevocable Power of Attorney.
21.1 List of Subsidiaries.*
23.1 Consent of Graham & James LLP (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Indicates Exhibit previously filed.
+ Portions omitted pursuant to a request for confidential treatment pursuant
to Rule 406 of the Securities Act.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Rancho Cordova, State of
California, on the 29th day of May, 1996.
USCS INTERNATIONAL, INC.
By /s/ DOUGLAS L. SHURTLEFF
------------------------------------
Douglas L. Shurtleff,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: May 29, 1996 *
-------------------------------------------
James C. Castle
Chief Executive Officer and Chairman of the
Board of Directors (Principal Executive
Officer)
Dated: May 29, 1996 *
-------------------------------------------
George L. Argyros, Sr.
Director
Dated: May 29, 1996 *
-------------------------------------------
George M. Crandell, Jr.
Director
Dated: May 29, 1996 *
-------------------------------------------
Charles D. Martin
Director
*By /s/ DOUGLAS L. SHURTLEFF
- -------------------------------------------
Douglas L. Shurtleff
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
Dated: May 29, 1996 *
-------------------------------------------
Michael F. McGrail
Director
Dated: May 29, 1996 *
-------------------------------------------
Larry W. Wangberg
Director
Dated: May 29, 1996 /s/ DOUGLAS L. SHURTLEFF
-------------------------------------------
Douglas L. Shurtleff
Senior Vice-President of Finance and Chief
Financial Officer (Principal Financial
Officer)
Dated: May 29, 1996 /s/ ARTHUR O. HAWKINS
-------------------------------------------
Arthur O. Hawkins
Vice-President and Treasurer (Principal
Accounting Officer)
*By /s/ DOUGLAS L. SHURTLEFF
- -------------------------------------------
Douglas L. Shurtleff
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated April 18, 1996 among USCS International, Inc., a Delaware
corporation, and U.S. Computer Services, a California corporation.
2.2 Reference exhibits 10.37, 10.38, 10.39 & 10.40.
3.1 First Amended and Restated Certificate of Incorporation of USCS International, Inc.
4.3 Form of Stockholder Rights Plan between the Company and Trustee.
5.1 Opinion of Graham & James LLP, Counsel to the Registrant, as to legality of securities being registered.
10.5 1996 Directors' Stock Option Plan.
10.6 Employee Stock Purchase Plan.
10.43 Alternate Mailing Systems Agreement dated April 18, 1996 between the United Postal Service and
International Billing Services, Inc.
10.45 Form of Custody and Escrow Agreement for Selling Stockholders.
10.46 Form of Selling Stockholders' Irrevocable Power of Attorney.
23.2 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Merger Agreement"), dated as of April 18,
1996, by and between U.S. Computer Services, a California corporation ("USCS"),
and USCS International, Inc., a Delaware corporation ("USCSI"), said two
corporations being hereinafter referred to as the "Constituent Corporations."
USCSI is a wholly owned subsidiary of USCS.
The authorized capital stock of USCS is thirteen million five hundred
thousand (13,500,000) shares of which seven million five hundred thousand
(7,500,000) shares have been designated as Common, $0.10 par value ("USCS Common
Voting"), of which 6,139,832 shares were outstanding as of the date hereof, and
six million (6,000,000) shares of Common Non-Voting, $0.10 par value ("USCS
Common Non-Voting") of which 3,111,091 shares were outstanding as of the date
hereof (the USCS Common Voting and USCS Common Non-Voting are sometimes referred
to as "USCS Common Stock"). USCS has no preferred stock authorized.
The authorized capital stock of USCSI is sixty two million (62,000,000)
shares of which forty million (40,000,000) shares have been designated voting
Common Stock, $0.05 par value ("USCSI Common Voting"), of which one hundred
(100) shares were outstanding as of the date hereof all of which are owned by
USCS, twelve million (12,000,000) shares of Non-Voting Common, $0.05 par value
("USCSI Common Non-Voting") of which no shares were outstanding as of the date
hereof (the USCSI Common Voting and USCS Common Non-Voting are sometimes
referred to as "USCSI Common Stock") and ten million (10,000,000) shares of
Preferred Stock, par value $0.05 per share ("Preferred Stock"). USCSI has no
shares of Preferred Stock outstanding.
It is the intent of this Merger Agreement that the merger provided for
herein (the "Merger") shall be pursuant to the applicable laws of the State of
California and the State of Delaware and shall qualify as a reorganization as
defined in Sections 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended.
The respective Boards of Directors of USCS and USCSI deem the Merger
desirable and in the best interests of their respective shareholders. The
respective Boards of Directors of USCS and USCSI have duly adopted resolutions
approving this Merger Agreement and it is being submitted for approval by the
outstanding shares of each of the Constituent Corporations.
In consideration of the premises and of the mutual covenants and agreements
herein contained, and for the purpose of prescribing the terms and conditions of
the Merger, the mode of carrying the same into effect, the manner and the basis
for converting or exchanging the shares of USCS Common Stock into or for the
shares of USCSI Common Stock, and such other details and provisions as are
deemed necessary or desirable, the parties hereto have agreed and do hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
ARTICLE I
In accordance with the provisions of this Merger Agreement and the
California General Corporation Law, USCS shall be merged with and into USCSI,
which shall be, and is herein sometimes referred to as, the "Surviving
Corporation."
ARTICLE II
The Merger shall become effective (the "Effective Time of the Merger") at
the time of the filing of a copy of the Certificate of Ownership in the offices
of the Secretary of State of California and the Secretary of State of Delaware,
all as provided in Section 1108(d)(4) of the California General Corporation Law
and Sections
-1-
<PAGE>
253 and 103 of the Delaware General Corporation Law.
ARTICLE III
The manner and basis of converting or exchanging the shares of each of the
Constituent Corporations, and the manner and basis of making distributions to
shareholders of the Constituent Corporations in extinction of or in substitution
for their shares, shall be as follows:
(a) Each share of USCS Common Non-Voting issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of the
Merger, at and after the Effective Time of the Merger be converted into and
become, without action on the part of the holder thereof, one share (subject to
adjustment for any stock split, reverse stock split, or stock dividend with
respect to USCSI Common Non-Voting from the date hereof to the Effective Time of
the Merger) of fully paid and nonassessable USCSI Common Non-Voting.
(b) Each share of USCS Common Voting issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger, at and
after the Effective Time of the Merger be converted into and become, without
action on the part of the holder thereof, one share (subject to adjustment for
any stock split, reverse stock split, or stock dividend with respect to USCSI
Common Voting from the date hereof to the Effective Time of the Merger) of fully
paid and nonassessable USCSI Common Voting.
(c) Each share of USCSI Common Stock issued and beneficially owned by USCS
immediately prior to the Effective Time of the Merger shall be cancelled and
retired, and no USCSI Common Stock or other securities of USCSI shall be
issuable with respect thereto.
(d) At the Effective Time of the Merger, each holder of certificates for
shares of USCS Common Voting or USCS Common Non-Voting shall cease to have any
rights as shareholders of USCS, and each holder's sole rights shall pertain to
the shares of USCSI Common Voting or USCSI Common Non-Voting into which such
holder's shares of USCS Common Voting or USCS Common Non-Voting shall have been
converted by the Merger.
(e) Certificates representing shares of USCS Voting or Non-Voting Common
shall also represent shares of USCSI Voting or Non-Voting Common at and after
the Effective Time of the Merger and holders of such certificates shall not be
required to exchange any of their certificates as a result of the Merger.
(f) Upon the Effective Date, each outstanding option, warrant or other
right to purchase one share of USCS Common Voting, shall be converted into an
option, warrant or other right to purchase one share of USCSI Common Voting, at
an exercise price per share equal to the exercise price of the option, warrant
or right to purchase USCS Common Voting, and upon the same terms and subject to
the same conditions as set forth in the agreements entered into by USCS
pertaining to such options, warrants, or rights. A number of shares of USCSI
Common Voting shall be reserved for purposes of such options, warrants, and
rights equal to the number of shares of USCS Common Voting so reserved as of the
Effective Date. As of the Effective Date, USCSI shall assume all obligations of
USCS under agreements pertaining to such options, warrants, and rights, and the
outstanding options, warrants, or other rights, or portions thereof, granted
pursuant thereto.
(g) As of the Effective Date, USCSI hereby assumes all obligations of USCS
under any and all employee benefit plans in effect as of said date or with
respect to which employee rights or accrued benefits are outstanding as of said
date.
-2-
<PAGE>
ARTICLE IV
At the Effective Time of the Merger, the Certificate of Incorporation of
USCSI, as amended, shall be the Certificate of Incorporation of the Surviving
Corporation.
ARTICLE V
(a) The bylaws of USCSI, as in effect on the date hereof, shall be the
bylaws of the Surviving Corporation from and after the Effective Time of the
Merger until altered, amended or repeated.
(b) The directors and officers of USCS at the Effective Time of the Merger
shall be the directors and officers of the Surviving Corporation, to serve, in
each case, until the next annual meeting of shareholders and directors of the
Surviving Corporation and until their successors shall have been elected and
shall qualify.
ARTICLE VI
This Merger Agreement may be terminated or abandoned at any time prior to
the filing of the Certificate of Ownership with the California Secretary of
State and the Delaware Secretary of State by the Board of Directors of either
USCSI or USCS, whether prior to or after adoption of this Merger Agreement by
the shareholders of USCSI or USCS and without further approval by the
outstanding shares of USCSI or USCS by mutual written agreement.
ARTICLE VII
At the Effective Time of the Merger, the separate existence of USCS shall
cease, and the corporate existence and the identity of USCSI, as the Surviving
Corporation, shall continue. USCSI shall thereupon succeed without other
transfer to all the rights and property of USCS and shall be subject to all of
the debts and liabilities of USCS in the same manner as if USCSI had itself
incurred them. All rights of creditors and all liens upon the property of USCS
shall be limited to the property affected thereby immediately prior to the
Effective Time of the Merger. Any action or proceeding pending by or against
USCS may be prosecuted to judgment, which shall bind USCSI, or USCSI may be
proceeded against or substituted in the place of USCS.
ARTICLE VIII
From time to time at and after the Effective Time of the Merger as and when
requested by USCSI, or by its successors or assigns, USCS shall execute and
deliver or cause to be executed and delivered all such deeds and other
instruments, and shall take or cause to be taken all such further or other
actions, as USCSI, and its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to USCSI, and its successors or
assigns, title to and possession of all the rights and property referred to in
Article VII hereof and otherwise to carry out the intent and purposes of this
Merger Agreement. If USCSI shall at any time deem that any further assignments
or assurances of law or any other acts are necessary or desirable to vest,
perfect or confirm of record or otherwise the title to any property or to
enforce any claims of USCS acquired by USCSI pursuant to this Merger Agreement,
the officers of USCSI at that time are hereby specifically authorized as
attorneys-in-fact of USCS (this appointment being irrevocable as one coupled
with an interest) to execute and deliver any and all such proper deeds,
assignments and assurances of law and to do all such other acts, in the name
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<PAGE>
and on behalf of USCSI or otherwise, as such officers shall deem necessary or
appropriate to accomplish such end.
ARTICLE IX
(a) For the convenience of the parties hereto and to facilitate the filing
of this Merger Agreement, any number of counterparts hereof may be executed, and
each such counterpart shall be deemed to be an original instrument and all such
counterparts shall together constitute the same agreement.
(b) This Merger Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto, which instrument, when so executed and delivered, shall
thereupon become a part of this Merger Agreement as of the date hereof. Any
amendment to this Merger Agreement shall be approved by the respective Board of
Directors of USCS and USCSI and, if such amendment changes any of the principal
terms of this Merger Agreement, by the outstanding shares of the Constituent
Corporations in the same manner as the original Merger Agreement.
(c) This Merger Agreement and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of the
State of Delaware except as otherwise required.
(d) Except as otherwise specifically provided herein, nothing expressed or
implied in this Merger Agreement is intended, or shall be construed, to confer
upon or give any person, firm or corporation, other than the Constituent
Corporations and their respective shareholders, any rights or remedies under or
by reason of this Merger Agreement.
(e) This Merger Agreement embodies all of the representations, warranties,
covenants and agreements of the parties in relation to the subject matter
hereof, and no representations, warranties, covenants, understanding or
agreements, oral or otherwise, in relation thereto exist between the parties
except as expressly set forth in the Merger Agreement.
IN WITNESS WHEREOF, the Constituent Corporations have executed this Merger
Agreement under the corporate seals of each of the parties hereto.
U.S. COMPUTER SERVICES
(corporate seal)
By: /s/ James C. Castle
------------------------------
James C. Castle
Attest: Chairman and Chief Executive Officer
/s/ Mary G. Jordan
- -------------------------
Mary G. Jordan, Secretary
USCS INTERNATIONAL, INC.
(corporate seal)
By: /s/ James C. Castle
------------------------------
James C. Castle
Attest: Chairman and Chief Executive Officer
/s/ Mary G. Jordan
- -------------------------
Mary G. Jordan, Secretary
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<PAGE>
Exhibit 3.1
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE
OF "USCS INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY
OF APRIL, A.D. 1996, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal] /s/ Edward J. Freel
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
2610289 8100 AUTHENTICATION: 7918805
960117266 DATE: 04-23-96
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
USCS INTERNATIONAL, INC.
WHEREAS, USCS International, Inc. was incorporated in Delaware on April 10,
1996 and
WHEREAS, the Board of Directors of USCS International, Inc. and the sole
shareholder of USCS International, Inc., pursuant to sections 242 and 245 of the
Delaware Corporations Code, resolved on April 18, 1996 to amend and restate the
Certificate of Incorporation of USCS International, Inc.
NOW, THEREFORE, the First Amended and Restated Certificate of Incorporation of
USCS International, Inc. is as follows:
FIRST: The name of the corporation is USCS International, Inc.
(the "Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle 19801. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock". The
total number of shares that this Corporation is authorized to issue is sixty-two
million (62,000,000). The number of shares of Common Stock authorized to be
issued is fifty-two million (52,000,000), par value $.05 per share. The
number of shares of Voting Common Stock authorized to be issued is forty million
(40,000,000), par value $.05 per share. The number of shares of Non Voting
Common Stock authorized to be issued is twelve million (12,000,000), par value
$.05 per share. The number of shares of Preferred Stock authorized to be issued
is ten million (10,000,000), par value $.05 per share. The Preferred Stock
authorized by this Certificate of Incorporation may be issued from time to time
in one or more series. The Board of Directors of the Corporation is hereby
authorized to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series of Preferred
subsequent to the issue of shares of such series. The Board of Directors is
hereby further authorized to fix, or alter all or any of, the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred, and to fix
the number of shares constituting any such series and the designations of such
series. The term "fixed for such series" and correlative terms as used in this
Article FOURTH shall mean, with respect to any series of Preferred, as stated in
a resolution or resolutions lawfully adopted by the Board of Directors in
exercise of such authority hereinabove granted.
(a) Automatic Conversion of Non Voting Common Stock and Voting Common
Stock.
(1) Upon the effective date, on or prior to December 31, 1996, of
an underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "Securities Act"),
covering the offer and sale of Common Stock for the account of the Corporation
in which the aggregate public offering price equals or exceeds $20,000,000, (i)
each share of Non Voting Common Stock shall be converted automatically without
any further action into
<PAGE>
2.0 shares of Non Voting Common Stock, par value $.05 and (ii) each share of
Voting Common Stock shall be converted automatically without any further action
into 2.1 shares of Voting Common Stock, par value $.05; no fractional shares of
Non Voting Common Stock or Voting Common Stock shall be issued upon conversion
of Non Voting Common Stock or Voting Common Stock, in lieu of any fractional
share to which a holder would otherwise be entitled, the fractional share shall
be rounded-up and converted into one whole share of Non Voting Common Stock or
Voting Common Stock, as the case may be.
(2) The outstanding shares of Non Voting Common Stock and Voting
Common Stock shall be converted automatically without any further action by the
holders of such shares. From and after the time of automatic conversion
pursuant to paragraph (1) above, certificates which represented Non Voting
Common Stock and Voting Common Stock shall represent the number of shares of
Voting Common Stock into which such shares have been converted without need of
issuance of new certificates evidencing the shares of Voting Common Stock into
which such shares have been converted.
(b) Automatic Conversion of Non Voting Common Stock into Voting Common
Stock.
(1) Immediately following the automatic conversion of the
outstanding shares of Voting Common Stock and Non Voting Common Stock pursuant
to ARTICLE FOURTH, paragraph (a) above, (i) each share of Non Voting Common
Stock shall be converted automatically without any further action into one share
of Voting Common Stock, and (ii) the class of Non Voting Common Stock shall be
eliminated.
(2) The outstanding shares of Non Voting Common Stock shall be
converted into Voting Common Stock automatically without any further action by
the holders of such shares. From and after the time of automatic conversion
pursuant to paragraph (1) above, certificates which represented Non Voting
Common Stock shall represent the equal number of shares of Voting Common Stock
into which such shares have been converted without need of issuance of new
certificates evidencing the shares of Common Stock into which such shares of Non
Voting Common Stock have been converted.
FIFTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the bylaws of the Corporation.
SIXTH: The number of directors which constitute the whole Board
of Directors of the corporation shall be as specified in the Bylaws of the
Corporation. At each annual meeting of stockholders, directors of the
corporation shall be elected to hold office until the expiration of the term for
which they are elected and until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the Delaware General Corporation Law.
Effective upon the closing of a firm commitment underwritten
public offering of the Corporation's Common Stock pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, the
directors of the corporation shall be divided into three classes as nearly equal
in size as is practicable, hereby designated Class I, Class II and Class III.
The term of office of the initial Class I directors shall expire at the first
regularly-scheduled annual meeting of the stockholders following the effective
date of this Certificate of Incorporation (the "Effective Date"), the term of
office of the initial Class II directors shall expire at the second annual
meeting of the
2.
<PAGE>
stockholders following the Effective Date and the term of office of the initial
Class III directors shall expire at the third annual meeting of the stockholders
following the Effective Date. At each annual meeting of stockholders,
commencing with the first regularly-scheduled annual meeting of stockholders
following the Effective Date, each of the successors elected to replace the
directors of a Class whose term shall have expired at such annual meeting shall
be elected to hold office until the third annual meeting next succeeding his or
her election and until his or her respective successor shall have been duly
elected and qualified.
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable,
provided that no decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SEVENTH: Effective upon the closing of a firm commitment
underwritten public offering of the Corporation's Common Stock pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
vacancies occurring on the Board of Directors for any reason and newly created
directorships resulting from an increase in the authorized number of directors
may be filled only by vote of a majority of the remaining members of the Board
of Directors, although less than a quorum, at any meeting of the Board of
Directors. A person so elected by the Board of Directors to fill a vacancy or
newly created directorship shall hold office until the next election of the
Class for which such director shall have been chosen and until his or her
successor shall have been duly elected and qualified.
EIGHTH: The election of directors need not be by written ballot
unless a stockholder demands election by written ballot at the meeting and
before the voting begins or unless the bylaws of the Corporation so provide.
NINTH: To the fullest extent permitted by the General Corporation
Law of Delaware as the same exists or as may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article NINTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
NINTH, shall eliminate or reduce the effect of this Article NINTH in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article NINTH, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
TENTH: The Corporation reserves the right at any time, and from
time to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
ELEVENTH: The Corporation shall not, without first obtaining the
affirmative vote of not less than sixty-six and two-thirds percent (66-2/3%)
amend or repeal any provision of, or add any provision to Articles Sixth or
Seventh of the Corporation's Articles of Incorporation.
3.
<PAGE>
CERTIFICATE OF CEO AND SECRETARY
REGARDING ADOPTION OF
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
USCS INTERNATIONAL, INC.
JAMES C. CASTLE and MARY G. JORDAN certify that:
1. They are the Chief Executive Officer and Secretary, respectively,
of USCS INTERNATIONAL, INC., a Delaware corporation.
2. That at a meeting of the Board of Directors of said corporation,
duly held at Rancho Cordova, California, on April 18, 1996 at which all Board
members were present, the First Amended and Restated Certificate of
Incorporation of USCS International, Inc. to which this certificate is
attached was unanimously adopted by said Board.
3. The foregoing First Amended and Restated Certificate of
Incorporation of USCS International, Inc. has been duly approved by the sole
shareholder of the corporation, U.S. Computer Services.
We declare under penalty of perjury that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: April 18, 1996
/s/James C. Castle
------------------------------
James C. Castle
Chief Executive Officer
USCS INTERNATIONAL, INC.
/s/Mary G. Jordan
------------------------------
Mary G. Jordan
Secretary
USCS INTERNATIONAL, INC.
<PAGE>
CERTIFICATE OF SOLE SHAREHOLDER
REGARDING APPROVAL OF
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
USCS INTERNATIONAL, INC.
JAMES C. CASTLE and MARY G. JORDAN certify that:
1. They are the Chief Executive Officer and Secretary, respectively,
of U.S. COMPUTER SERVICES, a California corporation, which is the sole
shareholder of USCS INTERNATIONAL, INC., a Delaware corporation.
2. That at a meeting of the Board of Directors of U.S. COMPUTER
SERVICES, duly held at Rancho Cordova, California, on April 18, 1996 at which
all Board members were present, the First Amended and Restated Certificate of
Incorporation of USCS International, Inc. to which this certificate is attached
was unanimously approved.
We declare under penalty of perjury that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: April 18, 1996
/s/James C. Castle
------------------------------
James C. Castle
Chief Executive Officer
U.S. COMPUTER SERVICES
/s/Mary G. Jordan
------------------------------
Mary G. Jordan
Secretary
U.S. COMPUTER SERVICES
<PAGE>
PRIVILEGED AND CONFIDENTIAL
Stockholder Rights Plan
by and between
USCS INTERNATIONAL, INC., a Delaware corporation
and
[RIGHTS AGENT]
Dated as of ________, 1996
<PAGE>
TABLE OF CONTENTS
Section 1. Certain Definitions.............................................1
Section 2. Appointment of Rights Agent.....................................5
Section 3. Issue of Right Certificates.....................................5
Section 4. Form of Right Certificate.......................................7
Section 5. Countersignature and Registration...............................7
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificate.....................................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights..........................................................9
Section 8. Cancellation and Destruction of Right Certificates.............12
Section 9. Reservation and Availability of Preferred
Shares.........................................................12
Section 10. Preferred Shares Record Date...................................13
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights...............................................13
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares.........................................................21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power..................................................22
Section 14. Fractional Rights and Fractional Shares........................24
Section 15. Rights of Action...............................................26
Section 16. Agreement of Right Holders.....................................26
Section 17. Right Certificate Holder Not Deemed a Stockholder..............27
Section 18. Concerning the Rights Agent....................................28
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<PAGE>
Section 19. Merger or Consolidation or Change of Name of Rights Agent......28
Section 20. Duties of Rights Agent.........................................29
Section 21. Change of Rights Agent.........................................31
Section 22. Issuance of New Right Certificates.............................32
Section 23. Redemption and Termination.....................................33
Section 24. Exchange.......................................................35
Section 25. Notice of Certain Events.......................................36
Section 26. Notices........................................................37
Section 27. Supplements and Amendments.....................................38
Section 28. Determination and Actions by the Board of Directors, etc.......39
Section 29. Successors.....................................................39
Section 30. Benefits of this Agreement.....................................39
Section 31. Severability...................................................39
Section 32. Governing Law..................................................40
Section 33. Counterparts...................................................40
Section 34. Descriptive Headings...........................................40
Signatures.....................................................40
-ii-
<PAGE>
EXHIBITS
EXHIBIT A - Form of Certificate of Designation designating the relative
rights, preferences and privileges of the Series A Preferred
Stock of USCS International, Inc.
EXHIBIT B - Form of Right Certificate
EXHIBIT C - Summary of Rights to Purchase Preferred Shares
-iii-
<PAGE>
STOCKHOLDER RIGHTS PLAN, dated as of ________, 1996 (the "Plan"), between
USCS International, Inc., a Delaware corporation (the "Corporation"), and
[RIGHTS AGENT] (the "Rights Agent").
WITNESSETH
WHEREAS, the Board of Directors of the Corporation has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Corporation outstanding at the
close of business on ________, 1996 (the "Record Date"), each Right representing
the right to purchase [__________] of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date or the Final Expiration
Date (as such terms are hereinafter defined); provided, however, that Rights may
be issued with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 of this
Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
[____] or more of the then outstanding Common Shares (other than as a result of
a Permitted Offer (as hereinafter defined)) or was such a Beneficial Owner at
any time after the date hereof, whether or not such person continues to be the
Beneficial Owner of 15% or more of the then outstanding Common Shares.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not include
(i) the Corporation, (ii) any Subsidiary of the Corporation, (iii) any employee
benefit plan of the Corporation or of any Subsidiary of the Corporation, (iv)
any Person or entity organized, appointed or established by the Corporation for
or pursuant to the terms of any such plan, (v) any Person, who or which together
with all Affiliates and Associates of such Person becomes the Beneficial Owner
of 15% or more of the then outstanding Common Shares as a result of the
acquisition of Common Shares directly from the Corporation or (vi) any
Grandfathered Stockholder, and (B) no Person shall be deemed to be an "Acquiring
Person" either (X) as a result of the acquisition of Common Shares by the
Corporation which, by reducing the number of Common Shares outstanding,
increases the proportional number of shares beneficially owned by such Person
together with all Affiliates and
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<PAGE>
Associates of such Person; except that if (i) a Person would become an Acquiring
Person (but for the operation of this subclause X) as a result of the
acquisition of Common Shares by the Corporation, and (ii) after such share
acquisition by the Corporation, such Person, or an Affiliate or Associate of
such Person, becomes the Beneficial Owner of any additional Common Shares, then
such Person shall be deemed an Acquiring Person, or (Y) if (i) within eight (8)
days after such Person would otherwise have become an Acquiring Person (but for
the operation of this subclause (Y), such Person notifies the Board of Directors
that such Person did so inadvertently and (ii) within two (2) days after such
notification, such Person is the Beneficial Owner of less than __% of the
outstanding Common Shares.
(b) "Act" shall mean the Securities Act of 1933, as amended and as in
effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) 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 of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly,
-2-
<PAGE>
by any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing of
any securities of the Corporation.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Corporation, shall mean the number of
such securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
U.S. federal holiday.
(f) "Close of business" on any given date shall mean 5:00 P.M., New York
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.
(g) "Common Shares" when used with reference to the Corporation shall mean
the shares of Common Stock, par value $0.05 per share, of the Corporation or, in
the event of a subdivision, combination or consolidation with respect to such
shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital stock
(or equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(h) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(i) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(j) "Grandfathered Stockholder" shall mean at any time
[_____________________] which is at the time in question the Beneficial Owner
solely of _______ Common Shares beneficially owned by such person on the date of
this Agreement; provided that [_____________________] shall not be a
Grandfathered Stockholder if [_____________________] makes an acquisition of
Common Shares that would increase its ownership to ____% or more of the
outstanding Common Stock.
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(k) "Permitted Offer" shall mean a tender or exchange offer which is for
all outstanding Common Shares at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the Corporation
and who are not Acquiring Persons or Affiliates, Associates, nominees or
representatives of an Acquiring Person, to be adequate (taking into account all
factors that such Directors deem relevant including, without limitation, prices
that could reasonably be achieved if the Corporation or its assets were sold on
an orderly basis designed to realize maximum value) and otherwise in the best
interests of the Corporation and its stockholders (other than the Person or any
Affiliate or Associate thereof on whose basis the offer is being made) taking
into account all factors that such directors may deem relevant.
(l) "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(m) "Preferred Shares" shall mean shares of Series A Preferred Stock, with
a par value of $_ per share of the Corporation having the relative rights,
preferences and limitations set forth in the Form of Certificate of Designation
attached to this Agreement as Exhibit A.
(n) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(o) "Section 11 (a)(ii) Event" shall mean any event described in Section
11(a)(ii) hereof.
(p) "Section 13 Event" shall mean any event described in clause (x), (y)
or (z) of Section 13(a) hereof.
(q) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such; provided, that, if
such Person is determined not to have become an Acquiring Person pursuant to
Section 1(a)(Y) hereof, then no Shares Acquisition Date shall be deemed to have
occurred.
(r) "Subsidiary" of any Person shall mean any corporation or other Person
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(s) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
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Section 2. APPOINTMENT OF RIGHTS AGENT. The Corporation hereby appoints
the Rights Agent to act as agent for the Corporation and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of Common Shares) in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. ISSUANCE OF RIGHT CERTIFICATES. (a) Until the earlier of (i) the
Shares Acquisition Date or (ii) the close of business on the tenth day (or such
later date as may be determined by action of the Corporation's Board of
Directors) after the date of the commencement by any Person (other than the
Corporation, any Subsidiary of the Corporation, any employee benefit plan of the
Corporation or of any Subsidiary of the Corporation or any Person or entity
organized, appointed or established by the Corporation for or pursuant to the
terms of any such plan) of, or of the first public announcement of the intention
of any Person (other than the Corporation, any Subsidiary of the Corporation,
any employee benefit plan of the Corporation or of any Subsidiary of the
Corporation or any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such plan) to commence (which
intention to commence remains in effect for five Business Days after such
announcement), a tender or exchange offer the consummation of which would result
in any Person becoming an Acquiring Person (including, in the case of both (i)
and (ii), any such date which is after the date of this Agreement and prior to
the issuance of the Rights), the earlier of such dates being herein referred to
as the "Distribution Date," (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in connection
with the transfer of the underlying Common Shares (including a transfer to the
Corporation); provided, however, that if a tender offer is terminated prior to
the occurrence of a Distribution Date, then no Distribution Date shall occur as
a result of such tender offer. As soon as practicable after the Distribution
Date, the Corporation will prepare and execute, the Rights Agent will
countersign, and the Corporation will send or cause to be sent by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Corporation, a Right Certificate, substantially in the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) As promptly as practicable following the Record Date, the
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Corporation will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Corporation. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
Until the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with such Common Shares.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, shall be
deemed also to be certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Stockholder Rights Plan between USCS
International, Inc. and [RIGHTS AGENT], dated as of ____________, 1996 (the
"Rights Plan"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of USCS International, Inc. Under certain circumstances, as set forth in
the Rights Plan, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. USCS International, Inc.
will mail to the holder of this certificate a copy of the Rights Plan
without charge after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Plan, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Plan) and certain related
persons, whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Corporation purchases or acquires any Common Shares after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed cancelled and retired so that the Corporation
shall not be entitled to
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exercise any Rights associated with the Common Shares which are no longer
outstanding.
Section 4. FORM OF RIGHT CERTIFICATE. (a) The Right Certificates (and the
forms of election to purchase and of assignment to be printed on the reverse
thereof) shall be substantially the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Corporation may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Right Certificates shall
entitle the holders thereof to purchase such number of [____________] of a
Preferred Share as shall be set forth therein at the price per [_____________]
of a Preferred Share set forth therein (the "Purchase Price"), but the amount
and type of securities purchasable upon the exercise of each Right and the
Purchase Price thereof shall be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section 7(e)
of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights Plan).
Accordingly, this Right Certificate and the Rights represented hereby are null
and void.
Provisions of Section 7(e) of this Rights Plan shall be operative whether
or not the foregoing legend is contained on any such Right Certificate.
Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates shall
be executed on behalf of the Corporation by its Chairman of the Board, its Chief
Executive Officer, its President, any of its Vice Presidents, or its Treasurer,
either manually or by facsimile signature, shall have affixed thereto the
Corporation's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature. The Right Certificates shall be countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Corporation who shall have signed any of the Right
Certificates shall cease to be such
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officer of the Corporation before countersignature by the Rights Agent and
issuance and delivery by the Corporation, such Right Certificates may
nevertheless be countersigned by the Rights Agent and issued and delivered by
the Corporation with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Corporation;
and any Right Certificate may be signed on behalf of the Corporation by any
person who, at the actual date of the execution of such Right Certificate, shall
be a proper officer of the Corporation to sign such Right Certificate, although
at the date of the execution of this Rights Plan any such person was not such an
officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office or offices designated as the appropriate place for
surrender of such Right Certificate or transfer, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
certificate number and the date of each of the Right Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATE. Subject
to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any
time after the close of business on the Distribution Date, and at or prior to
the close of business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of
[____________] of a Preferred Share (or, following a Triggering Event, other
securities, as the case may be) as the Right Certificate or Right Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Corporation shall be obligated
to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Right Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Corporation shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and
Section 14 hereof, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the
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case may be, as so requested, The Corporation may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price for the total
number of [____________] of a Preferred Share (or other securities, as the case
may be) as to which such surrendered Rights are exercised, at or prior to the
earliest of (i) the close of business on [________________], 2006 (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the "Redemption Date").
(b) The Purchase Price for each [____________] of a Preferred Share
pursuant to the exercise of a Right shall initially be [_____], shall be subject
to adjustment from time to time as provided in the next sentence and in Sections
11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
Anything in this Agreement to the contrary notwithstanding, in the event that at
any time after the date of this Agreement and prior to the Distribution Date,
the Corporation shall (i) declare or pay any dividend on the Common Shares
payable in Common Shares or (ii) effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case, each Common Share outstanding following such
subdivision, combination or consolidation shall continue to have a Right
associated therewith and the Purchase Price following any such event shall be
proportionately adjusted to equal the result obtained by multiplying the
Purchase Price
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immediately prior to such event by a fraction the numerator of which shall be
the total number of Common Shares outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of Common Shares outstanding immediately following the occurrence of such event.
The adjustment provided for in the preceding sentence shall be made successively
whenever such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the Preferred Shares (or other
securities, as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights Agent
shall thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares certificates for the number of Preferred Shares to be purchased
and the Corporation hereby irrevocably authorizes its transfer agent to comply
with all such requests, or (B) if the Corporation, in its sole discretion, shall
have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depositary, requisition from the depositary agent
depositary receipts representing such number of [____________] of a Preferred
Share as are to be purchased (in which case certificates for the Preferred
Shares represented by such receipts shall be deposited by the transfer agent
with the depositary agent) and the Corporation will direct the depositary agent
to comply with such requests, (i) when appropriate, requisition from the
Corporation the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, and (iv) when appropriate,
after receipt thereof, deliver such cash to or upon the order of the registered
holder of such Right Certificate. In the event that the Corporation is
obligated to issue other securities (including Common Shares) of the Corporation
pursuant to Section 11(a) hereof, the Corporation will make all arrangements
necessary so that such other securities are available for distribution by the
Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder pursuant
to Section 11(a)(ii), the Rights Agent shall return such Right Certificate to
the registered holder thereof after imprinting, stamping or otherwise indicating
thereon that the rights represented by such Right Certificate no longer include
the rights provided by Section 11(a)(ii) of the Rights Plan and if less than all
the Rights represented by such Right Certificate were so
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exercised, the Rights Agent shall indicate on the Right Certificate the number
of Rights represented thereby which continue to include the rights provided by
Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof, or the
Rights Agent shall place an appropriate notation on the Right Certificate with
respect to those Rights exercised.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially
owned by (i) an Acquiring Person or an Affiliate or Associate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any Affiliate or
Associate thereof) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any Affiliate or
Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has a continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Corporation has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The
Corporation shall use all reasonable efforts to insure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Corporation shall be obligated to undertake any action
with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial owner) or Affiliates or Associates
thereof as the Corporation shall reasonably request.
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Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Plan. The Corporation shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Corporation otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Corporation, or shall, at the
written request of the Corporation, destroy such cancelled Right Certificates,
and in such case shall deliver a certificate of destruction thereof to the
Corporation.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. The
Corporation covenants and agrees that at all times prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares, or any authorized and issued
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights and,
after the occurrence of a Section 11(a)(ii) Event, shall, to the extent
reasonably practicable, so reserve and keep available a sufficient number of
Common Shares (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.
So long as the Preferred Shares (and, after the occurrence of a Section
11(a)(ii) Event, Common Shares or any other securities) issuable upon the
exercise of the Rights may be listed on any national securities exchange, the
Corporation shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
The Corporation covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (or Common Shares and/or
other securities, as the case may be) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when due and
payable any and all U.S. federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any Preferred Shares (or Common Shares and/or other securities, as the case
may be) upon the exercise of Rights. The Corporation shall not, however, be
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required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates or depository receipts for the Preferred Shares (or
Common Shares and/or other securities, as the case may be) in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's reasonable satisfaction that no such tax is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the date of the expiration of the rights provided by Section 11(a)(ii).
The Corporation will also take such action as may be appropriate under the blue
sky laws of the various states.
Section 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; provided, however, that, if the
date of such surrender and payment is a date upon which the Preferred Shares (or
Common Shares and/or other securities, as the case may be) transfer books of the
Corporation 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 Preferred Shares (or Common Shares and/or
other securities, as the case may be) transfer books of the Corporation are
open.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after
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the date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or surviving
corporation), except as other-wise provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares transfer
books of the Corporation were open, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Corporation issuable
upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be made
prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii) In the event any Person, alone or together with its Affiliates and
Associates, shall become an Acquiring Person, then proper provision shall be
made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall, for a period of sixty (60) days after the later of the
occurrence of any such event or the effective date of an appropriate
registration statement under the Act pursuant to Section 9 hereof, have a right
to receive, upon exercise thereof at a price equal to the then current Purchase
Price, in accordance with the terms of this Agreement, such number of Preferred
Shares as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the then number of [___________] of a Preferred Share for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and dividing that product by (y) 50% of the then
current per share market price of the Corporation's Common Shares (determined
pursuant to Section 11(d) hereof) on the date of such first occurrence (such
number of shares being referred to as the "Adjustment Shares"); provided,
however, that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then only the
provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii).
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(iii) In the event that there shall not be sufficient treasury shares or
authorized but unissued (and unreserved) Preferred Shares to permit the exercise
in full of the Rights in accordance with the foregoing subparagraph (ii) and the
Rights become so exercisable, notwithstanding any other provision of this
Agreement, to the extent necessary and permitted by applicable law, each Right
shall thereafter represent the right to receive, upon exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, (x)
a number of (or fractions of) Common Shares (up to the maximum number of Common
Shares which may permissibly be issued) and (y) a number of (or fractions of)
other equity securities of the Corporation (or, in the discretion of the Board
of Directors, debt) including, but not limited to, fractions of a Preferred
Share, which the Board of Directors of the Corporation has determined to have
the same aggregate current market value (determined pursuant to Section 11(d)(i)
and (ii) hereof, to the extent applicable,) as one Preferred Share (such number
of (or fractions of) debt, or other equity securities or debt of the Corporation
being referred to as a "capital stock equivalent"), equal in the aggregate to
the number of Adjustment Shares; provided, however, if sufficient Preferred
Shares, and/or capital stock equivalents are unavailable, then the Corporation
shall, to the extent permitted by applicable law, take all such action as may be
necessary to authorize additional Preferred Shares or capital stock equivalents
for issuance upon exercise of the Rights, including the calling of a meeting of
stockholders; and provided, further, that if the Corporation is unable to cause
sufficient Preferred Shares and/or capital stock equivalents to be available for
issuance upon exercise in full of the Rights, then each Right shall thereafter
represent the right to receive the Adjusted Number of Shares upon exercise at
the Adjusted Purchase Price (as such terms are hereinafter defined). As used
herein, the term "Adjusted Number of Shares" shall be equal to that number of
(or fractions of) Preferred Shares (and/or capital stock equivalents) equal to
the product of (x) the number of Adjustment Shares and (y) a fraction, the
numerator of which is the number of Preferred Shares (and/or capital stock
equivalents) available for issuance upon exercise of the Rights and the
denominator of which is the aggregate number of Adjustment Shares otherwise
issuable upon exercise in full of all Rights (assuming there were a sufficient
number of Preferred Shares available) (such fraction being referred to as the
"Proration Factor"). The "Adjusted Purchase Price" shall mean the product of
the Purchase Price and the Proration Factor. The Board of Directors may, but
shall not be required to, establish procedures to allocate the right to receive
Preferred Shares, Common Shares and capital stock equivalents upon exercise of
the Rights among holders of Rights.
(b) In case the Corporation shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days after such
record date) to
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subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as determined pursuant to Section
11(d) hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current per share market price, and the
denominator of which shall be the number of Preferred Shares outstanding on such
record date plus the number of additional Preferred Shares and/or equivalent
preferred shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Corporation issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be determined
in good faith by the Board of Directors of the Corporation, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent. Preferred Shares owned by or held for the account
of the Corporation shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Corporation shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price (as
determined pursuant to Section
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11(d) hereof) of the Preferred Shares on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Corporation,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to one Preferred Share and the denominator of which shall be
such current per share market price of the Preferred Shares; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Corporation to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; provided, however, that in the event that the current per share market
price of the Security is determined during a period following the announcement
by the issuer of such Security of (A) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares or (B) any subdivision, combination or reclassification of such Security
and prior to the expiration of thirty (30) Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, 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 or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security
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is not 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
Security selected by the Board of Directors of the Corporation. If on any such
date no such market maker is making market in the Security, the fair value of
the Security on such date as determined in good faith by the Board of Directors
of the Corporation shall be used. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per share
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the Common
Shares as determined pursuant to Section 11(d)(i), (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by _______. If neither the Common Shares nor the
Preferred Shares are publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Corporation, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest [____________] of a Preferred Share or one ten-thousandth
of any other share or security as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11 shall
be made no later than the earlier of (i) three (3) years from the date of the
transaction which mandates such adjustment or (ii) the Final Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Corporation other than
Preferred Shares, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in
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Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10,
13 and 14 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of [_______________] of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) The Corporation may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of [______________] of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of [______________] of
a Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one ten-
thousandth) obtained by dividing the Purchase Price in effect immediately prior
to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Corporation shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(h), the Corporation shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Corporation, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Corporation, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment, Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or the
number of [____________] of a Preferred Share issuable upon the exercise of the
Rights, the Right Certificates theretofore
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and thereafter issued may continue to express the Purchase Price and the number
of [______________] of a Preferred Share which were expressed in the initial
Right Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the number of
[______________] of a Preferred Share, Common Shares or other securities
issuable upon exercise of the Rights, the Corporation shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue such number of fully paid and non-
assessable [______________] of a Preferred Share, Common Shares or other
securities at such adjusted Purchase Price.
(k) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Corporation may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the
Preferred Shares, Common Shares or other securities of the Corporation, if any,
issuable upon such exercise over and above the Preferred Shares, Common Shares
or other securities of the Corporation, if any, issuable upon exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of Preferred Shares at less than the current market
price, (iii) issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares, (iv)
stock dividends or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Corporation to holders of its Preferred
Shares shall not be taxable to such stockholders.
(m) The Corporation covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Corporation in a transaction which does not violate Section
11(n) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Corporation in a transaction which does not violate Section 11(n)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of
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the assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11(n) hereof), if (x) at the time of or immediately after such
consolidation, merger, sale or transfer there are any charter or by-law
provisions or any rights, warrants or other instruments or securities
outstanding or agreements in effect or other actions taken, which would
materially diminish or otherwise eliminate the benefits intended to be afforded
by the Rights or (y) prior to, simultaneously with or immediately after such
consolidation, merger or sale, the stockholders of the Person who constitutes,
or would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates. The Corporation shall not consummate any
such consolidation, merger, sale or transfer unless prior thereto the
Corporation and such other Person shall have executed and delivered to the
Rights Agent a supplemental agreement evidencing compliance with this Section
11(m).
(n) The Corporation covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 27 hereof, take
(or permit any Subsidiary to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.
(o) The exercise of Rights under Section 11(a)(ii) shall only result in
the loss of rights under Section 11(a)(ii) to the extent so exercised and shall
not otherwise affect the rights represented by the Rights under this Rights
Plan, including the rights represented by Section 13.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Corporation shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares and the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
26 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER. (a) In the event that, on or following the Share Acquisition Date,
directly or indirectly, (x) the Corporation
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shall consolidate with, or merge with and into, any Person, (y) the Corporation
shall consolidate with, or merge with, any Person, and the Corporation shall be
the continuing or surviving corporation of such consolidation or merger (other
than, in a case of any transaction described in (x) or (y), a merger or
consolidation which would result in all of the securities generally entitled to
vote in the election of directors ("voting securities") of the Corporation
outstanding immediately prior thereto, continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation and the holders of
such securities not having changed as a result of such merger or consolidation),
or (z) the Corporation shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any Person, then, and in each such case (except as provided in Section
13(d) hereof), proper provision shall be made so that (i) each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at a price equal to the then current
Purchase Price, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of freely tradeable Common Shares of the Principal
Party (as hereinafter defined), not subject to any liens, encumbrances, rights
of first refusal or other adverse claims, as shall equal the result obtained by
(A) multiplying the then current Purchase Price by the number of
[______________] of a Preferred Share for which a Right is then exercisable
(without taking into account any adjustment previously made pursuant to Section
11(a)(ii)) and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the
Corporation pursuant to this Agreement; (iii) the term "Corporation" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights.
(b) "Principal Party" shall mean:
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(i) in the case of any transaction described in clause (x) or (y) of the
first sentence of Section 13(a), the Person that is the issuer of any securities
into which Common Shares of the Corporation are converted in such merger or
consolidation, and if no securities are so issued, the Person that is the other
party to such merger or consolidation (including, if applicable, the Corporation
if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the first
sentence of Section 13(a), the Person that is the party receiving the greatest
portion of the assets or earning power transferred pursuant to such transaction
or transactions; provided, however, that in any of the foregoing cases, (1) if
the Common Shares of such Person are not at such time and have not been
continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Corporation shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
its authorized Common Shares which have not been issued or reserved for issuance
to permit the exercise in full of the Rights in accordance with this Section 13
and unless prior thereto the Corporation and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
for the terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any consolidation,
merger, sale or transfer mentioned in paragraph (a) of this Section 13, the
Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act with respect
to the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain
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effective (with a prospectus at all times meeting the requirements of the Act)
until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial statements for
the Principal Party which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under this
Section 13 shall be in addition to the rights to exercise Rights and adjustments
under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and (y)
of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a wholly
owned Subsidiary of any such Person or Persons); (ii) the price per Common Share
offered in such transaction is not less than the price per Common Share paid to
all holders of Common Shares whose shares were purchased pursuant to such
Permitted Offer; and (iii) the form of consideration offered in such transaction
is the same as the form of consideration paid pursuant to such Permitted Offer.
Upon consummation of any such transaction contemplated by this Section 13(d),
all Rights hereunder shall expire.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Corporation
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, 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 or, if
the Rights are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to
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securities listed on the principal national securities exchange on
which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not 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 Rights selected by the Board of
Directors of the Corporation. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Corporation shall be
used.
(b) The Corporation shall not be required to issue fractions of Preferred
Shares (other than fractions which are [____________] or integral multiples of
[______________] of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are [______________] or integral multiples of [______________]
of a Preferred Share). Fractions of Preferred Shares in integral multiples of
[______________] of a Preferred Share may, at the election of the Corporation,
be evidenced by depositary receipts, pursuant to an appropriate agreement
between the Corporation and a depositary selected by it; provided that such
agreement shall provide that the holders of such depositary receipts shall have
the rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts. In lieu
of fractional Preferred Shares that are not [______________] or integral
multiples of [______________] of a Preferred Share, the Corporation shall pay to
the registered holders of Right Certificates at the time such Rights
are exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one Preferred Share, For the purposes of this
Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 giving rise to the right to receive Common Shares,
capital, stock equivalents (other than Preferred Shares) or other securities
upon the exercise of a Right, the Corporation shall not be required to issue
fractions of shares or units of such Common Shares, capital stock equivalents or
other securities upon exercise of the Rights or to distribute certificates which
evidence fractions of such Common Shares, capital stock equivalents or other
securities. In lieu of fractional shares or units of such Common Shares,
capital stock equivalents or other securities, the Corporation may pay to the
registered holders of Right Certificates at the time such Rights
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are exercised as herein provided an amount in cash equal to the same fraction
of the current market value of a share or unit of such Common Shares, capital
stock equivalents or other securities. For purposes of this Section 14(c),
the current market value shall be determined in the manner set forth in
Section 11(d) hereof for the Trading Day immediately prior to the date of
such exercise and, if such capital stock equivalent is not traded, each such
capital stock equivalent shall have the value of [_______________] of a
Preferred Share.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional share upon exercise
of a Right (except as provided above).
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right 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.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office or offices of the Rights Agent designated for such purpose, duly endorsed
or accompanied by a proper instrument of transfer and with the appropriate form
fully executed;
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(c) subject to Section 6 and Section 7(f) hereof, the Corporation and the
Rights Agent may deem and treat the person in whose name the Right Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificate
or the associated Common Shares certificate made by anyone other than the
Corporation or the Rights Agent) for all purposes whatsoever, and neither the
Corporation nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Corporation nor the Rights Agent shall have any liability to any holder of a
Right or a beneficial interest in a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of
any preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation; provided,
however, the Corporation must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Corporation which may at any time be issuable on the exercise
of the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Corporation 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 25 hereof), or to receive dividends
or other distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT. The Corporation 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 Corporation also agrees to indemnify the Rights
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Agent for, and to hold it harmless against, any loss, liability, or expense,
incurred without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability in the premises. The
indemnity provided for herein shall survive the expiration of the Rights and the
termination of this Agreement.
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 Right Certificate or
certificate for Common Shares or for other securities of the Corporation,
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.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
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 shall be a party, or any corporation succeeding to the stock transfer or
all or substantially all of the corporate trust business of the Rights Agent or
any successor Rights Agent, shall 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 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of a predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior
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name or in its changed name; and in all such cases such Right Certificates shall
have the full force provided in the Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes only
those duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall 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.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation 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 any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall 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 shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof) or any adjustment required
under the provisions of
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Section 11 or Section 13 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
evidenced by Right Certificates after receipt of the certificate described in
Section 12 hereof); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares to be issued pursuant to this Agreement or any
Right Certificate or as to whether any Preferred Shares or Common Shares will,
when issued, be validly authorized and issued, fully paid and non-assessable.
(f) The Corporation 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
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its duties,
and shall not be liable for any action taken or suffered by it in good faith or
lack of action in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Corporation may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Plan and the date on or after
which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not be less
than five Business Days after the date any officer of the Corporation actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instruction in response to such application specifying the action to be
taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Corporation or become pecuniarily interested in any transaction in which
the Corporation may be interested, or contract with or lend money to the
Corporation or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the
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Rights Agent from acting in any other capacity for the Corporation 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 shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Corporation.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Corporation and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Corporation may remove the Rights Agent or any successor Rights Agent
upon sixty (60) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified mail, and to holders of
the Right Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Corporation shall
appoint a successor to the Rights Agent. If the Corporation shall fail to make
such appointment within a period of sixty (60) days after giving notice of 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 a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Corporation), then the registered holder of any Right
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Corporation or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of [CALIFORNIA]
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(or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of California),
in good standing, having an office in the State of California, which is
authorized under such laws to exercise corporate trust or stock transfer powers
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 $100,000,000. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; 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 Corporation shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, 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.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Shares following the Distribution
Date and prior to the earlier of the Redemption Date and the Final Expiration
Date, the Corporation (a) shall with respect to Common Shares so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities, notes
or debentures issued by the Corporation, and (b) may, in any other case, if
deemed necessary, or appropriate by the Board of Directors of the Corporation,
issue Right Certificates representing the appropriate number of Rights in
connection with such issuance or sale; provided, however, that (i) the
Corporation shall not be obligated to issue any such Right Certificates if, and
to the extent that, the Corporation shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Corporation or the Person to whom such Right Certificate would be issued,
and (ii) no Right Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
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Section 23. REDEMPTION AND TERMINATION.
(a) (i) The Board of Directors of the Corporation may, at its option,
redeem all but not less than all the then outstanding Rights at a redemption
price of $_____ per Right, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"), at any time prior to the earlier of (x) the occurrence of a
Section 11(a)(ii) Event, or (y) the Final Expiration Date. The Corporation may,
at its option, pay the Redemption Price either in Common Shares (based on the
"current per share market price," as defined in Section 11(d) hereof, of the
Common Share at the time of redemption) or cash; provided that if the
Corporation elects to pay the Redemption Price in Common Shares, the Corporation
shall not be required to issue any fractional Common Shares and the number of
Common Shares issuable to each holder of Rights shall be rounded down to the
next whole share.
(ii) In addition, the Board of Directors of the Corporation may, at its
option, at any time following the occurrence of a Section 11(a)(ii) Event and
the expiration of any period during which the holder of Rights may exercise the
rights under Section 11(a)(ii) but prior to any Section 13 Event redeem all but
not less than all of the then outstanding Rights at the Redemption Price (x) in
connection with any merger, consolidation or sale or other transfer (in one
transaction or in a series of related transactions) of assets or earning power
aggregating 50% or more of the earning power of the Corporation and its
subsidiaries (taken as a whole) in which all holders of Common Shares are
treated alike and not involving (other than as a holder of Common Shares being
treated like all other such holders) an Interested Stockholder or (y)(aa) if and
for so long as the Acquiring Person is not thereafter the Beneficial Owner of
[______] of the Common Shares, and (bb) at the time of redemption no other
Persons are Acquiring Persons.
(b) Notwithstanding the provisions of Section 23(a), in the event that a
majority of the Board of Directors of the Corporation is comprised of (i)
persons elected at a meeting of or by written consent of stockholders who were
not nominated by the Board of Directors in office immediately prior to such
meeting or action by written consent, and/or (ii) successors of such persons
elected to the Board of Directors for the purpose of either facilitating a
Transaction with a Transaction Person or circumventing, directly or indirectly
the provisions of this Section 23(b), then (I) the Rights may not be redeemed
for a period of one hundred eight (180) days following the effectiveness of such
election if such redemption is reasonably likely to have the purpose or effect
of facilitating a Transaction with a Transaction Person and (II) the Rights may
not be redeemed following such one hundred eighty (180) day
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period, if (x) such redemption is reasonably likely to have the purpose or
effect of facilitating a Transaction with a Transaction Person and (y) during
such one hundred eighty (180) day period, the Corporation enters into any
agreement, arrangement or understanding with any Transaction Person which is
reasonably likely to have the purpose or effect of facilitating a Transaction
with any Transaction Person.
(c) In the case of a redemption permitted under Section 23(a)(i),
immediately upon the date for redemption set forth (or determined in the manner
specified in) in a resolution of the Board of Directors of the Corporation
ordering the redemption of the Rights, evidence of which shall have been filed
with the Rights Agent, and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price for each Right so
held. In the case of a redemption permitted only under Section 23(a)(ii),
evidence of which shall have been filed with the Rights Agent, the right to
exercise the Rights will terminate and represent only the right to receive the
Redemption Price upon the later of ten (10) Business Days following the giving
of such notice or the expiration of any period during which the rights under
Section 11(a)(ii) may be exercised. The Corporation shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within ten (10) days after such date for redemption set forth in a resolution of
the Board of Directors ordering the redemption of the Rights, the Corporation
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Corporation nor any
of its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 and other than in connection with the purchase of Common Shares prior
to the Distribution Date.
(d) The Corporation may, at its option, discharge all of its obligations
with respect to the Rights by (i) issuing a press release announcing the manner
of redemption of the Rights in accordance with this Agreement and (ii) mailing
payment of the Redemption Price to the registered holders of the Rights at their
last addresses as they appear on the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the Transfer Agent of
the Common Shares, and upon such action, all outstanding Rights and Right
Certificates shall be null and void
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without any further action by the Corporation.
Section 24. EXCHANGE. (a) The Board of Directors of the Corporation may,
at its option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares of the Corporation at an exchange ratio of
one Common Share per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation,
or any such Subsidiary, any entity holding Common Shares for or pursuant to the
terms of any such a plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of [_____] or more of the Common Shares
then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Corporation shall promptly mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Corporation, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as such
term is defined in Section 11(b) hereof) for some or all of the Common Shares
exchangeable for Rights, at the initial rate of [______________] of a Preferred
Share (or equivalent preferred share) for each Common Share, as appropriately
adjusted to reflect adjustments in the voting rights of the Preferred Shares
pursuant to the terms thereof, so that the
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fraction of a Preferred Share delivered in lieu of each Common Share shall have
the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
Corporation shall take all such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon exchange of the
Rights.
Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Corporation shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regularly quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Corporation in a
transaction which does not violate Section 11(n) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer) in one or more transactions, of 50% or more of the
assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11(n) hereof), or (v) to effect the liquidation, dissolution or winding
up of the Corporation, then, in each such case, the Corporation shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action to the extent feasible and file a certificate
with the Rights Agent to that effect, which shall specify the record date for
the purposes of such stock dividend, or distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Preferred Shares, if any such date
is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least twenty (20) days prior to the
record date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Shares, whichever shall be
the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Corporation shall
as soon as practicable thereafter give to each
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holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph (a) to Preferred Shares shall
be deemed thereafter to refer also to Common Shares and/or, if appropriate,
other securities of the Corporation.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Corporation shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
USCS International, Inc.
2969 Prospect Park Drive
Rancho Cordova, California 95670
Attention: _________________________________
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
[RIGHTS AGENT]
[ADDRESS]
[CITY, STATE]
Attention: _________________________________
Notices or demands authorized by this Agreement to be given or made by the
Corporation of the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Corporation.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the Corporation and the Rights Agent shall, if the Corporation so directs,
supplement or amend any provision of this Agreement without the approval of any
holders of certificates representing Common Shares. From and after the
Distribution Date, the Corporation and the Rights Agent shall, if the
Corporation so directs, supplement or amend this Agreement without the approval
of any holders of Right 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) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
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in any manner which the Corporation may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person); provided, however, that this Agreement may not be supplemented or
amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable, or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Corporation which states that the proposed supplement
or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment, provided that such supplement
or amendment does not adversely affect the rights or obligations of the Rights
Agent under Section 18 or Section 20 of 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 Shares. Notwithstanding
anything contained in this Rights Plan to the contrary, in the event that a
majority of the Board of Directors of the Corporation is comprised of (i)
persons elected at a meeting of or by written consent of stockholders and who
were not nominated by the Board of Directors in office immediately prior to such
meeting or action by written consent and/or (ii) successors of such persons
elected to the Board of Directors for the purpose of either facilitating a
Transaction with a Transaction Person or circumventing directly or indirectly
the provisions of this Section 27, then for a period of 180 days following the
effectiveness of such action, this Rights Plan shall not be amended or
supplemented in any manner reasonably likely to have the purpose or effect of
facilitating a Transaction with a Transaction Person.
Section 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. The
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Corporation, 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 (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders of
Right Certificates). For all purposes of this Agreement, any calculation of the
number of Common Shares or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in
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<PAGE>
effect on the date 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 Corporation,
the Rights Agent, the holders of the Right Certificates and all other parties,
and (y) not subject the Board to any liability to the holders of the Right
Certificates.
Section 29. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Corporation,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 31. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 32. GOVERNING LAW. This Agreement, each Right and each Right
Certificate 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.
Section 33. 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.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date and year first above written.
USCS International, Inc.
Attest:
By: _____________________________ By: ___________________________
Mary G. Jordan James C. Castle
Secretary Chairman of the Board and
Chief Executive Officer
[RIGHTS AGENT]
Attest:
By: _____________________________ By: ___________________________
Name: Name:
Title: Title:
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<PAGE>
<PAGE>
May 29, 1996
USCS International, Inc.
2969 Prospect Park Drive
Rancho Cordova, CA 95670
Ladies and Gentlemen:
You have requested our opinion as counsel for USCS International, Inc., a
Delaware corporation (the "Company"), and as special counsel for the Selling
Stockholders (as defined below) in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations
promulgated thereunder, and the initial public offering by the Company of
2,756,865 shares of its Common Stock, $0.05 par value (the "Primary Shares"),
and by the "Selling Stockholders" of 2,043,135 shares of such Common Stock,
together with up to an additional 720,000 shares of such Common Stock to cover
over-allotments (collectively, the "Secondary Shares" and together with the
Primary Shares, the "Shares"), to Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Montgomery Securities, as representatives of the underwriters.
This opinion is rendered pursuant to Item 601(b)(5)(i) of Regulation
S-K promulgated under the Act.
For purposes of this opinion, we have examined the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (the
"Commission") on April 19, 1996 (the "Registration Statement"), including the
prospectus which is a part thereof (the "Prospectus"), and the form of Purchase
Agreement between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Montgomery Securities, as representatives of the underwriters
(the "Purchase Agreement"). We have also been furnished with and have examined
originals or copies, certified or otherwise identified to our satisfaction, of
all such records of the Company, agreements and other instruments, certificates
of officers and representatives of the Company, certificates of public officials
and other documents as we have deemed it necessary to require as a basis for the
opinions hereafter expressed. As to questions of fact
<PAGE>
USCS International, Inc.
May 29, 1996
Page 2
material to such opinions, we have, where relevant facts were not independently
established, relied upon certificates by principal officers of the Company. We
have made such further legal and factual examination and investigation as we
deem necessary for purposes of rendering the following opinions.
In our examination we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the correctness of facts set forth in certificates,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certificated or
photostatic copies, and the authenticity of the originals of such copies. We
have also assumed that such documents have each been duly authorized, properly
executed and delivered by each of the parties thereto other than the Company.
We are members of the bar of the State of California. Our opinions below are
limited to the laws of the State of California, the corporate laws of the State
of Delaware and the federal law of the United States.
Based on the foregoing, it is our opinion that all of the Shares, when sold,
issued and delivered in the manner described in the final Prospectus and in
accordance with the terms of the Purchase Agreement, will be legally and validly
issued, fully paid nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and consent to the use of our name under the caption "Legal Matters"
in the Prospectus.
Very truly yours,
/s/ GRAHAM & JAMES LLP
GRAHAM & JAMES LLP
<PAGE>
EXHIBIT 10.5
USCS INTERNATIONAL, INC.
1996 DIRECTORS' STOCK OPTION PLAN
APRIL 18, 1996
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors, and to encourage their continued service on the
Board. All options granted hereunder shall be Nonstatutory Stock Options.
2. DEFINITIONS. As used herein, and in any Option granted hereunder, the
following definitions shall apply:
<TABLE>
<S> <C> <C>
(a) Board..................... the Board of Directors of the Company.
(b) Code...................... the Internal Revenue Code of 1986, as amended.
(c) Common Stock.............. the Common Stock of the Company.
(d) Company................... USCS International, Inc., a Delaware corporation.
(e) Continuous Status as a the absence of any interruption or termination of
Director................. service as a Director.
(f) Director.................. a member of the Board.
(g) Disinterested Person...... a person classified as a "disinterested person"
under Rule 16b-3, promulgated under the Exchange Act
(as defined below). Notwithstanding the foregoing,
a Director shall not fail to be a Disinterested
Person merely because he or she participates in a
plan meeting the requirements of Rule
16b-3(c)(2)(i)(A) or (B).
(h) Effective Date............ the effective date of the first registration
statement filed by the Company pursuant to Section
12(g) of the Exchange Act (as defined below) with
respect to the Common Stock.
(i) Exchange Act.............. the Securities Exchange Act of 1934, as amended.
(j) Nonstatutory Stock an Option granted under the Plan that is subject to
Option................... the provisions of Section 1.83-7 of the Treasury
Regulations promulgated under Section 83 of the
Code.
(k) Option.................... a stock option granted pursuant to the Plan.
(l) Option Agreement.......... a written agreement between the Company and the
Optionee regarding the grant and exercise of
Options to purchase Shares and the terms and
conditions thereof as determined by the Board
pursuant to the Plan.
(m) Optioned Shares........... the Common Stock subject to an Option.
(n) Optionee.................. an Outside Director who receives an Option.
(o) Outside Director.......... any non-employee Director.
(p) Parent.................... a "parent corporation," whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(q) Plan...................... this 1996 Directors' Stock Option Plan.
(r) Securities Act............ the Securities Act of 1933, as amended.
(s) Share..................... a share of the Common Stock subject to an Option, as
adjusted in accordance with Section 11 of the Plan.
(t) Subsidiary................ a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
</TABLE>
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3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is seventy one thousand four hundred twenty nine (71,429) Shares
(the "Pool") of Common Stock. The Shares may be authorized but unissued or
reacquired Common Stock. If an Option should expire or become unexercisable for
any reason without having been exercised in full, the unpurchased shares which
were subject thereto shall, unless the Plan shall have been terminated, be
returned to the Pool and become available for other Option grants under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATION. The Plan shall be administered by the Board. The Board
shall take all action necessary to administer the Plan in accordance with the
then effective provisions of Rule 16b-3 promulgated under the Exchange Act,
provided that any amendment to the Plan required for compliance with such
provisions shall be made consistent with the provisions of Section 12 hereof,
and said regulations. No discretion concerning decisions regarding the Plan
shall be afforded to any person who is not a Disinterested Person.
(b) OPTION GRANTS. All grants of Options hereunder shall be automatic and
non-discretionary and shall be made strictly in accordance with the following
provisions:
(i) No Options shall be granted under the Plan prior to the Effective
Date and until stockholder approval of the Plan has been obtained in
accordance with Section 17 hereof.
(ii) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to
be covered by Options granted to Outside Directors.
(iii) Each Outside Director elected or appointed to a three year term
shall be automatically granted an Option to purchase four thousand seven
hundred sixty two (4,762) Shares on the date (on or after the effective date
of this Plan) on which such person first becomes a Director, whether through
election by the stockholders of the Company or appointment by the Board to
fill a vacancy; provided, however, that no Option shall become exercisable
until stockholder approval of the Plan has been obtained in accordance with
Section 17 hereof.
(iv) The terms of each Option granted hereunder shall be as follows:
(A) the grant date of each Option shall be the date on which it is
automatically granted pursuant to this Section 4(b).
(B) the term of the Option shall be five (5) years.
(C) the Option shall be exercisable only while the Outside Director
remains a Director of the Company, except as set forth in Section 9
hereof.
(D) the exercise price per Share shall be 100% of the fair market
value of a Share on the date of grant of the Option, as determined
pursuant to Section 8(a) hereof.
(E) the Option shall become exercisable cumulatively as to one-third
(1/3) of the Optioned Shares of the last day of the twelfth month in each
twelve month period following the date of grant of the Option for as long
as the Optionee maintains his or her Continuous Status as a Director.
(v) In the event that any Option granted under the Plan would cause the
number of Shares subject to outstanding Options plus the number of Shares
previously purchased upon exercise of Options to exceed the Pool, then each
such automatic grant shall be for that number of Shares determined by
dividing the total number of Shares remaining available for grant by the
number of Outside Directors entitled to an Option grant on the automatic
grant date. No further grants shall be made until such time, if any, as
additional Shares become available for grant under the Plan through action
of the stockholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.
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<PAGE>
(c) POWERS OF THE BOARD. Subject to the provisions of the Plan, the Board
shall have the authority: (i) to determine, upon review of relevant information
and in accordance with Section 8(a) hereof, the fair market value of the Common
Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan; (iv) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Board; and (v) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all potential or
actual Optionees and any other holder of an Option granted under the Plan or the
Optioned Shares acquired upon the exercise thereof.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted
only to Outside Directors. All Options shall be automatically granted in
accordance with the terms set forth in Section 4(b) hereof.
(b) NO RIGHT TO SERVE AS A DIRECTOR. Neither the establishment nor the
operation of the Plan shall confer upon any Optionee or any other person any
right with respect to continuation of service as a Director or nomination to
serve as a Director, with the Company or any Subsidiary, nor shall the Plan
interfere in any way with any rights which the Director or the Company may have
to terminate his or her directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon its approval by the
Board of Directors or its approval by the stockholders of the Company (in
accordance with the provisions of Section 17 hereof), whichever is earlier. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 12 hereof.
7. TERM OF OPTION. The term of each Option granted under the Plan shall be
five (5) years from the date of grant. The term of the Option shall be set forth
in the Option Agreement.
8. OPTION PRICE AND CONSIDERATION.
(a) OPTION PRICE. The option price for the Shares to be issued pursuant to
any Option shall in no event be less than the fair market value of such Shares
on the date the Option is granted. Fair market value of the Common Stock shall
be determined in good faith by the Board, using such criteria as it deems
relevant; provided, however, that if there is a public market for the Common
Stock, the fair market value per Share shall be the average of the last reported
bid and asked prices of the Common Stock on the date of grant, as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation (NASDAQ) System)
or, in the event the Common Stock is listed on a national securities exchange
(within the meaning of Section 6 of the Exchange Act) or on the NASDAQ National
Market System (or any successor national market system), the fair market value
per Share shall be the closing price on such exchange on the date of grant of
the Option, as reported in THE WALL STREET JOURNAL.
(b) FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option shall be payment in cash or by check unless
payment in some other manner, including by promissory note, other shares of the
Company's Common Stock, authorization from the Optionee to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a fair market value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, delivery of
a properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, any combination of the foregoing methods of
payment, or such other consideration and method of payment for the issuance of
Shares as may be permitted under Sections 153 of the Delaware General
Corporation Law, is authorized by the Board at the time of the grant of the
Option. Any cash or other property received by the Company from the sale of
Shares pursuant to the Plan shall constitute part of the general assets of the
Company.
9. EXERCISE OF OPTION.
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<PAGE>
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable at such times as are set forth in the option
agreement consistent with Section 4(b) hereof; provided, however, that no
Options shall be exercisable until stockholder approval of the Plan in
accordance with Section 17 hereof has been obtained.
An Option may not be exercised for fractional shares or for less than ten (10)
Shares.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company. Upon
exercise of an Option in the manner set forth above, the Company shall issue or
cause its transfer agent to issue stock certificates representing the Shares
purchased.
Until the issuance of such stock certificates (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Shares notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
rights for which the record date is prior to the date of the transfer by the
Optionee of the consideration for the purchase of the Shares, except as provided
in Section 11 of the Plan. The exercise of an Option shall be subject to
compliance with all applicable requirements of Rule 16b-3 promulgated under the
Exchange Act or any successor statute thereto; the Option Agreement shall
contain such additional conditions or restrictions as may be required thereunder
to qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Optionee ceases to serve as
a Director for any reason, including death or disability, he may, but only
within ninety (90) days after the date he ceases to be a Director of the
Company, exercise his Option to the extent that he was entitled to exercise it
at the date of such termination. Notwithstanding the foregoing, in no event may
the Option be exercised after its five (5)-year term has expired. To the extent
that the Optionee was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the same time specified herein, the Option shall terminate.
(c) EXERCISE OF OPTION WITH STOCK. The Board may permit an Optionee to
exercise an Option by delivering shares of the Company's Common Stock. If the
Optionee is so permitted, the Option Agreement covering such Option may include
provisions authorizing the Optionee to exercise the Option, in whole or in part,
by: (i) delivering whole shares of the Company's Common Stock previously owned
by such Optionee (whether or not acquired through the prior exercise of a stock
option) having a fair market value equal to the aggregate option price for the
Optioned Shares issuable on exercise of the Option; and/or (ii) directing the
Company to withhold from the Shares that would otherwise be issued upon exercise
of the Option that number of whole Shares having a fair market value equal to
the aggregate option price for the Optioned Shares issuable on exercise of the
Option. Shares of the Company's Common Stock so delivered or withheld shall be
valued at their fair market value at the close of the last business day
immediately preceding the date of exercise of the Option, as determined by the
Board, in accordance with the provisions of Section 8(a) of the Plan. Any
balance of the exercise price shall be paid in cash. Any shares delivered or
withheld in accordance with this provision shall not again become available for
purposes of the Plan and for Options subsequently granted thereunder.
(d) TAX WITHHOLDING. When an Optionee is required to pay to the Company an
amount with respect to tax withholding obligations in connection with the
exercise of an Option granted under the Plan, the Optionee may elect prior to
the date the amount of such withholding tax is determined (the "Tax Date") to
make such payment, or such increased payment as the Optionee elects to make up
to the maximum federal, state and local marginal tax rates, including any
related FICA obligation, applicable to the Optionee and the particular
transaction, by: (i) delivering cash; (ii) delivering part or all of the payment
in previously owned shares of Common Stock (whether or not acquired through the
prior exercise of an Option); and/or (iii) irrevocably directing the Company to
withhold from the Shares that would otherwise be issued upon exercise of the
Option that number of whole Shares having a fair market value equal to the
amount of tax
4
<PAGE>
required or elected to be withheld (a "Withholding Election"). If an Optionee's
Tax Date is deferred beyond the date of exercise and the Optionee makes a
Withholding Election, the Optionee will initially receive the full amount of
Optioned Shares otherwise issuable upon exercise of the Option, but will be
unconditionally obligated to surrender to the Company on the Tax Date the number
of Shares necessary to satisfy his or her minimum withholding requirements, or
such higher payment as he or she may have elected to make, with adjustments to
be made in cash after the Tax Date.
Any withholding of Optioned Shares with respect to taxes arising in connection
with the exercise of an Option must comply with the provisions of Rule 16b-3
under the Exchange Act. Shares withheld in accordance with this provision shall
not again become available for purposes of the Plan and for Options subsequently
granted thereunder.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act and the Rules thereunder, and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, and the per share price thereof in each such
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, recapitalization, combination, reclassification, the payment of a
stock dividend on the Common Stock or any other increase or decrease in the
number of such shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
If the Company dissolves, sells substantially all of its assets, is acquired in
a stock for stock or securities exchange or is party to a merger or
reorganization in which it is not the surviving corporation (a Change in
Control), then fifty percent (50%) of the unvested portion of each Option held
at least six (6) months prior to the effective date of a Change of Control shall
immediately vest and each Option shall be exercisable by the holder thereof for
a period of not less than thirty (30) days prior to such Change in Control,
provided, however, that the Optionee shall be given not less than thirty (30)
days' notice of such Change of Control and within such time period may exercise
his or her Options in whole or in part. All Options shall terminate in their
entirety to the extent not exercised on or prior to such thirty (30) day period.
12. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the holders of a majority of the
outstanding capital stock (or their unanimous consent if such approval is
obtained in writing), no such revision or amendment shall change the number of
Shares subject to the Plan, change the designation of the class of employees
eligible to receive Options or add any material benefit to Optionees under the
Plan. Any such amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and effect as if the
Plan had not been amended or terminated. In addition, the Board shall amend the
Plan from time to time, with stockholder approval to the extent necessary, as
required to comply with the provisions of Rule 16b-3 under the Exchange Act as
then in effect.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an Option granted under the Plan unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance. As a condition to the exercise of an Option, the Company
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<PAGE>
may require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. During the term of this Plan the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. REGISTRATION OF OPTIONS AND OPTIONED SHARES. Within ninety (90) days
after the Effective Date, or as soon thereafter as may be reasonably
practicable, the Company shall use its best efforts to register the Options and
Shares issuable under the Plan pursuant to a registration statement on SEC Form
S-8, or any comparable or successor form or forms. The Company shall be entitled
to determine the timing of such filing and to take such actions, meet such
conditions and make such adjustments to the number of shares subject to the
reoffer prospectus as it deems reasonably necessary for compliance with the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder.
16. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by
Option Agreements.
17. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the
affirmative vote of the holders of a majority of the outstanding capital stock
of the Company entitled to vote. Such stockholder approval shall be obtained in
the degree and manner required under applicable law.
6
<PAGE>
EXHIBIT 10.6
USCS INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the Employee Stock Purchase Plan (the "Plan") of
USCS International, Inc. (the "Company").
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its majority-owned subsidiaries with an opportunity to purchase Common Stock
of the Company through payroll deductions. The Plan is not intended to qualify
as an "Employee Stock Purchase Plan" under the provisions of Sections 421 and
423 of the Internal Revenue Code of 1986, as amended (the "Code"). It is the
intention of the Company that the Plan shall not constitute a plan for any
purpose or provision under the Employee Retirement Income Security Act of 1974,
as amended (29 U.S.C.A. Section 1001 et seq.).
2. DEFINITIONS.
(a) "Compensation" means regular straight time earnings including payments
for overtime, shift premium, incentive compensation, bonuses, and commissions.
(b) "Employee" means any person who, (as of the date of purchase of shares
under the Plan,) is an employee of the Company (or of its Parent or Subsidiary
if such employees are to be participants in the Plan) except for employees who
have been employed for less than one (1) year (2) employees whose customary
employment is twenty (20) hours or less per week and (3) employees whose
customary employment is for not more than five (5) months in any calendar year.
(c) "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the purchase of
shares by a participant in the Plan, each of the corporations other than the
Company 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.
(d) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
purchase of shares by a participant in the Plan, each of the corporations other
than the last corporation in the unbroken chain 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.
3. ELIGIBILITY.
(a) Any employee, as defined in Section 2(b), who has completed one (1) year
continuous employment with the Company or with its Parent or Subsidiary on the
date his or her participation in the Plan is effective shall be eligible to
participate in the Plan.
(b) Notwithstanding any provisions of the Plan to the contrary, no employee
shall be permitted to participate in the Plan: (i) if, immediately after any
purchase of shares under the Plan, such employee would own, directly or
indirectly, shares (including shares issuable upon the exercise of outstanding
options to purchase stock) possessing five percent (5%) or more of the total
combined voting power or value of all classes of shares of the Company or of its
Parent or Subsidiary; or (ii) if such employee's rights to purchase shares under
all employee stock purchase plans of the Company or of its Parent or Subsidiary
will accrue at a rate that exceeds $25,000 of the fair market value of such
shares (determined at the time such purchase option is granted) for each
calendar year in which such right to purchase is outstanding at any time.
4. PURCHASE PERIODS. The Plan shall be implemented by calendar quarter
purchase periods during the term of the Plan (each, a "Purchase Period"). The
Company's Board of Directors shall designate the commencement date of the
initial Purchase Period. Thereafter, each Purchase Period shall correspond to a
calendar quarter until otherwise determined by the Board of Directors or the
committee appointed to administer the Plan in accordance with Section 13.
1
<PAGE>
5. PARTICIPATION.
(a) An eligible employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions on the form provided by
the Company and filing it with the Company's payroll office not less than seven
(7) days prior to the commencement of any Purchase Period. Once enrolled, an
employee will continue to participate on a quarterly basis until he withdraws
from the Plan or his participation is terminated, as provided in Section 10.
(b) Payroll deductions for a participant shall commence on the first payroll
following the commencement of the first calendar quarter for which the
participant's participation is effective and shall end upon the participant's
withdrawal from the Plan or the termination of the participant's participation
in the Plan, as provided in Section 10.
(c) An employee who becomes eligible to participate in the Plan after the
commencement of a Purchase Period may not participate in the Plan until the
commencement of the next Purchase Period.
(d) From time to time, as necessary, the Board of Directors of the Company
(or the administrative committee for the Plan) may meet with representatives of
any corporation which becomes a Parent or Subsidiary subsequent to the Plan's
adoption date to determine whether and to what extent the employees of such
Parent or Subsidiary shall be eligible to participate in the Plan.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his subscription agreement, he shall
elect to have payroll deductions made on each payday during the Purchase Period
at a rate not less than $10.00 per month and not exceeding ten percent (10%) of
the compensation which he receives on such payday, and the aggregate of such
payroll deductions during the Purchase Period shall not exceed ten percent (10%)
of his aggregate compensation during said Purchase Period, excluding the effect
of any increase in the rate of compensation which becomes effective during the
Purchase Period.
(b) All payroll deductions made by a participant shall be credited to his
account under the Plan. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his participation in the Plan as provided
in Section 10, or may lower, but not increase, the rate of his payroll
deductions (within the limitation set forth in subparagraph (a) above) by
completing or filing with the Company a new authorization for payroll deduction.
The change in rate shall be effective within fifteen (15) days following the
Company's receipt of the new authorization.
7. PURCHASE PRICE.
(a) Each eligible employee participating in the Plan shall have the right to
purchase (at the per share price set forth below) up to the number of shares of
the Company's Common Stock determined by dividing each employee's accumulated
payroll deductions for the Purchase Period (at the rate designated by such
employee, not to exceed an amount equal to ten percent (10%) of his annual
compensation as of the date of the commencement of the applicable Purchase
Period) by the lower of ninety-five percent (95%) of the fair market value of a
share of the Company's Common Stock on (i) the first business day of such
Purchase Period or (ii) the last business day of such Purchase Period, subject
to the limitations set forth in Sections 3(b) and 12. Fair market value of a
share of the Company's Common Stock shall be determined as provided in
subsection (b) below.
(b) The fair market value of the Company's Common Stock on any date shall be
determined by the Company's Board of Directors based upon such factors as they
deem relevant; provided, however, that where there is a public market for the
Common Stock, the fair market value per share shall be the average of the last
reported bid and asked prices of the Common Stock, as reported in THE WALL
STREET JOURNAL (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a national securities exchange (within
2
<PAGE>
the meaning of Section 6 of the Exchange Act) or the NASDAQ National Market
System, the fair market value per share shall be the closing price on such
exchange, as reported in THE WALL STREET JOURNAL, on the date of determination.
8. PURCHASE OF SHARES. Unless a participant withdraws from the Plan as
provided in Section 10, his purchase of shares in any Purchase Period will be
automatic as of the first business day of the next Purchase Period and the
maximum number of full shares will be purchased for him at the applicable price
with the accumulated payroll deductions in his account. During the participant's
lifetime, only the participant may purchase shares under the Plan.
9. HOLD PERIOD; DELIVERY OF SHARE CERTIFICATES.
(a) Shares of the Company's Common Stock issued pursuant to this Plan shall
be subject to a six (6) month hold period commencing on the date that such
shares are issued by the Company (the "Hold Period"). No participant may sell,
assign, dispose of by gift or otherwise transfer any shares of the Company's
Common Stock issued pursuant to this Plan prior to the termination of the Hold
Period.
(b) The Company shall maintain a record of all shares issued to participants
in the Plan. Upon the termination of the applicable Hold Period, a participant
in the Plan may request in writing addressed to the Secretary of the Company a
share certificate for shares of Common Stock issued to such participant and no
longer subject to a Hold Period. Upon receipt of such written request, the
Company shall arrange the delivery to such participant of a certificate
representing the shares purchased by such participant.
(c) Any cash remaining to the credit of a participant's account under the
Plan after a purchase by him of shares in any Purchase Period, or which is
insufficient to purchase a full share of Common Stock of the Company, shall be
accumulated in the participant's account and applied to the purchase of shares
in the next succeeding Purchase Period. All such funds shall be delivered to a
participant in the Plan upon such participant's withdrawal from the Plan or
termination of employment pursuant to Section 10.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his account under the Plan at any time by giving written
notice to the Company. All of the participant's payroll deductions credited to
his account will be paid to him promptly after receipt of his notice of
withdrawal, his participation in the Plan will be automatically terminated, and
no further payroll deductions for the purchase of shares will be made under the
Plan.
(b) Upon termination of the participant's employment for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him, or, in the case of his death, to the person or persons
entitled thereto under Section 14, and his participation in the Plan will be
automatically terminated.
(c) A participant's withdrawal from the Plan will not have any effect upon
his eligibility to participate in the Plan at a future date or in any similar
plan which may hereafter be adopted by the Company, so long as the participant
is otherwise eligible to participate in such plan.
11. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be ninety five thousand two
hundred thirty nine (95,239) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18. If the total number of
shares which would otherwise be subject to purchase by participants pursuant to
Section 7(a) exceeds the number of shares then available under the Plan (after
deduction of all shares which have been purchased under the Plan), the Company
shall make a pro rata allocation of the shares remaining available for purchase
in as uniform a manner as shall be practicable, provided that no participant
shall be permitted to purchase more shares than the maximum number of shares
allowable to such participant as calculated pursuant to the
3
<PAGE>
provisions of Section 7(a) hereof. In such event, the Company shall give written
notice of such reduction of the number of shares available for purchase to each
employee affected thereby and shall similarly reduce the rate of payroll
deductions, if necessary.
(b) The participant will have no interest or voting right in shares to be
purchased by a participant under the Plan until such shares have been issued by
the Company.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company or a committee appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board of Directors or its committee who are eligible employees are
permitted to participate in the Plan.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/ or cash
to the spouse or to any one or more dependents or relatives of the participant,
or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the receipt of shares under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any
way (other than by will, the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder or as provided
in Section 14) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Section 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating employees
promptly after the end of each Purchase Period, which statements will set forth
the total payroll deductions accumulated, the per share purchase price, the
number of shares purchased and the remaining cash balance, if any.
18. CHANGES IN CAPITALIZATION. If any shares are purchased under this Plan
subsequent to any stock dividend, stock split, spin-off, recapitalization,
merger, combination, reclassification, exchange of shares or the like, occurring
after such shares were purchased but prior to delivery of the stock certificate
therefor, as a result of which shares of any class shall be issued in respect of
the outstanding shares, or shares shall be changed into the same, whether a
different number of the same or another class or classes, the number of shares
to be issued by the Company and the purchase price for such shares shall be
appropriately adjusted by the Company, as necessary to maintain the equality of
rights and privileges afforded participants and shares issuable under the Plan,
provided that, in any transaction described in Section 424 of the Code, the Plan
shall be administered in such a manner as to satisfy the provisions of Section
424 and the regulations thereunder;
4
<PAGE>
and provided further, that any increase in the aggregate number of shares
subject to the Plan (other than an increase merely reflecting a change in
capitalization such as a stock dividend or stock split) must be approved by the
Company's stockholders in accordance with Section 22 hereof.
19. AMENDMENT OR TERMINATION. The Board of Directors of the Company may at
any time terminate, modify, extend or renew the Plan or any rights to purchase
shares granted hereunder; provided that no such modification, extension or
renewal be made without prior approval of the stockholders of the Company if
such amendment would:
(a) Increase the number of shares reserved under the Plan;
(b) Permit payroll deductions at a rate in excess of ten percent
(10%) of the participant's compensation rate;
(c) Materially modify the eligibility requirements; or
(d) Materially increase the benefits which may accrue to participants
under the Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 22. It shall continue in
effect for a term of twenty (20) years unless sooner terminated pursuant to
Section 19.
22. APPROVAL OF STOCKHOLDERS. The Plan and any increase in the number of
shares reserved under the Plan must be approved by the stockholders of the
Company within twelve (12) months before or after the date the Plan has been
adopted or an increase in the number of shares reserved under the Plan has been
approved by the Board of Directors. Such stockholder approval shall be by the
affirmative vote of a majority of the capital stock of the Company present or
represented and entitled to vote at a duly held meeting or by the written
consent of the holders of a majority of the outstanding capital stock of the
Company entitled to vote. Any purchases of shares pursuant to the Plan before
stockholder approval is obtained must be rescinded if stockholder approval is
not obtained within twelve (12) months after the Plan is adopted. Such shares
shall not be counted in determining whether such approval is obtained.
5
<PAGE>
ALTERNATE MAILING SYSTEM AGREEMENT
BETWEEN
THE
UNITED STATES POSTAL SERVICE
AND
INTERNATIONAL BILLING SERVICES, INC.,
5220 ROBERT J MATHEWS PARKWAY
EL DORADO HILLS CA 95762-5712
June l5, 1995
PURPOSE:
This service agreement, and any attachments, set forth the terms and conditions
for International Billing Services, Inc., of El Dorado Hills, California for use
of an Alternate Mailing System Agreement (AMS) as described and authorized by
the United States Postal Service in accordance with Domestic Mail Manual (DMM)
P73O. If there is any difference between this agreement and the mailing
standards in the Domestic Mail Manual, the postal standards in the DMM will
govern. An Alternate Mailing System Agreement provides for other methods of
accepting permit imprint mad, not established in Domestic Mail Manual P71O or
P720, that show proper postage payment and mail preparation without verification
by weight.
CONDITIONS.
The conditions of authorization for Alternate Mailing System Agreements (DMM
P730.2.2) are:
* Authorization to use AMS must benefit the USPS
* Authorization to use AMS must include a signed agreement
* An AMS agreement must specify the terms and conditions of the AMS
* All postage must be paid by permit imprint unless otherwise permitted in
writing by the RCSC
* There must be no additional costs to the USPS for an AMS agreement beyond
the costs of current mail acceptance procedures for the mail in question
* The mailer must implement a quality control program that ensures proper
mail preparation and accurate documentation, subject to USPS approval. The
service agreement must include details of this program that ensure proper
mail preparation and accurate documentation, subject to USPS approval. The
service agreement must include details of this program. Each AMS mailing
must include a statement from the mailer certifying that the approved
quality control verification is done
* Authorization must not exceed 2 years
1
<PAGE>
ARTICLE 1.
This Alternate Mailing System Agreement was for First-Class nonidentical weight
permit imprint mailings for which the documentation and maintenance of records
as outlined in Article 9 are maintained by the mailer. This agreement is for
specific mailings at the mailer's plant known as IBS II located in:
SACRAMENTO, CALIFORNIA
The mailer may request other AMS agreements for additional mailer plant
locations by submitting a written request to the postmaster at the office of
mailing. The request must include a complete description of the types of matter
to be mailed; the proposed method of paying postage; the proposed method to
determine correct mail preparation; and a statement of the reasons for
requesting the alternate mailing system. The USPS may review the mailer's
operation before ruling on the application.
ARTICLE 2:
Mailings under this agreement are limited to First-Class mail. Mailings will be
prepared as required by the applicable mailing standards in the Domestic Mail
Manual.
Specific primary and secondary documents are listed for use with this system.
The mailings produced at the IBS II plant in Sacramento, California are "mailer
defined" as:
1. IMAGE BILLS
ARTICLE 3:
The Postmaster or designee, Rancho Cordova, California will verify mailings at
the mailer's Sacramento, California plant. All mailings verified under this
agreement at the mailer's Sacramento, California plant will have funds withdrawn
from permit imprint account number 300 held with the Postmaster, Rancho Cordova,
California.
ARTICLE 4.
MAILER'S RESPONSIBILITIES:
1. International Billing Services, Inc., is responsible for complying with
all postal laws and regulations which may apply to the mailings including
the proper classification of materials as set forth in the DMM. Mailings
must be prepared and presented to the Postal Service in accordance with
this agreement.
International Billing Services, Inc., will tender mail prepared in
accordance with this Agreement only at entry points specifically approved
in advance by the Postal Service. The mailer's plant in Sacramento,
California will be the entry point for all mail entered under this
Agreement.
2
<PAGE>
2. International Billing Services, Inc., will provide unrestricted access to
mail preparation areas for employees of the Postal Service to observe mail
preparation and to verify mailing records.
3. At the time mail was presented for acceptance and/or released by the Postal
Service, the mailer must be able to provide:
* Primary Documents as described in Article 9
* "Postal Accumulated Manifest Report" for each rate category
* Consolidated Register of Mailing Statement - Daily Postal 3600 Summary with
Grand Totals
* Coding Accuracy Support System Report (PS Form 3553) or computer-generated
facsimile (DMM A950.5.2) for automation rate mailings
* Carrier-Route Listings for Carrier-Route mailings
* Any other documentation required by the Domestic Mail Manual for rate
eligibility
ARTICLE 5:
International Billing Services, Inc., must maintain sufficient funds in an
advance deposit account at the Rancho Cordova, California Post Office for any
mailings entered and released by the United States Postal Service. (DMM P040.5.6
Prepayment)
ARTICLE 6:
The mailer will document and/or process damaged or withdrawn mailpieces as
outlined in Attachment "A" - Mailer's Quality Control Procedures.
The mailer will adhere to all quality control procedures and documentation as
outlined in the Quality Control Procedures attached to this agreement-Attachment
"A."
ARTICLE 7:
Attachment "B" includes sample copies of mailing documentation covered by this
agreement. The Manager, RCSC must be notified 60 days in advance for approval
to any proposed changes to this documentation which may affect correct
calculation/assessment of postage for mail released by the Postal Service under
this Agreement or affects any primary or secondary postal audit documentation
used to support this agreement.
ARTICLE 8.
Postal audit documents for this AMS will be maintained at the mailer's plant in
El Dorado Hills, California. If requested by the Postal Service, audit documents
will be available for postal inspection at the Sacramento IBS II plant with
seven (7) days' prior notice to International Billing Services, Inc., A sample
pack will be maintained at the mailer's plant located in El Dorado Hills,
California for mailings submitted by International Billing Services, Inc., under
the AMS agreement. The sample pack will include some of the required documents
as specified in Article 9 of this agreement and any additional documentation and
information desired by the mailer. Some documentation for this agreement is
maintained electronically (Article 10) and certain documentation is maintained
by the Postal Liaison because of space limitations in the sample pack. The
sample pack will consist of information for a particular "corp" and "plan." The
mailer defines a corp as a select client with an exact plan(s) consisting of
select envelopes and inserts (stuffers.)
3
<PAGE>
The plan may differ numerous times for the same corp/client during a mailing
day. Maintenance of the documentation is required to permit reconciliation
with the statements of mailing and to enable the Postal Service to verify the
accuracy of the computations for individual mailings as well as for the
aggregate of all mailings. These records will be maintained centrally and
retained for a period of one year.
The mailer has been authorized to maintain in electronic format the following,
provided the conditions in Article 10 are met:
* The primary document, the "Postal Manifest Postage Listing," shows the number
of pieces of mail, postage for each piece by destination and "corp/plan" or ":S-
Key" and summarizes the postage and piece counts for each mailing under this
authorized Alternate Mailing System Agreement.
ARTICLE 9:
PRIORITY MAILING RECORDS FOR IMAGE BILLS
POSTAL MANIFEST LISTING - Shows rate qualification by ZIP Code for mailpieces by
tray.
Customer has authorization in Article 10 to maintain this documentation
electronically.
SECONDARY MAILING RECORDS
1. Sample Pack enclosures for each corp/plan:
* Plan Job Card (shows the number pieces, corp/plan, file number,
inserts, quality control checks initialed by each department as mail
is processed through printing, inserting, sealing, packaging,
traying, etc.)
* Sample of job tray/sack labels for the exact corp/plan
* Sample of mailing envelope with permit imprint including all inserts
* Sample of tray labels for the exact corp/plan mailing
* StatementsPLUS Close Out Index (used for monitoring all activities and
document handling needed to close-out the corp/plan)
* StatementsPLUS Plan Summary Report
* Customer Return Letter
* Turnabout Analysis Summary Information
* Transmission Audit Report
* Facsimile Work Request Customer Invoice
4
<PAGE>
* Customer Statement of Accounts or Billing Statistics/Billing
Validation Report
ARTICLE 10:
Electronic Storage of the "Postal Manifest Listing" for any mailing generated,
is acceptable under this Agreement provided:
* The mailer must be able to provide the Postal Service the entire
"Postal Manifest Listing" for any mailing generated within seven days
after the date of mailing, The information must be provided by the
mailer to the Postal Service within 24 hours;
* The information can be extracted from the electronic media for a
single mailpiece by keying the unique keyline from a specific
mailpiece into the computer;
* The mailer will ensure that for any mailing selected for postage
verification by the Postmaster or designee of Rancho Cordova,
California that the mailer will generate a complete hard copy of the
"Postal Manifest Listing" for the entire contents of one or more tray
or containers within that same mailing to the postal clerks verifying
a mailing The information must be produced for verification of a
mailing before a mailing is released;
* The mailer will require 15 days' advance notice to provide requests for
the "Postal Manifest Listing" beyond seven days from the date of
mailing.
ARTICLE 11:
Postal verification may occur at any time. Verification will be conducted as
required to meet postal standards. If mailings are accepted at the mailer's
plant they are subject to Plant Load Operations approval by the Sacramento
District of the Postal Service. This may entail preliminary notice of mail
volume in advance to allow the Postal Service adequate time for truck/trailer
dispatches.
ARTICLE 12:
Overpayments and underpayments identified during USPS verification require a
postage adjustment. Verification samples are deemed to be representative of the
entire mailing and postage adjustments calculations are based on the total
mailing. The mailer must pay a penalty surcharge when the sampling verification
shows that the error exceeds 1.5% of the claimed postage. The total corrected
postage for the entire mailing and a penalty equal to 10% of the postage error
calculation is deducted from the permit imprint advance deposit account (DMM
P730.1.2.). Additionally, the mailer agrees to notify the RCSC, in writing,
regarding the reason for the error and how it will be prevented in the future.
ARTICLE 13:
Any underpayment of postage to the USPS detected by International Billing
Services, Inc., must be reported to the administering post office within five
(5) working days from the date of detection. The reporting office will advise
the administering RCSC of all underpayments.
Any refund request or deficiency (underpayment) will trigger an investigation by
the administering RCSC and International Billing Services, Inc., to determine
how and why the error occurred, why it was not detected by the system, and what
corrective measures have or should be taken. A joint audit will be performed if
determined necessary by the manager of the administering RCSC.
5
<PAGE>
If the manager, RCSC, determines excess postage was paid or postage was
underpaid because of an error by International Billing Services, Inc., the cost
of conducting the audit to identify and correct the cause of the problem and the
total administrative costs and processing costs incurred by the Postal Service
will be charged to International Billing Services, Inc.
ARTICLE 14.
The Manager, Rates and Classification Service Center may revoke this AMS
authorization if the mailer (DMM P730.2.7):
* Provides incorrect data for mailing and appears unable or unwilling to
correct all problems;
* Is not conducting required quality control procedures as described by
the mailer in Attachment A;
* No longer meets the criteria established by standard or the AMS
agreement;
* Does not present a mailing under this AMS for six (6) months;
* Continues to present improperly prepared mailings;
ARTICLE 15:
DURATION AND TERMS OF THIS AGREEMENT
The mailer may cancel this agreement at any time by giving written notice to the
San Bruno Manager, Rates and Classification Service Center.
ARTICLE 16.
Annual system reviews will be conducted by the San Bruno RCSC. Monthly reviews
will be conducted by either the Manager, Business Mail Entry, Sacramento
District, the Postmaster, Rancho Cordova, California or their designees.
ARTICLE 17.
This agreement will remain in effect for a one-year period beginning June
15,1995 and ending June 14, 1996.
6
<PAGE>
Article 18:
This agreement consists of 18 articles and five (5) attachments and can only be
changed or modified by addendum with the approval of the San Bruno Rates and
Classification Service Center.
ATTACHMENTS DESCRIPTION
* Attachment A Mailer's Quality Control Procedures
* Attachment B Primary Documentation Samples
* Attachment C Mailer's Request for Alternate Mailing System
* Attachment D Mailer's Definition of Terms
7
<PAGE>
SIGNATURE PAGE - ALTERNATE MAILING SYSTEM AGREEMENT
FOR THE POSTAL SERVICE
Manager, Customer Service Support
- ------------------------------------- --------------------------------------
Name Title
916 263-7032
- ------------------------------------- --------------------------------------
Signature Telephone
Sacramento, CA 95799-0070
- ------------------------------------- --------------------------------------
Date City, State, ZIP + 4
FOR THE POSTAL SERVICE
Larry Groce Postmaster, Rancho Cordova, California
- ------------------------------------- --------------------------------------
Name Title
916 574-3062
- ------------------------------------- --------------------------------------
Signature Telephone
Rancho Cordova, CA 95670-9998
- ------------------------------------- --------------------------------------
Date City, State, ZIP + 4
FOR THE POSTAL SERVICE
Michael Kohles Postmaster, Folsom, California
- ------------------------------------- --------------------------------------
Name Title
916 983-3120
- ------------------------------------- --------------------------------------
Signature Telephone
Folsom, California 95630-9998
- ------------------------------------- --------------------------------------
Date City, State, ZIP + 4
8
<PAGE>
FOR CUSTOMER
Mury L. Salls Vice President Postal Relations
- ------------------------------------- --------------------------------------
Customer Name Title
/s/ Mury L. Salls 916 939-4670
- ----------------------------------- --------------------------------------
Signature Telephone
4/10/96 El Dorado Hills, CA 95762-5712
- ------------------------------------- --------------------------------------
Date City, State, ZIP + 4
FOR RATES AND CLASSIFICATION
Mgr., San Bruno Rates and
Classification Service Center
- ------------------------------------- --------------------------------------
Linda Deaktor Title
San Bruno, California 94096-9599
- ------------------------------------- --------------------------------------
Date of Approval City, State, ZIP + 4
9
<PAGE>
ATTACHMENT A
MAILER'S QUALITY CONTROL PROCEDURES
<PAGE>
SAMPLE VERIFICATION CHECKLIST
CORP CYCLE PLAN
-------------- -------------- ---------------------
EQUIPMENT # OPERATOR BADGE #
------------------- ---------------------
[ACCEPTED] [REJECTED]
- --------------------------------------------------------------------------------
1. ENVELOPE SEAL [sealed at left, center, and right) [ ] [ ]
- --------------------------------------------------------------------------------
2. NO WATER DAMAGE (i.e. envelopes sticking together) [ ] [ ]
- --------------------------------------------------------------------------------
3. ENVELOPE FLAP (no extra folds or wrinkles) [ ] [ ]
- --------------------------------------------------------------------------------
4. ENVELOPES NOT TORN [ ] [ ]
- --------------------------------------------------------------------------------
5. PRINT ALIGNMENT WITHIN TOLERANCE (on target and [ ] [ ]
in send envelope windows) [ ] [ ]
- --------------------------------------------------------------------------------
6. PROPER ASSIGNMENT OF ADDRESS IN REMIT ENVELOPE [ ] [ ]
- --------------------------------------------------------------------------------
7. PROPER POSITION OF SCAN LINE [ ] [ ]
- --------------------------------------------------------------------------------
8. PROPER POSITION OF DATA/ELECTRONIC FIGURES [ ] [ ]
- --------------------------------------------------------------------------------
9. PRINT SKEW WITHIN TOLERANCE [ ] [ ]
- --------------------------------------------------------------------------------
10. CORRECT TAGLINE PRINTED [ ] [ ]
- --------------------------------------------------------------------------------
11. PRINT FUSING/NO SMUDGING [ ] [ ]
- --------------------------------------------------------------------------------
12. STATEMENT FOLDED PROPERLY [ ] [ ]
- --------------------------------------------------------------------------------
13. CORRECT INSERTS USED [ ] [ ]
- --------------------------------------------------------------------------------
14. CORRECT SENDING/REMIT ENVELOPES USED [ ] [ ]
- --------------------------------------------------------------------------------
15. CORRECT PAPER STOCK USED [ ] [ ]
- --------------------------------------------------------------------------------
COMMENTS/ACTION TAKEN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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SAMPLES [ ] ACCEPTED [ ] REJECTED
BADGE # DATE TIME
-- -- -- -- -- -- -- -- -- --
<PAGE>
[LOGO] INTERNATIONAL
BILLING SERVICES
CST 1
Mail Verification
2.0 Bill Inspection
- -----------------------------
D1 D2 D3 D4
2.1 Sequence Verification [ ] [ ] [ ] [ ]
2.2 Manifest Lines [ ] [ ] [ ] [ ]
2.3 Stock, Envelopes and Inserts [ ] [ ] [ ] [ ]
2.4 Alignment and Folds [ ] [ ] [ ] [ ]
2.5 Print Quality [ ] [ ] [ ] [ ]
2.6 Envelopes Sealed [ ] [ ] [ ] [ ]
2.7 Additional Inspection for Flats [ ] [ ] [ ] [ ]
2.8 Quality Exception Process/
Productivity Report [ ] [ ] [ ] [ ]
2.9 Releasing and Mailing [ ] [ ] [ ] [ ]
Supervisor's Name: Employee #:
---------------------- ---------------------
Please Print
Signature: Date:
---------------------- ----------------------
<PAGE>
2. BILL INSPECTION:
Expectations:
--> Learn correct inspection methods of:
--> Sequence Verification.
--> Manifest Lines.
--> Page stock, Inserts and Envelopes.
--> Print Alignment and statement folds.
--> Print Quality.
--> Envelope sealing.
--> Flat Bills.
--> Learn correct procedure for Quality
exceptions.
1
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.1 SEQUENCE VERIFICATION
2.1.1. First and last bills agree with sequence range on
container label.
2.1.2. Each bill was in sequential order in every tray
inspected.
2.1.3. Bills of questionable quality are turned up on edge
(flagged) for additional inspection.
2
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.2. Manifest Lines:
2.2.1. File number on bills agrees with the checkout report.
3
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.3. Page Stock, Envelopes & Inserts;
2.3.1. All stock, envelope and insert numbers agree with the
checkout report;
2.3.2. Region or market referenced on the stock & inserts
corresponds with the addresses on the bills.
4
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.4. Alignment & Folds:
2.4.1. Revision date on the "Quick Reference Guide" is
current;
2.4.2. Alignment criteria agrees with the "Quick Reference
Guide";
2.4.3. Fold criteria agrees with the "Quick Reference Guide."
5
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.5. PRINT QUALITY
2.5.1. Toner Fusion was complete. No fading or smudging.
Especially critical with Scan Lines and sending
addresses.
2.5.2. Skewing was within tolerance. Maximum acceptable
skewing was 1/8" from left to right, (or 1/16" from center
to either edge).
6
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.6 ENVELOPES SEALED
2.6.1. The envelope flap is secured to the back of the
envelope.
7
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.7. Additional Inspection for Flat Bills;
2.7.1. During sequencing verify that return envelopes and
inserts are included in all bills.
8
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.8. Quality Exception Process:
2.8.1. Significant quality problem with a container requires
additional QC.:
2.8.1.2. locate & check the container before.
2-8.1.3. Locate & check the container after.
2.8.1.4. Continue until problem is isolated.
2.8.1.1. Significant quality problems include:
2.8.1.1.1. Any wrong use of stock, envelopes or inserts.
2.8.1.1.2. Poor print quality or alignment.
2.8.1.1.3. Questionable data.
9
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.9. Releasing & Mailing:
2.9.1. Release to Mail;
2.9.1.1. Samples are acceptable;
2.9.1.1.1. Document on Sample Verification
form
2.9.1.1.2. Insert sample with the form attached into the Sample
Pack.
2.9.1.1.3. Enter "Released To Mail" date and time into the system.
(see step 1.8.4.2.).
2.9.1.1.4. Document on the Productivity Report by checking that
the samples have been approved.
2.9.1.1.5. Sign off "Released To Mail" on the sample pack.
2.9.1.1.6. Route Sample Pack to mail station.
2.9.1.1.7. Write "SV" (samples verified) on Container Checkout
Report.
2.9.1.2. Samples are not acceptable;
2.9.1.2.1. Document findings on the
Sample Verification form.
2.9.1.2.2. Return Sample Pack, samples &
form to Production.
2.9.1.2.3. Inform Production & SPCS
Monitor & Control what was unacceptable.
2.9.1.2.4. Document on the Productivity Report
2.9.1.2.5. Wait for new samples.
2.9.2. SPCS QC Complete;
2.9.2.1. Corp was active and all SPCS QC is complete.
2.9.2.1.1. Locate plan's sample pack at
mailing station.
2.9.2.1.2. Sign off "SPCS QC Complete"
section on sample pack.
2.9.2.1.3. Place Copy of Checkout Report
inside sample pack.
2.9.2.1.4. Return sample pack to step file.
2.9.2.1.5. Recycle all unused QC
envelopes.
2.9.2.2. Corp has mailed and SPCS QC is
incomplete.
2.9.2.2.1. Locate plan's sample pack at
mailing station.
2.9.2.2.2. Sign "SPCS QC Complete"
section on sample pack noting tray # not QCed
10
<PAGE>
CST 1
2. BILL INSPECTION (CONT'D)
2.9.2.2.3. Document un-QC'd containers on Production
Incomplete Quality Verification Report.
2.9.2.2.4. Place Copy of Tray Checkout Report
inside sample pack.
2.9.2.2.5. Return sample pack to step file.
2.9.2.2.6. Inform Production & SPCS
Monitor & Control.
2.9.2.3. Invalid & Foreign 3600 Mail;
2.9.2.3.1. Document on Checkout Report note on Sample Pack
"invalids sent to SPSH"
2.9.2.3.2. Route to Special Handling.
2.9.3. Control Forms;
2.9.3.1. All 3600 plans have mailed.
2.9.3.1.1. Ensure Control Form entries are
completed up to this point of the
process.
2.9.4. Hard Holds;
2.9.4.1. A 55 hold was applied to a Corp to prevent all
containers from mailing.
2.9.4.2. The Corp was allowed to print, but not to mail.
2.9.4.3. All containers are caged by plan near the CST
1 station.
2.9.4.4. Possible reasons for a Hard Hold are;
2.9.4.4.1. The written release is not yet
received.
2.9.4.4.2. Cycle requires 100% QC.
2.9.4.4.3. Pulled bills must be located manually.
2.9.4.4.4. Insert shortage.
2.9.4.5. Significant problem is found during QC. (see
step 2.8.1.).
2.9.4.5.1. All unmailed containers are caged by
plan near the CST 1 station.
2.9.4.5.2. Mailed containers are either retrieved
Station "C" or,
2.9.4.5.3. Allowed to continue through the Postal
process. (Supervisor's approval).
2.9.4.6. Once hard hold reason is resolved.
2.9.4.6.1. hold is removed.
2.9.4.6.2. Production is informed that containers
are okay to mail.
11
<PAGE>
ATTACHMENT B
PRIMARY DOCUMENTATION SAMPLES
<PAGE>
REPORT PROG: NHS4307 - REV 84K POSTAL MANIFEST FILE-42271-0301 PAGE: 1
REPORT DATE: 02/13/95 02:06 PM 53133-NORTH 02A-02/06/95-PLAN 1
IBS PERMIT 175 DETAIL LETTERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BUNDLE ZIP ROUTE BEGIN TOTAL 5-TOT 1 OZ 2 OZ 3 0Z 4 OZ 5 OZ 6 OZ 7 OZ 8 OZ 9 OZ 10 OZ 11 OZ CONTAINER ACCUM
NO TYPE SEQ NO 9-TOT 1 OZ 2 OZ 3 0Z 4 OZ 5 OZ 6 OZ 7 OZ 8 OZ 9 OZ 10 OZ 11 OZ POSTAGE POSTAGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5-DIGIT 49801 3921 32 32 31 1 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
2 5-DIGIT 49870 3953 12 12 12 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
3 5-DIGIT 49887 3965 28 28 28 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
4 5-DIGIT 49893 3993 24 24 20 4 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
5 5-DIGIT 54301 4017 18 18 17 1 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
6 5-DIGIT 54303 4035 16 16 16 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
7 5-DIGIT 54384 4051 33 33 30 3 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
8 5-DIGIT 54307 4084 60 60 59 1 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
9 5-DIGIT 54311 4144 18 10 9 1 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
10 5-DIGIT 54313 4154 26 26 26 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
11 5-DIGIT 54416 4180 41 41 35 6 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
12 5-DIGIT 54486 4221 12 12 12 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0
CONTAINER 0014 PRESORT 312 5-digit= 312 9-digit= 0 WEIGHT= 15.41 SKEY=92422 SUR= 0.00 89.398 89.398
</TABLE>
<PAGE>
REPORT PROG: NHS4307 - REV 04K POSTAL MANIFEST FILE-42271-0301 PAGE: 2
REPORT DATE: 02/13/95 02:06 PM 53133-NORTH -02A-02/06/95-PLAN I
IBS PERMIT 175 SUB TOTALS LETTERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION TOTAL POSTCARD 01 OZ 02 OZ 03 OZ 04 OZ 05 OZ 06 OZ 07 OZ 08 OZ 09 OZ 10 OZ 11 OZ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CR ROUTE 0 0 0 0 0 0 0 0 0 0 0 0 0
5 DIGIT BC 0 0 0 0 0 0 0 0 0 0 0 0 0
3 DIGIT BC 0 0 0 0 0
ZIP4 PRESORT 0 0 0 0 0
PRESORT 312 0 295 17 0 0 0 0 0 0 0 0 0
NO PRESORT BC 0 0 0 0 0 0 0 0 0 0 0 0 0
ZIP4 RESIDUAL 0 0 0 0 0
RESIDUAL 0 0 0 0 0 0 0 0 0 0 0 0 0
INVALIDS 0 0 0 0 0 0 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL 312 0 295 17 0 0 0 0 0 0 0 0 0
</TABLE>
ZIP+4 PERCENTAGE: 00.0%
SURCHARGE: $ 0.00
<PAGE>
REPORT PROG: NHS4307 - REV 04N DAILY POSTAL JOB SUMMARY PAGE: 1
REPORT DATE: 03/21/95 12:22 PM MARCH 20,1995 CORP: 03200
IBS PERMIT 116 DETAIL: SACRAMENTO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
L TOTAL TOTAL MAILED TOTAL
CORP RUN PLAN:F PCS POSTAGE DATE/TIME CONTS SEG# CP ZB TB ZP FP NB ZN FN %Z4 SURCHARGE
- -----:-----:-----:---:-----:---------:-----------:-------:------:----:-----:-----:----:----:-----:-----:-----:----:-----------:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
00118:9501A: 2:F : 2376: 606.600: 032095 14: 18:019528: 0: 240: 60: 0: 0: 240: 12O: 264:87.8: :
01 OZ: : : : 286: 77.572: : : : 0: 88: 22: 0: 0: 88: 44: 44: : :
: : : : : : : : : :0.258:0.064: : :0.295:0.305:0.320: : :
02 OZ: : : : 260: 134.320: : : : 0: 80: 20: 0: 0: 80: 40: 40: : :
: : : : : : : : : :0.488:0.494: : :0.525:0.535:0.550: : :
03 OZ: : : : 234: 170.568: : : : 0: 72: 18: 0: 0: 72: 36: 36: : :
: : : : : : : : : :0.672:0.678: : :0.755:0.765:0.780: : :
04 0Z: : : : 32: 32.320: : : : 0: 0: : : 0: 0: : 32: : :
: : : : : : : : : : : : : : : :1.010: : :
05 OZ: : : : 28: 34.720: : : : 0: 0: : : 0: 0: : 28: : :
: : : : : : : : : : : : : : : :1.240: : :
06 OZ: : : : 24: 35.280: : : : 0: 0: : : 0: 0: : 24: : :
: : : : : : : : : : : : : : : :1.470: : :
07 OZ: : : : 20: 34.000: : : : 0: 0: : : 0: 0: : 20: : :
: : : : : : : : : : : : : : : :1.700: : :
08 OZ: : : : 16: 30.800: : : : 0: 0: : : 0: 0: : 16: : :
: : : : : : : : : : : : : : : :1.930: : :
09 OZ: : : : 12: 25.920: : : : 0: 0: : : 0: 0: : 12: : :
: : : : : : : : : : : : : : : :2.160: : :
10 0Z: : : : 8: 19.120: : : : 0: 0: : : 0: 0: : 8: : :
: : : : : : : : : : : : : : : :2.390: : :
11 0Z: : : : 4: 10.480: : : : 0: 0: : : 0: 0: : 4: : :
: : : : : : : : : : : : : : : :2.620: : :
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REPORT PROG: NHS4307 - REV 04N DAILY POSTAL 3600 SUMMARY PAGE: 2
REPORT DATE: 03/21/95 12:22 PM MARCH 20, 1995 CORP: O32O
IBS PERMIT 116 SITE TOTALS: SACRAMENTO
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF CONTAINERS - 18 TOTAL WEIGHT - 208.86 LBS AVERAGE WEIGHT - 11.60 LBS
LETTERS FLATS
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE RATE TOTAL SURCHARGE POSTAGE : TYPE RATE TOTAL SURCHARGE POSTAGE
PIECES : PIECES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> : <C> <C> <C> <C> <C>
:
CP - CARRIER ROUTE : CP - CARRIER ROUTE
------ -------- : ------ --------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 0 $ 0.000
:
:
ZB - 5 DIGIT DELIVERY POINT BARCODE : 3/5 - BARCODE
: 1 OZ $0.258 88 $ 22.704
: 2 OZ $0.488 80 $ 39.040
: 3 OZ $0.672 72 $ 48.384
------ -------- : ------ --------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 240 $ 110.128
:
:
TB - 3 DIGIT DELIVERY POINT BARCODE :
------ -------- :
SUB TOTAL 0 $ 0.000 :
:
:
ZP - ZIP+4 PRESORT :
------ -------- :
SUB TOTAL 0 $ 0.000 :
:
:
FP - PRESORTED FIRST CLASS : FP - PRESORTED FIRST CLASS
------ -------- : ------ --------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 0 $ 0.00
:
:
:
NB - NONPRESORTED DELIVERY POINT BARCODE : NB - NONPRESORTED DELIVERY POINT BARCODE
:
: 1 OZ $0.295 88 $ 25.96
: 2 OZ $0.525 80 $ 42.00
: 3 OZ $0.755 72 $ 54.36
------ -------- : ------ --------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 240 $ 122.32
:
:
ZN - NONPRESORTED ZIP+4 :
------ -------- :
SUB TOTAL 0 $ 0.000 :
<PAGE>
<CAPTION>
REPORT PROG: NHS4307 - REV 04N DAILY POSTAL 3600 SUMMARY PAGE: 3
REPORT DATE: 03/21/95 12:22 PM MARCH 20, 1995 CORP: O32O0
IBS PERMIT 116 SITE TOTALS: SACRAMENTO
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
***** CONTINUED *****
LETTERS FLATS
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE RATE TOTAL SURCHARGE POSTAGE : TYPE RATE TOTAL SURCHARGE POSTAGE
PIECES : PIECES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> : <C> <C> <C> <C> <C>
FN - NONPRESORTED FIRST CLASS : FN - NONPRESORTED FIRST CLASS
: 1 OZ $0.320 44 $ 14.080
: 2 OZ $0.550 40 $ 22.000
: 3 OZ $0.780 36 $ 28.080
: 4 OZ $1.010 32 $ 32.320
: 5 OZ $1.240 28 $ 34.720
: 6 OZ $1.470 24 $ 35.280
: 7 OZ $1.700 20 $ 34.000
: 8 OZ $1.930 16 $ 30.880
: 9 OZ $2.160 12 $ 25.920
: 10 OZ $2.390 8 $ 19.120
: 11 OZ $2.620 4 $ 10.480
------ -------- : ------ --------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 264 $ 286.880
:
:
:
MAIL LETTER POSTAGE : MAIL FLAT POSTAGE
TYPE PIECES AMOUNT : TYPE PIECES AMOUNT
CP 0 $ 0.000 : CP 0 $ 0.000
ZB 0 $ 0.000 : 3/5 240 $ 110.128
TB 0 $ 0.000 : FP 0 $ 0.000
ZP 0 $ 0.000 : NB 240 $ 122.320
FP 0 $ 0.000 : FN 264 $ 286.880
NB 0 $ 0.000 :
ZN 0 $ 0.000 :
FN 0 $ 0.000 :
------ -------- : ------ --------
GRAND TOTAL LETTERS 0 $ 0.000 : GRAND TOTAL FLATS 744 519.328
:
:
------ -------- :
GRAND TOTAL 744 $ 519.33 :
</TABLE>
<PAGE>
REPORT PROG: NHS4307 - REV 04N DAILY POSTAL 3600 SUMMARY PAGE: 4
REPORT DATE: 03/21/95 12:22 PM MARCH 20, 1995 CORP: O32O
IBS PERMIT 116 SITE TOTALS: SACRAMENTO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE SIGNATURE OF A MAILER CERTIFIES THAT IT WILL BE LIABLE FOR AND AGREES TO
PAY, SUBJECT TO APPEALS PRESCRIBED BY POSTAL LAWS AND REGULATIONS, ANY REVENUE
DEFICIENCIES ASSESSED ON THIS MAILING. (IF THIS FORM IS SIGNED BY AN AGENT, THE
AGENT CERTIFIES THAT IT IS AUTHORIZED TO SIGN THIS STATEMENT, THAT THE
CERTIFICATION BINDS THE AGENT AND THE MAILER, AND BOTH THE MAILER AND THE AGENT
WILL BE LIABLE FOR AND AGREE TO PAY ANY DEFICIENCIES).
I HEREBY CERTIFY THAT ALL INFORMATION FURNISHED ON THIS FORM IS ACCURATE AND
TRUTHFUL, THAT THIS MAILING MEETS ALL APPLICABLE CASS/MASS STANDARDS FOR ADDRESS
AND BARCODE ACCURACY, AND THAT THE MATERIAL PRESENTED QUALIFIES FOR THE RATES OF
POSTAGE CLAIMED.
- -----------------------------------
SIGNATURE OF PERMIT HOLDER OR AGENT (BOTH PRINCIPAL AND AGENT ARE LIABLE FOR ANY
POSTAGE DEFICIENCY INCURRED)
** ACCEPTED UNDER AMS / NOT WEIGHED IN BULK- SEE BMM P730
I HEREBY CERTIFY THAT THIS MAILING HAS BEEN INSPECTED CONCERNING; (1)
ELIGIBILITY FOR THE RATE OF POSTAGE CLAIMED; (2) PROPER PREPARATION (AND PRESORT
WHERE REQUIRED); (3) PROPER COMPLETION OF THE STATEMENT OF MAILING; AND (4)
PAYMENT OF THE REQUIRED ANNUAL FEE.
- ----------------------------------
SIGNATURE OF WEIGHER -FINANCIAL DOCUMENT-
FORWARD TO FINANCE OFFICE
THE SUBMISSION OF A PS FORM 3600-R-COMPUTERIZED FACSIMILE JANUARY 1995
<PAGE>
<TABLE>
<CAPTION>
REPORT PROG: NHS4307 - REV 04N DAILY POSTAL 3600 SUMMARY PAGE: 5
REPORT DATE: 03/21/95 12:22 PM MARCH 20,1995 CORP: 03200
IBS PERMIT 116/175 GRAND TOTALS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF CONTAINERS - 36 TOTAL WEIGHT - 417.72 LBS AVERAGE WEIGHT - 11.60 LBS
LETTERS FLATS
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE RATE TOTAL SURCHARGE POSTAGE : TYPE RATE TOTAL SURCHARGE POSTAGE
PIECES : PIECES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> : <C> <C> <C> <C> <C>
:
CP - CARRIER ROUTE : CP - CARRIER ROUTE
------ --------- : ------ ---------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 0 $ 0.000
:
:
ZB - 5 DIGIT DELIVERY POINT BARCODE : 3/5 - BARCODE
: 1 OZ $0.258 176 $ 45.408
: 2 OZ $0.488 160 $ 78.080
: 3 OZ $0.672 144 $ 96.768
------ --------- : ------ ---------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 480 $ 220.256
:
:
TB - 3 DIGIT DELIVERY POINT BARCODE :
------ --------- :
SUB TOTAL 0 $ 0.000 :
:
:
ZP - ZIP+4 PRESORT :
------ --------- :
SUB TOTAL 0 $ 0.000 :
:
:
FP - PRESORTED FIRST CLASS : FP - PRESORTED FIRST CLASS
------ --------- : ------ ---------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 0 $ 0.000
:
:
NB - NONPRESORTED DELIVERY POINT BARCODE : NB - NONPRESORTED DELIVERY POINT BARCODE
: 1 0Z $0.295 176 $ 51.920
: 2 OZ $0.525 160 $ 84.000
: 3 OZ $0.755 144 $ 108.720
------ --------- : ------ ---------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 480 $ 244.640
:
:
ZN - NONPRESORTED ZIP+4 :
------ --------- :
SUB TOTAL 0 $ 0.000 :
<PAGE>
<CAPTION>
REPORT PROG: NHS4307-REV 04N DAILY POSTAL 3600 SUMMARY PAGE: 6
REPORT DATE: 03/21/95 12:22 PM MARCH 20,1995 CORP: 03200
IBS PERMIT 175/116 GRAND TOTALS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
***** CONTINUED *****
LETTERS FLATS
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE RATE TOTAL SURCHARGE POSTAGE : TYPE RATE TOTAL SURCHARGE POSTAGE
PIECES : PIECES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> : <C> <C> <C> <C> <C>
:
FN - NONPRESORTED FIRST CLASS : FN - NONPRESORTED FIRST CLASS
: 1 OZ $0.320 88 $ 28.160
: 2 OZ $0.550 80 $ 44.000
: 3 OZ $0.780 72 $ 56.160
: 4 OZ $1.010 64 $ 64.640
: 5 OZ $1.240 56 $ 69.440
: 6 OZ $1.470 48 $ 70.560
: 7 OZ $1.700 40 $ 68.000
: 8 OZ $1.930 32 $ 61.760
: 9 OZ $2.160 24 $ 51.840
: 10 OZ $2.390 16 $ 38.240
: 11 OZ $2.620 8 $ 20.960
------ --------- : ------ ---------
SUB TOTAL 0 $ 0.000 : SUB TOTAL 528 $ 573.760
:
:
MAIL LETTER POSTAGE : MAIL FLAT POSTAGE
TYPE PIECES AMOUNT : TYPE PIECES AMOUNT
CP 0 $ 0.000 : CP 0 $ 0.000
ZB 0 $ 0.000 : 3/5 480 $ 220.256
TB 0 $ 0.000 : FP 0 $ 0.000
ZP 0 $ 0.000 : NB 480 $ 224.640
FP 0 $ 0.000 : FN 528 $ 573.760
NB 0 $ 0.000 :
ZN 0 $ 0.000 :
FN 0 $ 0.000 :
------ --------- : ------ ---------
GRAND TOTAL LETTERS 0 0.000 : GRAND TOTAL FLATS 1488 1038.656
:
:
------ --------- :
GRAND TOTAL 1488 $ 1038.66 :
:
</TABLE>
<PAGE>
ATTACHMENT C - MAILER'S REQUEST FOR ALTERNATE
MAILING SYSTEM AGREEMENT
<PAGE>
INTER-SERVICE AREA PLANT LOADS REQUEST
Inter-Service Area Plant Loads are movements from the mailer's plant to a
mail processing facility outside the service area of the mailer's plant.
Handling at the local post office or local acceptance facility and at least
one processing facility is bypassed.
Inter-Service Area Plant Loads will be granted if the mailer can satisfy one
requirement from both the minimum volume and maximum mileage columns and
equipment is available. If unable to meet these requirements, the Division
will perform a detailed cost analysis or will determine that the volume of
plant loaded mail exceeds the mail processing capacity of the local origin
postal facility.
Minimum Volume
1. Current and future volume of mail plant loaded is at least 60 percent of a
vehicle by weight or cube. Volume is 10,000 pounds/cube.
/ / If Yes, go to number 3.
/ / If No, go to number 2.
2. Mailings of two or more mailers located in the same services area are
combined to meet minimum volume requirements.
Total mail volume by weight or cube is
----------------------------
Mailer's name(s), locations, and volumes (weight or cube) to be combined are:
/ / If Yes, go to number 3.
/ / If minimum volume requirements are not met, go to Form 3815-A, Plant
Load Cost Analysis.
Maximum Mileage
3. Mileage from the mailer's plant to the destination postal facility is 275
miles or less and the plant load bypasses origin SCF and at least one ADC,
BMC, or ASF.
/X/ If Yes, provide mileage
-------------------------
/ / If No, go to number 4.
4. Mileage from mailer's plant to the destination postal facility is 150
miles or less and the plant load bypasses only the origin SCF.
/ / If Yes, provide mileage 95
-------
/ / If No, go to Form 3815-A, Plant Load Cost Analysis.
INTRA-SERVICE AREA PLANT LOADS REQUEST
Inter-Service Area Plant Loads are movements from the mailer's plant to a
postal facility that has the post office of the mailer's plant within its
service area. Handling at the local post office or local acceptance
facility is bypassed. Intra-Service Area Plant Loads will be granted if the
mailer can satisfy one requirement from both the minimum volume and maximum
mileage columns and equipment is available. If unable to meet these
requirements, the Division will perform a detailed cost analysis.
Minimum Volume
1. Current and future volume of mail to be plant loaded is at least 50 percent
of a vehicle by weight or cube. Volume is 10,000 pounds/cube.
/ / If Yes, go to number 3.
/ / If No, go to number 2.
2. Combined plant loads of two or more mailers located in the same service area
and verified at the mailer's plant meet minimum volume requirement.
Total mail volume by weight or cube is
----------------------------
Mailer's name(s), locations, and volumes (weight or cube) to be combined are:
/ / If Yes, go to number 3.
/ / If minimum volume requirements are not met, go to Form 3815-A, Plant
Load Cost Analysis.
Maximum Mileage
3. Distance from mailer's plant to destination postal facility is 150 miles
or less
/X/ If Yes, name and destination postal facility and mileage:
SMF/44 miles
/ /If No, go to Form 3815-A Plant Load Cost Analysis.
It is understood that if this application is approved, all applicable postal
regulations pertaining to plant loading, revenue protection, and/or optional
procedure must be observed. Also, approval is conditioned on the availability
of equipment to transport mail from the mailer's plant.
- -------------------------------------------------------------------------------
Combined mailings require signatures of each mailer. Use separate sheet, if
necessary. Application submitted by
- -------------------------------------------------------------------------------
Name /s/ La Verne Barnes Title Telephone No. (Include Date
Area Code)
- --------------------------------------------------------------------------------
PS Form 3815, July 1986 (Page 2)
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
U. S. Postal Service
PLANT LOAD AUTHORIZATION APPLICATION AND WORKSHEET 1. REQUEST DATE
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
To be completed by Mailer and returned to Local Post Office, or Account Representative (AR)
- ----------------------------------------------------------------------------------------------------------------------------------
2. Mailer Name, Address, City, State and Zip + 4 (include Apt/Suite No.) 3. Person to Contact (Name)
La Verne Barnes
International Billing Services II ----------------------------------------------------
9950 Mills Station Rd. 4. Title
Sacramento, CA 95827-2002 Postal Liaison
----------------------------------------------------
5. Telephone No. (include Area Code)
916-939-4602/916-857-6602
- ----------------------------------------------------------------------------------------------------------------------------------
6. Dock Height(s) 7. If Dock has Overhead Extension, State Clearance 8. Operation Hours
24 hours/365 days year
- ----------------------------------------------------------------------------------------------------------------------------------
9. Operation Days (Check applicable boxes) 10. Permit No.(s) Authorized (Attach list, if necessary) 11. Is optional procedure
/X/ Sun /x/ Mon /X/ Tue /X/ Wed a. b. c. currently used?
/X/ Thur /X/ Fri /X/ Sat 175 / / Yes / / No
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
12. Class of Mail and Payment Method for Plant Load
- ----------------------------------------------------------------------------------------------------------------------------------
Payment Method 1st 2nd 3rd 4th Payment Method 1st 2nd 3rd 4th
a. Precanceled Stamps d. Meter
- ----------------------------------------------------------------------------------------------------------------------------------
Computerized, Itemized, or
b. Permit Imprint X e. Centralized Postage
Payment X
- ----------------------------------------------------------------------------------------------------------------------------------
c. Official Mail
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
13. Mail Profile
(Obtain information for Items a-e from Page 3. Plant Load Authorization Worksheet)
- ----------------------------------------------------------------------------------------------------------------------------------
a. Type of Mail (Check one or more boxes)
/X/ Letter Size /X/ Flat Size / / Machinable Parcels / / Irregular Parcels / / Outsides
- ----------------------------------------------------------------------------------------------------------------------------------
b. Frequency of Mailings (Check one or more boxes)
/X/ Daily / / Weekly / / Monthly / / One-Time / / Other (Explain)
- ----------------------------------------------------------------------------------------------------------------------------------
c. Method of Mailing (Check one or more boxes)
/ / Sacks / / Pallets /X/ Containers / / Bed Loaded / / Other (Explain)
- ----------------------------------------------------------------------------------------------------------------------------------
d. Destination of Mailing (Check one or more boxes)
/X/ Intra-Service Area /X/ Inter-Service Area
- ----------------------------------------------------------------------------------------------------------------------------------
e. Volume of Mailing (Check one or more boxes)
/X/ 50% of one vehicle by / / 60% of one vehicle /X/ 2-5 Vehicles / / 31-40 Vehicles / / 21-30 Vehicles
cube or weight by cube or weight
/ / 11-20 Vehicles / / 5-10 Vehicles / / Over 41 Vehicles
- ----------------------------------------------------------------------------------------------------------------------------------
Comments (Use separate sheet, if necessary)
Mail volume may vary by pickup. IBS II is an extension of IBS I, located in El Dorado
Hills and is serviced out of Folsom, CA versus Sacramento and we would like the Postal
Service to consider a two-stop pickup, as well as a single pickup, based on volume. We
will have the minimum number of GPMCs ready for pickup at least twice daily during the
ramp up and will revisit the schedule as required by both IBS and the Postal Service as mail
volume increases.
- ----------------------------------------------------------------------------------------------------------------------------------
NOTE: A complete description of Plant Load can be found in Section 154.1 of the Domestic Mail Manual.
- ----------------------------------------------------------------------------------------------------------------------------------
PS Form 3815, July 1986 (Page 1)
PLANT LOAD AUTHORIZATION WORKSHEET
(Use separate sheet, if necessary)
A. Volume Date/Per Average Mailing (To be completed by AR) (Use current and future volume for the proposed plant load operations)
1. Average Daily Volume per mailing number of:
a. Trays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
b. Pallets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
c. Containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
d. Bundles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
e. Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
2. Average Daily Weight per Unit
a. Trays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
b. Pallets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
c. Containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
d. Bundles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
e. Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
3. Average Daily Weight in pounds per mailing . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
4. Average Daily Number of Mailings in one vehicle . . . . . . . . . . . . . . . . . . . . . . . _____________________
B. Mileage From Mailer's Plant to Destination Postal Facility (to be completed by AR)
1. Mailer's Plant Location and ZIP+4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
2. Destination Postal Facility Locations and ZIP Code. . . . . . . . . . . . . . . . . . . . . . Sacramento, CA 95827
3. Mileage (from Item 1 to Item 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4. By-Passed Facility/Facilities (Check one or more) . . . . . . . . . . . . . . . . . . . . . . Origin
a. Associate Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
b. Origin SCF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
c. Origin BMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
d. ADC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
e. Destination BMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
f. Destination SCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
C. Determining Percent of Vehicle Capacity (to be completed by TMSC)
1. Type of vehicle to be used. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
2. Capacity of vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
a. Sacks (number) in fully loaded vehicle. . . . . . . . . . . . . . . . . . . . . . . . . . _____________________
b. Pallets (number) in fully loaded vehicle. . . . . . . . . . . . . . . . . . . . . . . . . _____________________
c. Containers (number) in fully loaded vehicle . . . . . . . . . . . . . . . . . . . . . . . _____________________
d. Bundles (number) in fully loaded vehicle. . . . . . . . . . . . . . . . . . . . . . . . . _____________________
e. Parcels (brickloaded)(number) in fully loaded vehicle . . . . . . . . . . . . . . . . . . _____________________
3. Mailer's Average Volume Per Vehicle (Item A-1 multiplied by Item A-D) . . . . . . . . . . . . _____________________
4. Percent Capacity of Vehicle Utilized by Plant Load (Divide Items 3 by Item 2) . . . . . . . . _____________________
- ----------------------------------------------------------------------------------------------------------------------------------
Prepared by (Name) AR (Title) Date
La Verne Barnes Postal Liaison 3/17/95
- ----------------------------------------------------------------------------------------------------------------------------------
Prepared by (Name) TMSC (Title) Date
- ----------------------------------------------------------------------------------------------------------------------------------
PS Form 3815, July 1986 (Page 3)
</TABLE>
<PAGE>
ATACHMENT D - MAILER'S DEFINITION OF TERMS
<PAGE>
International Billing Services Pg. 1 of 5
Making Quality Statements
[LOGO]
DEFENITION OF TERMS
1. BILLING STATISTICS
Itemized listing of the number of statements, images, pages, sortation and
postage.
2. BUNDLE REPORT
Explanation of what pieces are banded together, based on sortation.
3. BUSINESS DAY 3602 SUMMARY
Accumulation of all transactions for the previous 24 hour mailing period for
Cable Statements, only.
4. CORP
A unique numeric identity of each of the customers for which we do mailings.
5. CUSTOMER RETURN LETTER
A disclaimer letter, sent with pieces of mail back to our customer which
were identified by the computer as being invalid zipcodes/zipcode. Could
also be used for Special Handling Mail.
6. FACSIMILE WORK REQUEST CUSTOMER INVOICE
Daily Transmittal and Release to Print.
7. PERIODIC 3602 REPORT
Documentation of pieces mailed during a 12 hour Shift or period which
includes postage amount.
8. PLAN JOB CARD
Card generated at the beginning of each Plan, used as one of the control
documents which follows the Job until completion.
9. PLAN
Work unit.
10. POSTAL MANIFEST LISTING
Details containers mailed by Plan during a 12 hour period (by shift).
11. SKEY
(Sorted Key File) Break down into smaller unit of work. Data that has been
through both Plan Select and Postal Processor.
12. SAMPLE PACK
A large envelope used to store samples of the actual pieces used to generate
the mail. It includes the statement and envelope stock, copy of the
insert/inserts and Job Card.
13. SPECIAL HANDLING REQUEST
Customers may request special handling of specific mailings or mail pieces.
These would not normally mail through our automated process. (Held, pulled,
pieces over 11 ounces or invalids).
14. STATEMENT CLOSE-OUT INDEX
Post Production process of Customer Service. Documentation is checked for
accuracy and completeness and signed off prior to filing.
15. STATEMENTSPLUS PLAN SUMMARY REPORT
A brief description generated by Customer Service for Production use. It
provides information specific to a Corp and Cycle for inserting purposes.
16. SUMMARY OF MAILINGS
24 hour summary of all generated for a day.
17. TURNAROUND ANALYSIS SUMMARY INFORMATION
A complete listing of dates and times when trays were mailed.
18. ZIP CATALOG REPORT
No longer used. Now referred to as a Bundle Report.
<PAGE>
Pg. 2 of 5
BUNDLE SURNMAY REPORT
- - Detail reporting of the contents of a mail container by mail bundle used to
substantiate postage paid or due to the U.S. Postal Services.
POSTAL MAINFEST REPORT
- - A summary report detailing all the containers, rate categories, and postage
due to US Postal Service in the past 24 hours.
<PAGE>
Pg. 3 of 5
C
TERM DEFINITION
CAR: CERTIFICATION ASSISTANCE REQUEST. A form USCS
personnel complete to request a software change or
enhancement, or further information on how the
software functions under certain circumstances
CASS: CODING ACCURACY SUPPORT SYSTEM. CASS certification
refers to a USPS certification process for address
matching software. The CASS process matches the
customer's address file against a standardized
address file provided by the USPS. CASS
certification is mandatory for automation mailings
that use ZlP+4, and allows discounts to be taken
if at least 85% of the file is matched.
CONTAINER: U.S. POSTAL SERVICE cardboard mailing container.
Also referred to as TRAY or TUB.
CONTAINER LOAD PROGRAM: SEE NHS4130 (CONTAINER LOAD) program.
CORP: Refers to an IBS customer. Each corp is assigned a
number. Sometimes this term is also used to refer
to a batch of data belonging to the customer.
CRIS: Carrier Route Information System.
CRIS88: Carrier Route Update program. A program that
compares the street address in a cable system's
Master file against the USPS master listing. If an
address requires a new carrier route, the program
updates the master file.
CUSBAL: CUSTOMER BALANCE file. A file containing updated
subscriber financial information. DDP Financials
creates this data through updated processing.
CUSTOM FID: A FID used in a customized statement message, set
up through Type 30-20 (Statement and Postcard
Messages).
<PAGE>
Pg. 4 of 5
P
TERM DEFINITION
PARAMETER: A value entered by a programmer or operator that
controls or instructs the software.
PERMIT MAILING: A process that allows IBS to use permit imprints
to indicate postage fees and special service fees
that have been paid in advance.
PHOENIX/SGI: PHOENIX is the name of the modular preprocessor
system that runs on the SILICON GRAPHICS INC.
(SGI) UNIX computer.
PIDATA: Print Image Data file. This file is created by
TAL7271 (STATEMENTSPLUS LOAD) and contains the
actual statement data. The statement data goes
directly from TAL7271 to TAL7277 (HOST TO XEROX)
or TAL7275 (TAPE PULL).
PLAN: A group of statements that has the same INSERT
combination. Different production methods within
the same plan may affect that plan's final insert
results. Plans offer a unique method to separate
certain subscribers' accounts and offer different
insert combinations. The CUSTOMERS provide
grouping (plan) information on their tapes.
PLANS GENERATED COUNT: The number of plans generated by the NHS4123 (PLAN
SELECTION), always having a count greater than
zero.
PLANS LOADED COUNT: The number of plan container records that have
been loaded into the DESTINATION CONTAINER FILE by
the NHS4130 (CONTAINER LOAD) program.
POSTAL 3600 PROCESS: Creates a REPORT, or manifest, that details how
much money IBS owes the U.S. POSTAL SERVICE.
POSTAL PROCESSOR: Postal Processor = A program that sorts the UKEY
files into SKEY files, assigns statements to
bundles, and assigns bundles to containers.
Uses software consisting of a communications,
formatting, cQUENCE (third party U.S. Postal
Qualification), and monitor modules. The Postal
Processor resides on a PC (486 or Higher).
PPV: Pay-Per-View. A service through which
<PAGE>
Pg. 5 of 5
S
TERM DEFINITION
SKEY: Sorted key file. The name of the UKEY file after
it has been sorted by the Postal Processor. There
can be multiple SKEYs per plan. The keys contain
postal information, inserting and special handling
information, and a pointer into the PIDATA file.
\STA: Abbreviation that identifies the Storage A
Production Tandem TNS1 System.
SORTATION LEVEL: There are nine sortation levels defined by the
USPS: carrier mute, 5-digit barcode, 3-digit
barcode, presort ZIP+4 presort non-presort
barcode, residual, ZIP+4 residual, invalid. As
the name suggests, these levels define the manner
in which the mail pieces are sorted for
processing. The different levels correspond to
different postage discounts off the basic rate.
SPECIAL HANDLING: Customers may request SPECIAL HANDLING for some or
all statements. Special handling statements are
separated from the mail production flow for
special processing. Special handling statements
include held, pulled, flat files, invalids, and
pieces over 11 ounces, over 1/4 inch or multiple
copy.
SUBSCRIBER: An individual or organization that has contracted
with an IBS CUSTOMER (e.g., a credit union to)
receive the services (e.g., banking services) of
that customer.
<PAGE>
[Logo]
March 17,1995 International Billing Services
Making Quality Statements
Mr. Jerry Long
Postmaster Sacramento
3775 Industrial Blvd.
West Sacramento, CA [LETTERHEAD]
Dear Mr. Long,
International Billing Services has opened an extension to the El Dorado Hills
facility and it is located at 9950 Mills Station Road in Sacramento, CA.
This letter is a request for acceptance of mail generated at all sortation
levels, as described in P730 of the DMM. Specifically letters and flats mail.
IBS currently prepays postage to the Folsom P.0. based on deposits from previous
like cycles and is looking into the use of CTAS. The calculation of postage and
mail sortation is driven by our computers located at IBS I.
All reports supporting mail generated at the IBS II facility will be available
for inspection upon request of verification clerk or other postal official.
The IBS Customer Service Department produces a sample packet. Quality checks
first 3 statements, last statement and sequence verification on all plans
generated. In addition, we have computer log out stations throughout the
automated container (tray) line which tracks each unit of mail by weight and
location. A container mail verification program is used to status many
departments, as well as update other programs. When all containers are mailed
for a Job, there is a final program which shows it is no longer in process.
Postage is debited to our permit account based on the sum for trays mailed from
IBS II during the previous 24 hours.
We intend to generate approximately one half the total current volume being
mailed from IBS I which is 56,000,000 pieces per month. Beginning
March 31, 1995 we will be producing in excess of 8,000,000 pieces and would
like to have a Plant Load Agreement in place.
The traditional verification method is not efficient for either IBS or the
postal service, therefore, we have requested an AMS Agreement.
IBS II is a 365 day per year operation and needs the support of a Plant Load for
pick up of mail, as well as transport of empty equipment.
We understand the minimum requirement of one half trailer load of mail being
picked up in order to qualify as a Plant Load and feel we will meet that
requirement by March 31.
Jerry, if you need any additional information from us, please do not hesitate to
contact me by phone 939-4602 or pager 328-4903 PGR. If I am not available,
please contact Mury Salls, VP of Postal Relations at 939-4896.
I look forward to hearing from you by Friday, March 24.
Respectfully,
/s/La Verne A. Barnes
La Verne A. Barnes
Postal Liaison, IBS/CableData
cc: Linda Deaktor Linda Waddell
Mike McBride Mury Salls
<PAGE>
[Logo]
March 20,1995 International Billing Services
Making Quality Statements
Mr. Jerry Long
Postmaster Sacramento
USPS
3775 Industrial Blvd.
West Sacramento, CA 95799 [LETTERHEAD]
Dear Mr. Long,
Our company, International Billing Services (IBS I) has outgrown its facility in
El Dorado Hills and has expanded to a different site located at 9950 Mills
Station Rd. in Sacramento, Ca.
This is a request for Plant Load authorization at IBS II which will require a
postal clerk be available for verification of mail being generated out of that
facility.
I am enclosing necessary documentation to support a Plant Load and would
appreciate your help in working out the details along with Mike McBride and
others.
March 31, 1995 is our target date to have mail verified at IBS II and picked up
by the postal service for dispatch to appropriate Airport Mail Facility.
IBS II is a 24 hour, 365 day a year mail factory and can only be successful with
the USPS as partners.
If you need any additional information please give me a call at 939-4602 or page
328-4903. Mury Salls, VP of Postal Relations may also be reached at 939-4896.
Best regards,
/s/ La Verne A. Barnes
La Verne A. Barnes
Postal Liaison, IBS/CableData
cc: Linda Deaktor
Ron Graf
Mike McBride
Art Montoya
Linda Waddell
Mury Salls
Bill Schaller
<PAGE>
USCS INTERNATIONAL, INC.
Common Stock
($___ Par Value)
CUSTODY AND ESCROW AGREEMENT FOR SELLING STOCKHOLDERS
This agreement dated as of __________, 1996 is entered into by and among
__________________ (the "Bank"), ___________________________ (the "Selling
Stockholder"), and USCS International, Inc. (the "Company").
The Selling Stockholder deposits with the Bank herewith, as Custodian, the
following certificate(s) for shares of Common Stock of USCS International, Inc.
together with stock power(s) duly endorsed in blank by the Selling Stockholder,
with signature(s) guaranteed by a bank, trust company or member of the New York,
American or Pacific Stock Exchanges, and with such other documents and
requisites as may be necessary to place such certificate(s) in fully negotiable
form, ready for transfer:
B: Aggregate number
of shares
A: Certificate represented by C: Maximum number
number(s) the certificate(s) of shares to be sold
- ------------------- ----------------------- --------------------
If no indication is made as to the certificate from which Securities to be
sold shall be allocated, then selection will be made at the discretion of the
Attorneys (as hereinafter defined).
The Bank is hereby irrevocably authorized and instructed to proceed as
follows:
1. Pending the closing of the sale of shares of such Common Stock
pursuant to an agreement (the "Purchase Agreement") to be entered into by
Merrill Lynch, Pierce Fenner & Smith Incorporated and Montgomery Securities,
as representatives (the "Representatives") of the several underwriters (the
"Underwriters") named in the Purchase Agreement, the Company and the Selling
Stockholder as a seller of shares of such Common Stock (the "Seller"), to
hold in the Bank's possession the certificate(s) and documents deposited
herewith. The Bank shall verify that the certificates representing the
Securities and the accompanying stock power(s) are valid as to form and that
the Securities are issued in the name of the person(s) presenting them (or
such person's assignor), but the Bank shall be regarded as making no
representations as to the validity, sufficiency, value or genuineness of any
certificates representing the
<PAGE>
Securities or any other documents surrendered to the Bank, and shall be
regarded as making no representations as to the validity or genuineness of
any signatures on any letters of transmittal, facsimiles, or other documents
delivered to the Bank by any holder of Securities.
2. If and when the Representatives shall have notified the Bank in
writing that the Purchase Agreement has been executed and delivered by or on
behalf of the Selling Stockholder, as Seller, and of the purchase price per
share to be paid to the Seller, as set forth in such Purchase Agreement, and
shall have furnished the Bank with a fully executed counterpart thereof, the
Bank shall take all necessary action:
(a) To cause (i) the Securities evidenced by the enclosed
certificate(s) to be sold and transferred on the books of the Company, (ii) new
certificate(s) for not greater than the number of Securities listed in Column C
on page 1 hereof ("Securities") to be issued in such denominations and names as
the Representatives may designate, and (iii) new certificate(s) for the number
of Securities, if any, not sold pursuant to the offering to be reissued in the
name of, and returned to, the Selling Stockholder;
(b) Pursuant to the Purchase Agreement and at the Closing Time as
defined therein ("Closing Time"), to deliver such new certificate(s) described
in clause (ii) of paragraph 2(a) above to, or on the order of, the
Representative against payment to the Bank for the account of the Selling
Stockholder of the purchase price for the Securities as determined pursuant to
the Purchase Agreement;
(c) To receive payment of, and receipt on behalf of the Selling
Stockholder for, such purchase price; and
(d) To deposit on behalf of the Selling Stockholder as its Escrow
Agent, the amount referred to in paragraph 2(c) above.
3. If the Purchase Agreement shall not be entered into by or on behalf of
the Selling Stockholder on or prior to ________, 1996 or shall be terminated
pursuant to the provisions thereof, or if the Closing Date shall not occur on or
prior to ________, 1996, the Bank is directed to return to the Selling
Stockholder the certificate(s), together with any stock powers deposited with
the Bank hereunder; PROVIDED, HOWEVER, that any statement or notice to the Bank
with respect to the Closing Date or with respect to the non-effectiveness or
termination of the Purchase Agreement, or advice that the Purchase Agreement has
not been executed and delivered, shall have been confirmed in writing to the
Bank by the Representatives.
- 2 -
<PAGE>
4. To deliver to the Selling Stockholder personally, or by registered or
certified United States mail addressed to the Selling Stockholder at its address
shown below, or at the request of the Selling Stockholder by wire transfer to an
account of the Selling Stockholder or by overnight courier service, any
payment(s) or deliveries herein provided to be made to the Selling Stockholder.
In taking any such action on behalf of the Selling Stockholder, the Bank is
authorized and shall be entitled to ask for and act and rely upon instructions,
any requests made, or notices, information or assurances of fact given the Bank,
by the Selling Stockholder or by the Attorneys (as hereinafter defined);
PROVIDED, HOWEVER, that the Bank shall not be entitled to act on any statement
or notice to the Bank with respect to the Closing Time under the Purchase
Agreement, or with respect to the non-effectiveness or termination of the
Purchase Agreement, or advising that the Purchase Agreement has not been
executed and delivered, unless such statement or notice shall have been
confirmed in writing to the Bank by the Representative. These instructions are
given to protect the interests of the Underwriters under the Purchase Agreement.
The Selling Stockholder agrees that the Securities represented by the
certificate(s) deposited by it are subject to the interests of the Underwriters
in the completion of the transaction contemplated herein and in the Purchase
Agreement, that the arrangements made by the Selling Stockholder for such
deposit and for delivery as provided herein are irrevocable, and that the
obligations of the Selling Stockholder shall not be terminated by operation of
law or any act of the Selling Stockholder or the occurrence of any other event,
except as set forth herein, including the death or incapacity of the
undersigned, the termination of any trust or estate, the death or incapacity of
one or more trustees, guardians, executors or administrators under such trust or
estate, the dissolution or liquidation of any corporation or partnership or the
occurrence of any other event. If the undersigned should die or become
incapacitated, if any trust or estate should be terminated, if any corporation
or partnership should be dissolved or liquidated, or if any other such event
should occur before the delivery of the Securities to be sold by the undersigned
under the Purchase Agreement, certificates for such Securities shall be
delivered by you on behalf of the undersigned in accordance with the terms and
conditions of the Purchase Agreement and this Custody Agreement, and any action
taken by you pursuant to this Custody Agreement shall be as valid as if such
death or incapacity, termination, dissolution, liquidation or such other event
had not occurred, regardless of whether or not you or the Attorneys, or either
of them, shall have received notice of such death, incapacity, termination,
dissolution, liquidation or other event. Each of
- 3 -
<PAGE>
_______________, _______________ and ______________ of the law firm of Graham &
James LLP, counsel to the Company, has authority to instruct the Bank on
irregularities or discrepancies in letters of transmittal, the form of
securities and accompanying documents.
Except as otherwise provided, until payment in full for the Securities has
been made by or for the account of the several Underwriters, the Selling
Stockholder shall remain the owner of all Securities represented by the
certificate(s) delivered to the Bank hereunder, and shall have the right to vote
such Securities and to receive all dividends and distributions.
The Selling Stockholder agrees that notwithstanding paragraph 4 above, the
Securities represented by the certificate(s) deposited herewith may not be sold,
transferred, hypothecated or otherwise disposed of or encumbered until such
Securities are sold pursuant to the terms of the Purchase Agreement and/or the
certificate(s) representing such Securities are returned to the Selling
Stockholder.
It is understood that the Bank assumes no responsibility or liability to
any person other than to deal with the certificate(s) deposited herewith and the
proceeds from the sale of the Securities represented thereby in accordance with
the provisions hereof. The Company and the Selling Stockholder, jointly and
severally, shall indemnify and hold harmless the Bank, its directors, officers,
employees and agents, from and against any loss, damage, liability or claim
suffered, incurred by, or asserted against such indemnified party (including any
amounts paid in settlements of any action, suit, proceeding, or claim brought or
threatened to be brought and including expenses of legal counsel) arising out
of, in connection with or based upon any act or omission by the indemnified
party relating in any way to this agreement or the Bank's services hereunder, so
long as the indemnified party has acted in good faith in accordance with the
foregoing instructions. The Company and Selling Stockholder may participate at
their own expense in the defense of any claim or action which may be asserted
against an indemnified party, and if they so elect, they may assume the defense
of such claim or action; PROVIDED, HOWEVER that if there exists a conflict of
interest which would make it inappropriate for the same counsel to represent
both the indemnified and indemnifying parties, the indemnified party's retention
of separate counsel shall be reimbursable by the indemnifying parties. The
right of indemnification of the Bank, its directors, officers, employees or
agents hereunder shall survive the Bank's resignation or removal as Custodian or
Escrow Agent or both and shall survive the termination of this agreement by
lapse of time or otherwise.
- 4 -
<PAGE>
Concurrently with the execution and delivery of this Custody and Escrow
Agreement, the Selling Stockholder has executed a power of attorney (the "Power
of Attorney") to ________________, _________________ and __________________ or
their duly designated substitutes (individually, an "Attorney" and collectively,
the "Attorneys"), authorizing the Attorneys, or any one of them, to sell the
number of Securities listed in Column C on page 1, or such lesser number of
Securities as the Attorneys, or any one of them, may determine, and for that
purpose, among other things, to enter into and perform the Purchase Agreement on
behalf of the Selling Stockholder.
The undersigned represents, warrants and agrees that:
A. The Selling Stockholder now has, and at the Closing Time will
have, good and marketable title to the Securities, free and clear of all liens,
encumbrances, security interests, community property rights, restrictions on
transfer, equities and adverse claims whatsoever (other than pursuant to this
Custody and Escrow Agreement and the Purchase Agreement), and the Selling
Stockholder will have full legal right and power and all authorizations and
approvals required by law to sell, transfer and deliver such Securities
hereunder and under the Purchase Agreement. Upon the delivery of and payment
for such stock under the Purchase Agreement, the several Underwriters will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, security interests, community property rights, restrictions on
transfer, equities, preemptive rights, rights of first refusal, and adverse
claims whatsoever.
B. The Selling Stockholder has, and at all times through the Closing
Time under the Purchase Agreement will have, full legal right and power and all
authorization and approval required by law to enter into, execute and deliver
this Custody and Escrow Agreement, the Power of Attorney and the Purchase
Agreement and to carry out all the applicable terms and provisions hereof and
thereof, and this Custody and Escrow Agreement, the Power of Attorney and the
Purchase Agreement are, and at all times through the Closing Time under the
Purchase Agreement will be valid and legally binding obligations of the Selling
Stockholder. The execution, delivery and performance of this Custody Agreement,
the Power of Attorney and the Purchase Agreement, including the consummation of
the transactions contemplated in the Purchase Agreement will not conflict with,
result in the creation or imposition of any lien, charge, option or encumbrance
upon any of the Securities pursuant to the terms of, or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, any indenture, mortgage, will, deed of trust, note agreement, or
other agreement or instrument to which the Selling Stockholder is a party or by
which it is bound or to which any of the property
- 5 -
<PAGE>
of the Selling Stockholder is subject, the charter or bylaws of the Selling
Stockholder, or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Selling Stockholder or any of the
Selling Stockholder's properties; and no consent, approval, authorization or
order of, or filing or registration with any court or governmental agency or
body is required for the execution, delivery, and performance of this Custody
Agreement and the Power of Attorney or the consummation of the transactions
contemplated by the Purchase Agreement in connection with the sale of the
Securities to be sold by the Selling Stockholder, except such as have been
obtained under the Securities Act of 1933, as amended, and such as may be
required under the state securities laws in connection with the purchase and
distribution of Securities by the Underwriter.
C. The Selling Stockholder has carefully reviewed the
representations, warranties, statements and agreements to be made by the Selling
Stockholder as contained in the Purchase Agreement, including the indemnity and
contribution agreements contained in Sections 6 and 7 of the Purchase Agreement,
and does hereby represent, warrant and agree that (a) such representations,
warranties, statements, and agreements insofar as they relate to the Selling
Stockholder are true and correct as of the date hereof and will be true and
correct at all times through the Closing Time under the Purchase Agreement, and
(b) such agreements, insofar as they relate to the Selling Stockholder, have
been complied with as of the date hereof and will be complied with on and after
the Closing Time.
D. The Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or which might in
the future reasonably be expected to cause or result in stabilization or
manipulation of the price of the Company's Common Stock to facilitate the sale
or resale of the Securities.
E. The Selling Stockholder agrees to deliver to the Attorneys or to
the Bank such additional documentation as the Attorneys, or either of them, or
the Company, or the Representatives or the Bank may request to effectuate or
confirm compliance with any of the provisions hereof or of the Purchase
Agreement, all of the foregoing to be in form and substance satisfactory in all
respects to the Attorneys and the Bank.
F. All information furnished by or on behalf of the undersigned for
use in the Registration Statement and Prospectus is, and at the time the
Registration Statement becomes effective (the "Effective Date") and at the
Closing Time will be, true, correct, and complete, and does not, and on the
Effective Date and on the Closing Time will not, contain any untrue statement of
- 6 -
<PAGE>
a material fact or omit to state any material fact necessary to make such
information not misleading.
G. The undersigned will cooperate, when and as requested by the
Representatives in the qualification of the Securities for offer and sale under
the securities or blue sky laws of such jurisdictions as the Representatives may
designate and, during the 12-month period after the Registration Statement
becomes effective, in keeping such qualifications in good standing under said
securities or blue sky laws; provided, however, that the undersigned shall not
be obligated to file any general consent to service of process in any
jurisdiction.
The foregoing representations, warranties and agreements, as well as those
contained in the Power of Attorney and the Purchase Agreement, are made for the
benefit of, and may be relied upon by, the other Selling Stockholders, the
Attorneys, the Company, the Bank, the Representatives, the Underwriters and
Graham & James LLP, as counsel to the Company and to the Selling Stockholder.
This agreement shall be governed by the laws of the State of California.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the Bank, the Selling Stockholder and the Company have
caused this agreement to be duly executed by their duly authorized persons as of
the day and year first written above.
Maximum number of Securities SELLING STOCKHOLDER
of Common Stock to be
sold to Underwriters
____________________________
_________________________ Signature
____________________________
Print Name and Address: Title, if applicable
_________________________ Signature guaranteed by:
_________________________ ____________________________
_________________________ By: ________________________
(Note: the signature MUST be
_________________________ guaranteed by a bank or trust company having
an office or a correspondent in Sacramento,
New York City or San Francisco or by a broker
which is a member of the New York, American
or Pacific Stock Exchanges)
[THE BANK]
By: ________________________
Title: _____________________
USCS INTERNATIONAL, INC.
By: ________________________
Title: _____________________
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<PAGE>
INSTRUCTION: If you are married, please have your spouse complete this
form:
CONSENT
I am the spouse of __________________________. On behalf of myself, my
heirs and legatees, I hereby join in and consent to the terms of the foregoing
Custody and Escrow Agreement and agree to the sale of the shares of the Common
Stock of USCS International, Inc., registered in the name of my spouse or
otherwise registered, which my spouse proposes to sell pursuant to the Purchase
Agreement (as defined therein).
Dated: ____________, 1996
_________________________
(Signature of Spouse)
INSTRUCTION: Please complete the following with respect to the number of
Securities you are depositing and the maximum number (that number set forth in
Schedule B to the Purchase Agreement) to be sold:
Total Number of Securities of Maximum Number of
Common Stock Represented Securities of Common Certificates
Deposited Stock to be sold to Underwriters
______________ Securities _____________ Securities
- 9 -
<PAGE>
INSTRUCTION: Indicate how you wish to receive payment for the Securities
sold:
MANNER OF PAYMENT
I request that, subject to any prior deduction of expenses as described in
the Custody and Escrow Agreement, payment for the shares of Common Stock of USCS
International, Inc. to be sold by me pursuant to the Purchase Agreement be made
in the following manner (CHECK ONE):
(_____) CHECK made payable to:
______________________________
to be sent to the following address:
______________________________
______________________________
______________________________
Phone: (_____) _______________
(_____) WIRE TRANSFER to the following account:
Account No. __________________
Bank _________________________
(Name)
_________________________
(Address)
_________________________
(_____) OTHER (please specify):
______________________________
______________________________
______________________________
______________________________
- 10 -
<PAGE>
INSTRUCTION: Fill out the following stock power with the maximum number of
Securities to be sold:
STOCK POWER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
________________________, ____________________ (__________) shares of Common
Stock of USCS International, Inc., a Delaware corporation, and does hereby
irrevocably constitute and appoint [INSERT NAME OF BANK] as its Attorney to
transfer said Securities on the books of said corporation with full power of
substitution in the premises.
Dated: __________, 1996
Signatures:
_________________________
_________________________
Signatures guaranteed by* Print Names:
____________________________ _________________________
By: ________________________ _________________________
_________________________________
* The signature MUST be guaranteed by a commercial bank or a trust company
having an office or correspondent office in New York City, Sacramento or
San Francisco or by a broker which is a member firm of the New York,
American or Pacific Stock Exchange.
- 11 -
<PAGE>
CUSTODIAN'S ACKNOWLEDGMENT AND RECEIPT
[NAME OF BANK], as Custodian, acknowledges acceptance of the duties of the
Custodian under the foregoing Custody Agreement with ___________________________
and receipt of the stock certificate(s) referred to therein.
Dated: ____________, 1996
[NAME OF BANK]
By: _____________________
Its:
- 12 -
<PAGE>
USCS INTERNATIONAL, INC.
Common Stock
($____ Par Value)
SELLING STOCKHOLDER'S IRREVOCABLE POWER OF ATTORNEY
[NAME]
[NAME]
[NAME]
c/o Graham & James LLP
400 Capitol Mall
24th Floor
Sacramento, California 95814
Attorneys-in-Fact:
The undersigned (hereinafter sometimes referred to as the "Selling
Stockholder"), together with USCS International, Inc. (the "Company") and
certain other holders of the Company's Common Stock, $____ par value (the
"Common Stock") (such holders and the undersigned being hereinafter sometimes
collectively referred to as the "Selling Stockholders"), propose to enter into a
purchase agreement (the "Purchase Agreement") with Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Montgomery Securities, as representatives (the
"Representatives") of a group of underwriters to be named in the Purchase
Agreement (the "Underwriters"). All terms not otherwise defined herein shall
have the same meaning as in the Purchase Agreement. The proposed form of the
Purchase Agreement provides that the Selling Stockholders will sell certain
shares of Common Stock of the Company to the Underwriters pursuant to the
Purchase Agreement. The undersigned hereby irrevocably constitutes and appoints
________________, _________________ and __________________ each with full power
and authority to act alone, including full power of substitution, the true and
lawful attorneys-in-fact (the "Attorneys") of the undersigned with full power in
the name of, for and on behalf of the undersigned with respect to all matters
arising in connection with the sale of Common Stock by the undersigned
including, but not limited to, the power and authority to take any and all of
the following actions:
(1) To sell and deliver to the several Underwriters up to the number of
shares of Common Stock determined in accordance with the Purchase Agreement and
set forth in Instruction 4 of the Instructions for Selling Stockholder's
Documents delivered with this Power of Attorney (such shares together with the
total number of shares of all Selling Stockholders, as set forth on Schedule B
to the Purchase Agreement, are hereinafter referred to as the "Securities"),
such Securities to be represented by certificates enclosed herewith and
deposited by the undersigned pursuant to a Custody and Escrow Agreement (the
"Custody
1
<PAGE>
Agreement"), in the form attached hereto, between the undersigned and [NAME OF
BANK] as Custodian (the "Custodian"), at a price to the public which shall be
the same price at which the Company and all Selling Stockholders sell Common
Stock to the Underwriters and on such other terms as are determined by any one
of the Attorneys and are set forth in the Purchase Agreement.
(2) For the purpose of effecting such sale, to enter into, execute,
deliver and perform the Purchase Agreement with the Underwriters substantially
in the form enclosed herewith, and in conjunction with the Representatives to
determine the public offering price and the price to be paid by the Underwriters
for the Securities and the other terms of sale in accordance with the Purchase
Agreement (including the provisions for exercise of the Underwriters' over
allotment options) and paragraph 1 above, with full power to make such changes,
additions, insertions, and amendments to the Purchase Agreement as any one of
the Attorneys in his sole discretion may deem advisable.
(3) To give such orders and instructions to the Custodian as any one of
the Attorneys may determine with respect to (i) the transfer on the books of the
Company of the shares of Common Stock to be sold by the undersigned to the
Underwriters in order to effect such sale (including the names in which new
certificates for such shares are to be issued and the denominations thereof),
(ii) the delivery to or for the account of the Underwriters of the certificates
for the Securities against receipt by the Custodian or its agent of the purchase
price to be paid therefor, (iii) the payment out of the proceeds (net of
underwriting discounts) from the sale of the shares by the undersigned to the
Underwriters, of any expense incurred in accordance with paragraph (5) which is
not payable by the Company, and (iv) the return to the undersigned of new
certificates representing the number of shares of Common Stock, if any,
represented by certificates deposited with the Custodian which are in excess of
the number of shares sold by the undersigned to the Underwriters.
(4) On behalf of the undersigned, to make the representations and
warranties and enter into the agreements contained in the Purchase Agreement
(including, without limitation, the restriction on sales of shares of Common
Stock by the undersigned and the indemnification and contribution agreements
contained therein);
(5) To incur any necessary or appropriate expense in connection with the
sale of the Securities;
(6) To approve on behalf of the undersigned any amendments to the
Registration Statement or the Prospectus and, if applicable, to advise the
Securities and Exchange Commission (the "Commission") on the undersigned's
behalf that such person is aware (i) that the Commission's staff has made
summary, cursory or no review of the Registration Statement, as applicable; and
2
<PAGE>
(ii) that such review or lack thereof may not be relied upon in any degree to
indicate that the Registration Statement is true, complete or accurate;
(7) To retain legal counsel to represent the Selling Stockholder in
connection with any and all matters referred to herein (which counsel shall be
Graham & James LLP, counsel for the Company);
(8) To make, execute, acknowledge and deliver all such other contracts,
stock powers, orders, receipts, notices, instructions, certificates, letters and
other writings, including, without limitation, requests for the acceleration of
the effectiveness of the Registration Statement and other communications to the
Commission, and amendments to the Custody Agreement, the Purchase Agreement, and
any related documents, and in general to do all things and to take all actions
which the Attorneys, or any one of them, in their or his sole discretion, may
consider necessary or proper in connection with or to carry out the aforesaid
sale of shares and the public offering thereof, as fully as could the
undersigned if personally present and acting;
(9) To make, acknowledge, verify and file on behalf of the undersigned
applications, consents to services of process and such other undertakings or
reports as may be required by law with the state commissioners or officers
administering state securities laws;
(10) If necessary, to endorse (in blank or otherwise) on behalf of the
undersigned the certificate or certificates representing the shares of Common
Stock to be sold by the undersigned, or a stock power and powers attached to
such certificate or certificates;
(11) To reduce to an amount less than that set forth in the Instructions
hereto the number of shares to be sold by the undersigned pursuant to the
Purchase Agreement, such reduction to be made as the Attorneys, or any one of
them, in their or his sole discretion, shall deem necessary in view of market
conditions or for any other reason;
(12) To accept and acknowledge receipt of any and all documents delivered
or deliverable to the undersigned as a Selling Stockholder, and any and all
checks, drafts, notes or funds payable to the undersigned as a result of the
sale of the Securities pursuant to the Purchase Agreement; and
(13) To sign such other underwriting documents and agreements as necessary
to consummate this transaction.
3
<PAGE>
Each of the Attorneys is hereby empowered to determine in his or her sole
discretion the time or times when, purpose for and manner in which any power
herein conferred upon him shall be exercised, and the conditions, provisions or
covenants of any instrument or document which may be executed by him pursuant
hereto. The undersigned acknowledges that ________________, __________________
and _______________ are [OFFICERS/DIRECTORS] of the Company.
The undersigned gives the Attorneys, or any one of them, full and absolute
power to enter into the Purchase Agreement on behalf of the undersigned.
The undersigned agrees, if so requested in writing by the Attorneys, to
provide personally or through the Attorneys a certificate, addressed to Graham &
James LLP, 400 Capitol Mall, 24th Floor, Sacramento, California 95814 to the
effect that the representations of the undersigned set forth in the Purchase
Agreement and the Custody Agreement are true and correct and setting forth such
other matters as to which Graham & James LLP are entitled to rely in rendering
their opinion pursuant to the Purchase Agreement.
Upon the execution and delivery of the Purchase Agreement by any one of the
Attorneys on behalf of the Selling Stockholder, the undersigned agrees to be
bound by and to perform each and every covenant and agreement therein of the
undersigned as a Selling Stockholder (including, without limitation, the
indemnification and contribution agreements set forth in the Purchase
Agreement).
This Power of Attorney and all authority conferred hereby are granted and
conferred subject to and in consideration of the interests of the several
Underwriters, the Company and the other Selling Stockholders who may become
parties to the Purchase Agreement, and for the purposes of completing the
transactions contemplated by the Purchase Agreement and this Power of Attorney.
This Power of Attorney is an agency coupled with an interest and all
authority conferred hereby SHALL, UPON EXECUTION OF THE PURCHASE AGREEMENT, BE
IRREVOCABLE, and thereafter shall not be terminated by any act of the
undersigned or by operation of law, whether by the death or incapacity of the
undersigned (or either or any of them) or by the occurrence of any other event
or events (including, without limiting the foregoing, the termination of any
trust or estate for which the undersigned is acting as a fiduciary or
fiduciaries or the dissolution or liquidation of any corporation or
partnership). If, after the execution of the Purchase Agreement, the
undersigned (or either or any of them) should die or become incapacitated, or if
any trust or estate should be terminated, or if any other such event or events
shall occur, before the completion of the transactions contemplated by the
Purchase Agreement and this Power of Attorney, certificates
4
<PAGE>
representing the shares to be sold by the undersigned under the Purchase
Agreement shall be delivered by or on behalf of the undersigned in accordance
with the terms and conditions of the Purchase Agreement and of the Custody
Agreement executed by the undersigned, and actions taken by the Attorneys, or
any one of them, hereunder shall be as valid as if such death, incapacity,
termination, dissolution, liquidation or other event or events had not occurred,
regardless of whether or not the Custodian, Attorneys, or any one of them, shall
have received notice of such death, incapacity, termination, dissolution,
liquidation or other event. Prior to the execution of the Purchase Agreement,
this Power of Attorney may be revoked by the undersigned only in a writing
executed by the undersigned and actually, not constructively, delivered to BOTH
OF THE ATTORNEYS.
Notwithstanding any of the foregoing provisions, if all of the transactions
contemplated by the Purchase Agreement and this Power of Attorney are not
completed prior to ________, 1996, (or, if prior to ________, 1996, the Company
shall terminate the offering of the Securities and withdraw the Registration
Statement from registration with the Commission), then from and after such date,
the undersigned shall have the power, upon written notice to the Attorneys, to
terminate this Power of Attorney subject, however, to all lawful action done or
performed pursuant hereto prior to the receipt of actual notice. The provisions
below shall survive any such termination.
The undersigned hereby represents, warrants and agrees with, and for the
benefit of, the Company, the Attorneys, the other Selling Stockholders, and the
Custodian, acting solely in such capacity, that:
(i) The undersigned has reviewed the form of Purchase Agreement
attached hereto and understands the obligations and agreements of the
undersigned set forth therein. All representations, warranties and agreements
of the Selling Stockholders in the Purchase Agreement are, and will be at the
Closing Time and, if any Selling Stockholder is selling Option Securities on a
Date of Delivery, as of each such Date of Delivery, as determined in accordance
with the Purchase Agreement, true and correct and will, to the extent provided
in the Purchase Agreement, survive the termination of the Purchase Agreement and
the delivery of and payment for the Securities and all such representations,
warranties and agreements of the Selling Stockholders in the Purchase Agreement
are incorporated herein by reference.
(ii) The undersigned has placed in custody, under the Custody
Agreement duly executed and delivered by the undersigned to ___________________
as Custodian for delivery under the Purchase Agreement, certificates in
negotiable form representing the Securities to be sold by the undersigned
thereunder. The undersigned agrees that the Securities represented by the
certificates so held in custody for the
5
<PAGE>
undersigned are subject to the interest of the Underwriters, that the
arrangements made by the undersigned for custody are to that extent irrevocable,
and that the obligations of the undersigned under the Purchase Agreement shall
not be terminated by any act of the undersigned, by operation of law, by the
death or incapacity of the undersigned, or the occurrence of any other event;
(iii) This Power of Attorney has been duly and irrevocably executed
and delivered by the undersigned and constitutes the valid and legally binding
obligations of the undersigned;
(iv) The undersigned has carefully reviewed the Registration
Statement and the Prospectus, in particular, the section entitled "Principal and
Selling Stockholders," forming part of the Registration Statement and will
carefully review each amendment thereto upon receipt thereof from the Company
and will immediately advise the Attorneys in writing if any information
furnished by or on behalf of such Selling Stockholder for use in the
Registration Statement and Prospectus (i) is not, or at the Closing Time will
not be, true, correct, and complete, and (ii) contains, or at the Closing Time
will contain, any untrue statement of a material fact, or omits, or at the
Closing Time will omit to state, any material fact required to be stated therein
or necessary in order to make the statements therein not misleading;
(v) To the best knowledge of the undersigned, the representations
and warranties of the Company contained in the Purchase Agreement are true and
correct; the undersigned has reviewed and is familiar with the Registration
Statement as originally filed with the Commission and the Preliminary Prospectus
contained therein, and to the best of the undersigned's knowledge, there is no
material fact, condition or information not disclosed in such Preliminary
Prospectus which has adversely affected or could adversely affect the condition,
financial or otherwise, or the earnings, affairs, or business prospects of the
Company and its subsidiaries considered as one enterprise; to the best knowledge
of the undersigned, such Preliminary Prospectus does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, and the undersigned is not prompted to sell the Securities to be
sold by the undersigned hereunder by any information concerning the Company
which is not set forth in the Prospectus.
(vi) The undersigned has duly authorized, executed, and delivered
this Power of Attorney and the Custody Agreement to the Custodian and the
Attorneys with the intent that they shall become the valid and binding
agreements of the undersigned; each Attorney is authorized to execute and
deliver the Purchase Agreement on behalf of the undersigned, to determine the
purchase
6
<PAGE>
price to be paid by the Underwriters to the undersigned, as provided in the
Purchase Agreement, to authorize the delivery of the Securities to be sold by
the undersigned, to accept payment therefor, and otherwise act on behalf of the
undersigned in order to effect the sale of the Securities pursuant to the
Purchase Agreement and to effect the public offering of the Securities;
(vii) The undersigned acknowledges that the undersigned will pay or
cause to be paid all costs and expenses incident to the performance of the
undersigned's obligations under the Purchase Agreement which are not
specifically provided for there, including (i) any fees and expenses of counsel
for the undersigned, (ii) the undersigned's pro rata share of the fees and
expenses of the Attorneys and the Custodian, and (iii) all expenses and taxes
incident to the sale and delivery of the Securities;
(viii) Until payment in full for the Securities has been received by
the Attorneys from the Underwriters or the Purchase Agreement or this Power of
Attorney has been terminated, the undersigned agrees and acknowledges that the
undersigned will not have the right or power to give, sell, pledge, hypothecate,
grant liens on, deal with, or contract with respect to the Securities or any
interest therein;
(ix) The undersigned will carefully review the Registration
Statement and the Preliminary Prospectus (the "Preliminary Prospectus") included
therein and will carefully review each amendment thereto upon receipt thereof
from the Company and will promptly advise the Attorneys in writing if:
(a) The name and address of the undersigned (if required to
be disclosed) is not properly set forth in the Preliminary Prospectus and the
Prospectus (the "Prospectus") contained in the Registration Statement;
(b) In addition to the matters set forth in the Preliminary
Prospectus, (A) either the undersigned or any of his or her associates* has an
interest adverse to the Company or any of its subsidiaries* in any pending legal
proceeding, (B) either the undersigned or any of his or her associates is a
party to any contract, arrangement or understanding with the Company or any of
its subsidiaries, except a contract which has been disclosed and the material
terms of which have been fully and accurately described in the Preliminary
Prospectus, (C) the undersigned has any information pertaining to underwriting
compensation and arrangements or any dealings between any "underwriter or
related person"*, "member"* of the National Association of Securities Dealers,
Inc. ("NASD") or a "person associated with a member"* and the Company or any
parent, subsidiary or controlling stockholder thereof since the beginning of the
Company's last fiscal year, other than information relating to the proposed
Purchase Agreement and Agreement Among Underwriters, or (D) the undersigned is a
member of the NASD, a
7
<PAGE>
person associated with a member, or an underwriter or related person with
respect to the proposed offering;
(c) The undersigned knows of or becomes aware of any reason
due to which he or she cannot represent that all information furnished to the
Company by or on behalf of the undersigned for use in connection with the
Registration Statement or the Prospectus or any Preliminary Prospectus or
amendment thereto is true and complete; except that these representations
and warranties shall not apply to any untrue statement or omission or alleged
untrue statement or omission based upon and in conformity with written
information furnished to the Company by any Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any amendment thereto),
including the 430A Information and the Rule 434 Information, if applicable, or
any Preliminary Prospectus or the Prospectus (or any amendment or supplement
thereto);
(d) The undersigned knows of any material information with
regard to the current or prospective operations of the Company or any of its
subsidiaries which is not disclosed in the Preliminary Prospectus; or
(e) In addition to arrangements described in the
Preliminary Prospectus, the undersigned knows of or discovers any arrangements
made or to be made by any person, or of any transaction already effected, (A) to
limit or restrict the sale of shares of the Company's Common Stock during the
period of the public distribution, (B) to stabilize the market for the Common
Stock of the Company, or (C) to withhold commissions, or otherwise to hold the
Underwriters or anyone else responsible for the distribution of the
undersigned's participation;
(x) With respect to the Registration Statement in the form in which
it becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective, and the Prospectus in the form first
filed with the Commission under its Rule 424(b) and when any supplement thereto
is filed with the Commission, such parts of the Registration Statement and
Prospectus and any supplements or amendments thereto as relate to the
undersigned and are based on information furnished to the Company by the
undersigned expressly for use in connection therewith will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
- ------------------------------
* See EXHIBIT A to the Instructions for Selling Stockholder's Documents for
certain definitions.
8
<PAGE>
(xi) The undersigned will promptly notify the Company in writing of
any material information with regard to the current or prospective operations of
the Company of which the undersigned learns after the date hereof and which is
not disclosed in the Registration Statement or the most recent amendment thereto
received by the undersigned;
(xii) Except as indicated in Instruction 13 to Instructions for
Selling Stockholder's Documents, neither the undersigned, nor to the best of his
or her knowledge, any associate of his or hers, is affiliated with any firm
directly or indirectly engaged in the securities business as a broker or dealer
or underwriter, as an employee acting in any capacity including that of an
officer or registered representative, as a director or partner, or as an equity
investor or debt investor, other than debt arising as a result of trading
activities. (One need not include or disclose investments in publicly held
corporations which in turn have investments in firms in the securities business
if one's investment in the publicly-held corporation is of the same class of
security as is publicly-held, and does not exceed 5% of such class.);
(xiii) The undersigned has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Common Stock other than a Preliminary Prospectus and the Prospectus
or other material permitted by the Securities Act of 1933, as amended (the
"Act");
(xiv) The undersigned will furnish to the Representatives a properly
completed and executed United States Treasury Department Form W-9 (or, if
applicable, Form W-8);
(xv) The undersigned will notify the Company in writing immediately
of any changes in the foregoing information which should be made as a result of
developments occurring after the date hereof and prior to the Closing Date under
the Purchase Agreement. The Attorneys may consider that there has not been any
such development unless advised to the contrary; and
(xvi) The undersigned has read the Purchase Agreement and understands
that as a Selling Stockholder he or she agrees to indemnify and hold harmless
the Company and each Underwriter to the extent provided therein.
The Attorneys, and any one of them, shall be entitled to act and rely upon
any representation, warranty, agreement, statement, request, notice or
instructions respecting this Power of Attorney given by the undersigned, not
only as to the authorization, validity, and effectiveness thereof, but also as
to the truth and acceptability of any information therein contained; PROVIDED,
HOWEVER, that any statement or notice to the Attorneys with respect to the date
of delivery under the Purchase Agreement or with respect to the non-
effectiveness or termination of the
9
<PAGE>
Purchase Agreement, or advice that the Purchase Agreement has not been executed
and delivered, shall have been confirmed in writing to the Attorneys by the
Representatives. In acting hereunder, the Attorneys may also rely on the
representations, warranties and agreements of the undersigned made in the
Purchase Agreement executed by the Attorneys on behalf of the undersigned and in
the Custody Agreement executed by the undersigned.
The foregoing representations, warranties and agreements, as well as those
contained in the Custody Agreement and those contained in the Purchase
Agreement, are made for the benefit of, and may be relied upon by, the other
Selling Stockholders, the Attorneys, the Company, the Representatives, the
Underwriters, Graham & James as counsel to the Company and for the Selling
Stockholders, and the Custodian.
It is understood that the Attorneys assume no responsibility or liability
to any person other than to deal with the Common Stock certificate(s) deposited
with the Custodian pursuant to the Custody Agreement and the proceeds from the
sale of shares of Common Stock represented thereby in accordance with the
provisions hereof. The Attorneys (in such a capacity) make no representations
with respect to and shall have no responsibility for the Registration Statement
or the Prospectus nor, except as herein expressly provided, for any aspect of
the offering of Common Stock, and the Attorneys shall not be liable for any
error of judgment or for any act done or omitted or for any mistake of fact or
law except for the Attorneys' own gross negligence or bad faith. The
undersigned agrees to indemnify the Attorneys for and to hold the Attorneys,
jointly and severally, free from and harmless against any and all loss, claim,
damage, liability or expense incurred by or on behalf of the Attorneys, or any
one of them, arising out of or in connection with the acting as Attorneys under
this Power of Attorney, as well as the cost and expense of defending against any
claim of liability hereunder, and not due to the Attorneys' own gross negligence
or bad faith. The undersigned agrees that the Attorneys may consult with
counsel of their choice (which may, but need not be, counsel for the Company)
and the Attorneys shall have full and complete authorization and protection for
any action taken or suffered by the Attorneys, or any one of them hereunder, in
good faith and in accordance with the opinion of such counsel.
The undersigned acknowledges that the Attorneys are officers of the Company
and agrees that the Attorneys shall serve as the undersigned's agent with
respect to the matters covered herein.
It is understood that the Attorneys shall serve entirely without
compensation.
10
<PAGE>
This Power of Attorney shall be governed by the laws of the State of
California.
Witness the due execution of the foregoing Power of Attorney as of this
____ day of _______, 1996.
Print Name and Address: Very truly yours,
- ------------------------- ----------------------------------*
Signature
- -------------------------
-----------------------------------
- ------------------------- Title, if applicable
Signature guaranteed by:
-----------------------------------
By:
-------------------------------
(Note: the signature MUST be guaranteed by a
bank or trust company having an office or a
correspondent in Sacramento, New York City or
San Francisco or a broker which is a member
of the New York, American or Pacific Stock
Exchanges)
-----------------------------------
Signature (sign again here before the Notary
Public and attach appropriate notarization
documents)
-------------------------
- ------------------------------
* To be signed in EXACTLY the same manner as the shares are registered.
Please call ___________ at (___) ___-____ if you do not know the exact name
which appears on your certificate.
11
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 4, 1996, except for
Note 13 which is as of , 1996, relating to the financial statements
of USCS International, Inc., which appears in such Prospectus. We also consent
to the references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Sacramento, California
May 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM USCS
INTERNATIONAL, INC.'S CONSOLIDATED BALANCE SHEET DATED DECEMBER 31, 1995
AND MARCH 31, 1996, AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995, AND THE QUARTER ENDING MARCH 31, 1996 AND NOTES THERETO AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 6,627 5,930
<SECURITIES> 0 0
<RECEIVABLES> 59,907 62,768
<ALLOWANCES> 0 0
<INVENTORY> 5,608 6,134
<CURRENT-ASSETS> 83,914 86,196
<PP&E> 158,354 161,664
<DEPRECIATION> 72,969 75,390
<TOTAL-ASSETS> 180,450 182,824
<CURRENT-LIABILITIES> 60,474 57,853
<BONDS> 51,155<F1> 53,090<F1>
0 0
0 0
<COMMON> 952 952
<OTHER-SE> 45,638<F2> 48,135<F2>
<TOTAL-LIABILITY-AND-EQUITY> 180,450 182,824
<SALES> 0 0
<TOTAL-REVENUES> 229,263 60,255
<CGS> 0 0
<TOTAL-COSTS> 147,240 38,161
<OTHER-EXPENSES> 59,917<F3> 16,651<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,966 1,206
<INCOME-PRETAX> 17,140 4,237
<INCOME-TAX> 6,770 1,674
<INCOME-CONTINUING> 10,370 2,563
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,370 2,563
<EPS-PRIMARY> .49 .12
<EPS-DILUTED> .49 .12
<FN>
<F1>CONSISTS OF NOTES PAYABLE, CREDIT LINES AND BONDS PAYABLE
<F2>CONSISTS OF RETAINED EARNINGS AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT
<F3>CONSISTS OF RESEARCH AND DEVELOPMENT AND SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
</FN>
</TABLE>
