<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER: 0-28268
--------------------------
USCS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1727009
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
2969 PROSPECT PARK DRIVE, RANCHO CORDOVA
CALIFORNIA 95670-6148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 636-4500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------------------- --------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PAR VALUE
$.05 PER SHARE
---------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K. __X__
The aggregate market value of the Registrant's Common Stock held by
non-affiliates as of March 10, 1997 was $194,786,012.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 10, 1997: 23,117,761 shares of $.05 par
value Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
- ---------------------------------------- --------------------------------------
Proxy Statement For Annual Meeting Of Part I--Item 4
Stockholders
dated April 17, 1997
Pages 1 through 10 Part III--Item 10, 11, 12, 13
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
- --------- -----
<C> <S> <C>
1. Business............................................................................................ 2
2. Properties.......................................................................................... 8
3. Legal Proceedings................................................................................... 9
4. Submission of Matters to a Vote of Security Holders................................................. 9
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters........................... 9
6. Selected Financial Data............................................................................. 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 11
8. Financial Statements and Supplementary Data......................................................... 19
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................ 37
PART III
10. Directors and Executive Officers of the Registrant.................................................. 37
11. Executive Compensation.............................................................................. 39
12. Security Ownership of Certain Beneficial Owners and Management...................................... 39
13. Certain Relationships and Related Transactions...................................................... 39
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8K..................................... 40
Signatures.......................................................................................... 44
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
The statements that are not historical fact or that are not statements of
current status are forward-looking statements. The Company's future results may
differ significantly from the results and forward-looking statements discussed
in this report. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--FACTORS THAT MAY AFFECT FUTURE RESULTS."
THE COMPANY
USCS International, Inc. (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 wire-line telephony, Direct
Broadcast Satellite (DBS) and multi-service providers in the U.S. and 19 other
countries. The Company's software and services enable its clients to manage
mission-critical customer relationship functions, including new account set-up,
order processing, customer support, management reporting and marketing analysis.
The Company also provides bill processing 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.
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 approximately 54% of U.S. cable television
subscribers and is used by a majority of the largest cable television service
providers in the U.S. The Company provides bill processing services to clients
serving 54% of U.S. cable television subscribers, 36% of U.S. cellular users and
10% of U.S. wire-line telephony customers and to a variety of other service
providers. The Company's bill processing clients include substantially all of
its domestic customer management software clients and other service providers
such as Ameritech, AT&T and Frontier Communications. At year-end the Company's
monthly statement production had risen to over 65 million bills. The Company is
the largest centralized first class mailer in the U.S., responsible for
generating approximately 1.6% of the total volume of all U.S. first class mail,
including customer remittance volume. Bill processing services are generally
provided to software clients in bundled contracts and are also sold separately.
In 1993, the Company deployed Intelecable-TM-, 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. At year-end there were over 60 Intelecable installations
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 Entertainment. The Company has
also expanded its bill presentment services by offering technology licensing and
consolidated billing statements that combine data from multiple services, such
as wireless and wire-line telephony, into a single integrated billing statement.
U.S. Computer Services, the predecessor to USCS International, Inc., was
incorporated under California law on November 18, 1969. USCS International,
Inc., incorporated under Delaware law on April 10, 1996, succeeded to the
business of the California corporation pursuant to a reincorporation effective
May 31, 1996. Unless the context otherwise requires, all references in this
annual report 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.
2
<PAGE>
PRODUCTS AND SERVICES
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. 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, including the Company's
new internet-based customer support product, CyberCSR-TM-, 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.
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, a majority of the 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 80% of the Company's
client subscriber base while 20% 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. 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 primarily for
companies operating systems on a stand-alone basis. See "PRODUCTS AND
SERVICES--Hardware Leasing and Sales" and " PRODUCT AND SERVICES--Client Support
and Care".
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, multi-language enabled
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. At year end there were over 60 installations of
Intelecable worldwide. Intelecable is enabled with National Language Support
double-byte capability, which allows operation in a variety of foreign
languages, including Japanese and Chinese. 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 has been ported to Tandem's Integrity NR, Silicon Graphics
Challenge, Group Bull Escala and the Hewlett-Packard 9000. It is also 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.
3
<PAGE>
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.
PROFESSIONAL SERVICES, TRAINING AND SUPPORT: The Company maintains various
professional services groups to provide global consulting services to its
software customers, including assistance with database definition and
initialization, system operations, network consolidation, and performance and
decision support services. These groups also provide clients with assistance in
developing custom-tailored applications and interfaces that are operable with
the Company's customer management software to enhance client operations. The
Company provides complete product documentation and training services to users
of its software products, including CD-ROM-based product documentation and
training. The Company's ClassROM-Registered Trademark- software provides
interactive instruction and product training on CD-ROM. The Company maintains
training facilities in California and the U.K.
BILL PROCESSING SERVICES
The Company provides bill processing services and solutions 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
wire-line telephony, into a consolidated billing statement. In addition, the
Company also licenses its advanced technology. The company believes it was the
first major mailer to fully meet the requirements of the 1996 Postal
Reclassification regulations, thereby further maximizing postal savings for its
clients.
STATEMENT PRODUCTION: 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
or third party 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.
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 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
4
<PAGE>
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 Direct Access-TM- client information system, which provides a
customized view into the facility to allow clients to monitor the status of
their jobs. Direct Access, which is currently installed in a number of client
sites, 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 some period after distribution.
The Company also offers consolidated billing statements for multi-service
providers, which combine data from multiple services, such as wireless and
wire-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.
The Company offers a full range of technical support for the Company's bill
processing clients. Customized programming tools have been developed 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 processing functions to
the Company.
TECHNOLOGY LICENSING: In 1996, the Company licensed its statement
processing software to enable a client to take advantage of the Company's
advanced processing and functions in the client's own facilities. AT&T is the
first customer to license the Company's statement processing software.
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.
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 development of electronic bill presentment. 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, utilities, financial services
and other industries will require electronic statement presentment capabilities.
USCS has developed an electronic statement processing prototype and has
announced a marketing alliance with CyberCash, Inc. to begin integrating
electronic presentment technologies into the Company's systems.
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. The Company will continue to offer hardware and
related services to current and future clients, but expects the decline to
continue.
5
<PAGE>
CLIENTS
The Company provides customer management software and services to clients in
the U.S. and 19 other countries. In addition to communications service
providers, the Company provides bill processing services to companies in other
industries, including utilities and financial services. The Company intends to
seek additional non-communications clients for its bill processing services.
Aggregate revenue from the Company's ten largest clients accounted for
approximately two-thirds of total revenue in 1996, 1995 and 1994. Three clients
accounted for 47%, 46% and 41% in 1996, 1995 and 1994, respectively.
Tele-Communications,Inc. ("TCI"), after giving effect to the purchase of the
cable operations of Viacom in 1996, which was a USCS client, accounted for $55.7
million or 21%, $47.3 million or 21%, and $42.8 million or 23% of total revenue
in 1996, 1995, and 1994, respectively. In June 1996, the Company entered into a
new three-and-one-half year contract to continue to provide customer management
software and bill processing services for TCI. Under the contract, TCI may
remove subscribers from the agreement during its term, subject to price
increases based on the number of subscribers remaining under contract. TCI has
announced a plan to replace the Company's customer management software with an
in-house system. The Company cannot estimate when, or if, TCI would be
successful in converting its subscriber base to the TCI system. Another client,
which accounted for 4% of total revenue in 1996, has orally advised the Company
that it may move to an alternative system for its customer management software
requirements.
The Company's largest bill processing client, Ameritech, accounted for $41.1
million or 16%, $38.8 million or 17%, and $24.6 million or 13% of total revenue
in 1996, 1995, and 1994, respectively. Ameritech became a client early in 1994,
and has long-term contracts with the Company expiring in 2000 and 2001. Another
bill processing client, Cincinnati Bell Information Systems ("CBIS"), a client
since 1990, accounted for $25.0 million or 10%, $17.9 million or 8%, and $10.3
million or 5% of total revenue in 1996, 1995 and 1994, respectively. In early
1997, the Company entered into a new contract with CBIS expiring in 2002, which
replaced the contract due to expire late in 1997. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- FACTORS THAT MAY
AFFECT FUTURE RESULTS" regarding dependence on certain marketplaces,
concentration of client base, and other factors that may impact the Company's
relationship with its clients and on the Company's future revenue and net
income.
CLIENT SUPPORT AND CARE
USCS provides worldwide training and support to its clients. 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 processing
services. Both teams provide broad-based, 24-hour, 7-day support and technical
assistance. The Company has developed a full range of training products and
documentation including ClassROM, which the Company believes to be the first
CD-ROM based training product, for its software clients. 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 direct
sales force, including account management and technical support teams, and
internationally through alliance partners. 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.
6
<PAGE>
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 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 contracted with 16 alliance
partners throughout the world who are responsible for sales, marketing, support
and local customization.
The Company believes that sales of separate bill processing services to
telecommunications service providers such as Regional Bell Operating Companies
("RBOCs") and cellular providers offer both increased revenue opportunities as
well as increased visibility for the Company. The Company maintains a sales
staff, including account management and technical support teams and significant
design resources, to target this market. The Company has begun a bill processing
international marketing effort that seeks to exploit what the Company believes
is significant growth potential in that market. The Company has also entered
into alliances with partners such as Xerox, Mellon Bank and CyberCash to jointly
market its bill processing capabilities.
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 Cincinnati Bell), CSG
Systems International, Inc., and its own clients to the extent such clients
develop in-house systems. The most significant competitors for bill processing
services are in-house service providers. Other competitors include Moore
Corporation Ltd. and Output Technologies, Inc.
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
processing 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.
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, IBM and Hewlett-Packard
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 worldwide 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
7
<PAGE>
also continually enhances its bill processing services by developing software
and processes that increase production efficiency and aid clients in accessing
bill processing information.
INTELLECTUAL PROPERTY
The Company holds thirteen U.S. patents covering various aspects of its bill
processing services. In addition, the Company has applied for fourteen
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 assurance 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 also 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.
EMPLOYEES
As of December 31, 1996, the Company had 2,038 employees, of which 1,969
were full-time employees and 69 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.
ITEM 2. PROPERTIES
The Company owns two buildings in El Dorado Hills, California on
approximately 29 acres. One building of approximately 247,167 square feet is
utilized for statement processing 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 processing 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 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 2019.
The Company believes that its facilities are adequate for its proposed needs
through 1997 and that additional suitable space will be available or can be
constructed as required.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information regarding Submission Of Matters To A Vote Of Security Holders is
set forth under "ACTIONS TAKEN SINCE 1996 STOCKHOLDER MEETING" on page 3 of the
Company's Proxy Statement For Annual Meeting Of Stockholders, dated April 17,
1997, which pages are incorporated herein by reference.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of USCS International, Inc. is listed and traded on the
Nasdaq National Market under the trading symbol "USCS".
As of March 10, 1997, the number of record holders of USCS International,
Inc. was 186. The table below shows the high and low prices of the Company's
common stock as reported by the Nasdaq National Market for each quarter from the
date of the Company's initial public offering on June 20, 1996. 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.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
CALENDAR QUARTER
(2ND QUARTER 1996 TO 1ST QUARTER 1997)
2nd (beginning June 21, 1996)................................................... 19 3/4 17
3rd............................................................................. 19 7/8 13 1/8
4th............................................................................. 18 1/2 14 3/4
1st (through March 10, 1997).................................................... 21 16 1/8
</TABLE>
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The consolidated statements of operations data presented below for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 and the consolidated balance
sheet data as of December 31, 1996, 1995, 1994, 1993 and 1992 are derived from
the consolidated financial statements of the Company, which have been audited.
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>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenue:
Software and services....................................... $ 240,848 $ 197,282 $ 155,247 $ 116,563 $ 106,348
Equipment sales and services................................ 22,366 31,981 33,558 49,501 39,739
--------- --------- --------- --------- ---------
Total....................................................... 263,214 229,263 188,805 166,064 146,087
Cost of revenue:
Software and services....................................... 147,743 127,702 103,046 72,758 65,904
Equipment sales and services................................ 13,180 19,538 19,476 31,561 27,097
--------- --------- --------- --------- ---------
Total....................................................... 160,923 147,240 122,522 104,319 93,001
Gross profit.................................................. 102,291 82,023 66,283 61,745 53,086
Operating expenses:
Research and development.................................... 25,140 17,815 16,700 16,007 12,170
Selling, general and administrative......................... 49,631 42,102 34,160 28,148 24,617
Consolidation and relocation................................ -- -- (364) 4,096 --
--------- --------- --------- --------- ---------
Total....................................................... 74,771 59,917 50,496 48,251 36,787
--------- --------- --------- --------- ---------
Operating income.............................................. 27,520 22,106 15,787 13,494 16,299
Interest expense.............................................. 3,185 4,966 4,284 4,609 5,049
--------- --------- --------- --------- ---------
Income before income taxes and cumulative effect of accounting
change...................................................... 24,335 17,140 11,503 8,885 11,250
Income tax provision.......................................... 9,826 6,770 5,334 4,330 4,355
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting change (1)...... 14,509 10,370 6,169 4,555 6,895
Cumulative effect of accounting change (1).................... -- -- -- 2,408 --
--------- --------- --------- --------- ---------
Net income.................................................... $ 14,509 $ 10,370 $ 6,169 $ 6,963 $ 6,895
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting change per share
(2)......................................................... $ 0.64 $ 0.49 $ 0.28 $ 0.20 $ 0.30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share (2)...................................... $ 0.64 $ 0.49 $ 0.28 $ 0.31 $ 0.30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in per share computation.......................... 22,555 21,138 21,882 22,129 22,675
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Cash.......................................................... $ 8,452 $ 6,627 $ 1,966 $ 8,158 $ 9,053
Working capital............................................... 37,041 23,440 11,454 20,029 23,757
Total assets.................................................. 205,559 180,450 157,331 140,922 125,997
Long-term debt less current portion (3)....................... 5,647 51,155 37,647 40,167 42,734
Stockholders' equity.......................................... 115,333 46,590 39,861 35,633 29,445
</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
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements that are not historical fact or that are not statements of
current status are forward-looking statements. The Company's future results may
differ significantly from the results and forward-looking statements discussed
in this Report. See "FACTORS THAT MAY AFFECT FUTURE RESULTS."
OVERVIEW
Founded in 1969, USCS is a leading provider of customer management software
and services to the global communications industry. USCS operates in one segment
with revenue derived primarily from providing software and bill processing
services to cable television and multi-service providers and bill processing
services to telecommunications companies. Software and bill processing services
to cable television and multi-service providers are generally provided under
bundled service arrangements. 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. 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 1996, the Company's revenue totaled
$263.2 million, of which approximately 80% was generated from companies which
have been clients of USCS for three or more years.
Over the three years ended December 31, 1996, the Company's revenue from
software and services has increased at an average rate of 27% and has grown from
82% of revenue in 1994 to over 91% in 1996. 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 represented 18% of total revenues in 1994 and had declined to
less than 9% of total revenue in 1996.
The Company provides software and services to North America and U.K. cable
television and multi-service providers primarily through a direct sales force.
Outside of North America and the U.K., the Company markets its software services
primarily through strategic alliances with companies specializing in system
integration or computer hardware manufacturing which are capable of providing
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.
11
<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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software and services................. $ 240,848 91.5% $ 197,282 86.1% $ 155,247 82.2%
Equipment sales and services.......... 22,366 8.5 31,981 13.9 33,558 17.8
--------- --------- --------- --------- --------- ---------
Total............................... 263,214 100.0 229,263 100.0 188,805 100.0
Cost of revenue:
Software and services................. 147,743 56.1 127,702 55.7 103,046 54.6
Equipment sales and services.......... 13,180 5.0 19,538 8.5 19,476 10.3
--------- --------- --------- --------- --------- ---------
Total............................... 160,923 61.1 147,240 64.2 122,522 64.9
--------- --------- --------- --------- --------- ---------
Gross profit............................ 102,291 38.9 82,023 35.8 66,283 35.1
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development.............. 25,140 9.5 17,815 7.8 16,700 8.8
Selling, general and administrative... 49,631 18.9 42,102 18.3 34,160 18.1
Consolidation and relocation.......... -- -- -- -- (364) (0.2)
--------- --------- --------- --------- --------- ---------
Total............................... 74,771 28.4 59,917 26.1 50,496 26.7
--------- --------- --------- --------- --------- ---------
Operating income...................... 27,520 10.5 22,106 9.7 15,787 8.4
Interest expense...................... 3,185 1.3 4,966 2.2 4,284 2.3
--------- --------- --------- --------- --------- ---------
Income before income taxes.............. 24,335 9.2 17,140 7.5 11,503 6.1
Income tax provision.................... 9,826 3.7 6,770 3.0 5,334 2.8
--------- --------- --------- --------- --------- ---------
Net income.............................. $ 14,509 5.5% $ 10,370 4.5% $ 6,169 3.3%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------------------------
1996 1995
--------------------- ---------------------
<S> <C> <C> <C> <C>
Revenue:
Software and services................. $ 64,498 92.1% $ 54,451 85.9%
Equipment sales and services.......... 5,532 7.9 8,972 14.1
--------- --------- --------- ---------
Total............................... 70,030 100.0 63,423 100.0
Cost of revenue:
Software and services................. 38,262 54.6 34,278 54.1
Equipment sales and services.......... 3,085 4.4 5,717 9.0
--------- --------- --------- ---------
Total............................... 41,347 59.0 39,995 63.1
--------- --------- --------- ---------
Gross profit............................ 28,683 41.0 23,428 36.9
--------- --------- --------- ---------
Operating expenses:
Research and development.............. 6,839 9.8 5,099 8.0
Selling, general and administrative... 13,520 19.3 12,141 19.1
Consolidation and relocation.......... -- -- -- --
--------- --------- --------- ---------
Total............................... 20,359 29.1 17,240 27.1
--------- --------- --------- ---------
Operating income...................... 8,324 11.9 6,188 9.8
Interest expense...................... 79 0.1 1,216 2.0
--------- --------- --------- ---------
Income before income taxes.............. 8,245 11.8 4,972 7.8
Income tax provision.................... 3,470 5.0 1,964 3.1
--------- --------- --------- ---------
Net income.............................. $ 4,775 6.8% $ 3,008 4.7%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
REVENUE
Revenue is derived primarily from providing customer management software and
services to cable television and multi-service providers in the U.S. and 19
other countries and from providing bill processing services primarily to
telecommunications companies in the U.S. Software and bill processing services
to cable television and multi-service providers are generally provided under
bundled service arrangements. 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 processing
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 processing services revenue (collectively
referred to as "software and 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 10% to $70.0 million in the fourth quarter of
1996 from $63.4 million in the comparable quarter in 1995. The 1995 fourth
quarter revenue increased by 21% over 1994 fourth quarter revenue of $52.6
million. The increase was attributable to growth in revenue from software and
services of
12
<PAGE>
18% in the fourth quarter of 1996 over the comparable 1995 quarter, partially
offset by a decline of $3.4 million in equipment sales and services revenue.
Customer management software and services revenue increased by 14% to $34.8
million in the fourth quarter of 1996 from $30.6 million in the comparable 1995
quarter. Bill processing revenue provided primarily to telecommunications
companies as a stand-alone service increased by 25% to $29.7 million in the
fourth quarter of 1996 from $23.8 million in the comparable quarter of the prior
year.
Total revenue for the year increased by 15% to $263.2 million in 1996 from
$229.3 million in 1995. Revenue in 1995 increased by 21% over 1994 revenue of
$188.8 million. The increase in 1996 was attributable to growth in revenue from
software and services of 22%, partially offset by a decline in equipment sales
and services revenue of $9.6 million.
Customer management software and services revenue increased by 18% to $138.2
million in 1996 from $116.9 million in 1995, and increased in 1995 by 15% from
1994 revenue of $101.4 million. Bill processing services revenue increased by
28% to $102.6 million in 1996 from $80.4 million in 1995, and by 49% in 1995
from $53.8 million in 1994.
Growth in customer management software and services revenue came primarily
from sales of additional services, increases in the number of subscribers of
existing and new clients in the U.S. and international markets, increases in
prices allowed by existing contracts, and migration of clients to higher priced
services. Growth in bill processing revenue was primarily derived from an
increase in the volume of statements and images produced because of the internal
growth of customers, the acquisition of new customers, and increases in prices
allowed by existing contracts. The expected decline in equipment sales and
services revenue was due to lower equipment sales as a result of market
condition changes.
Three clients accounted for $121.7 million, $104 million and $77.7 million
or 47%, 46% and 41% of total revenue in 1996, 1995 and 1994, respectively. See
"PRODUCTS AND SERVICES--Clients" and "FACTORS THAT MAY AFFECT FUTURE RESULTS"
regarding these clients and other factors that may impact future revenue.
COST OF REVENUE AND GROSS PROFIT
Cost of software and services revenue consists primarily of direct labor,
equipment-related expenses, and 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 41% in the fourth quarter
of 1996 significantly improved from 37% in the fourth quarter of 1995. Software
and services gross profit margin increased to 41% in the fourth quarter of 1996
from 37% in the comparable quarter of 1995. Customer management software and
services gross profit margin increased to 48% in the fourth quarter of 1996 from
43% in the comparable quarter of 1995. Bill processing services gross profit
margin increased to 32% in the fourth quarter of 1996 from 30% in the comparable
1995 quarter. The gross profit margin on equipment related revenue increased to
44% in the fourth quarter of 1996 from 36% in the 1995 comparable quarter.
For the year, the Company's gross profit margin in 1996 increased to
approximately 39% from approximately 36% in 1995. The gross profit margin in
1994 was 35%. Software and services gross profit margin increased to 39% in 1996
from 35% in 1995 and 34% in 1994. Customer management software and services
gross profit margin increased to 47% in 1996 from 43% in 1995 and 40% in 1994.
Bill processing services gross profit margin increased to approximately 28% in
1996 from 24% in 1995 and 21% in 1994. The gross profit margin on equipment
sales and service revenue was 41% in 1996 versus 39% in 1995 and 42% in 1994.
The gross margin increases in customer management and software and bill
processing services are attributed to economies of scale associated with higher
volume and increased revenue combined with
13
<PAGE>
productivity improvements. Gross margins on equipment sales and services varied
based on the mix of equipment sales and services and underlying demand.
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 has evaluated the estimated net realizable
value of capitalized development costs related to the development agreement and
has determined that such costs are not in excess of estimated future net revenue
to be earned from the product under development.
The Company spent $7.1 million in the fourth quarter of 1996, inclusive of
amounts reimbursable by development partners on research and development versus
$6.2 million in the comparable quarter of 1995, an increase of approximately
15%. The Company spent $26.1 million, $19.8 million, and $18.0 million,
inclusive of amounts reimbursable by development partners, in 1996, 1995, and
1994, respectively, for an increase of 32% in 1996 over 1995 and an increase of
10% in 1995 over 1994. The increased spending is attributable to the Company's
continuing commitment to the development of new products and enhancements to
existing products.
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.
Total selling, general and administrative expenses increased by 11% in the
fourth quarter of 1996 in comparison to the fourth quarter of 1995 and 18% for
the 1996 year compared to 1995. Selling and marketing expenditures increased by
22% in the fourth quarter of 1996 compared to the fourth quarter of 1995 and 29%
for the 1996 year compared to 1995. As a percentage of revenue, selling and
marketing expenditures increased by approximately 1% in 1996 compared to 1995.
In 1995, total sales and marketing expenditures increased by 29% in comparison
to 1994 but remained constant as a percentage of revenue. The increase in sales
and marketing expenditures was primarily because of the addition of sales and
marketing personnel and additional resources to support increased sales and
marketing activities in the international, multi-service and telecommunications
markets.
General and administrative expenses for the fourth quarter increased 4% in
1996 compared to 1995. General and administrative expenses in 1996 increased by
11% compared to 1995. As a percentage of revenue, there was no significant
change in general and administrative expenses for the fourth quarter and 1996
year compared to the same periods in 1995. The increase in general and
administrative expenses is attributable to support for the increased selling and
marketing efforts, expansion into international
14
<PAGE>
markets as well as costs related to general company expansion and being a
publicly held entity. General and administrative expenses increased by 20% in
1995 compared to 1994 to support higher levels of sales, but remained constant
as a percentage of revenue.
INTEREST EXPENSE
Interest expense consists of interest on borrowings under revolving credit
agreements, revenue bonds pertaining to certain of the Company's facilities and
notes and credit agreements related to the Company's leasing subsidiary.
Interest expense in the fourth quarter and for the 1996 year decreased by
$1.1 million, or 94% and $1.8 million, or 36%, respectively, compared to the
same periods in 1995. Proceeds of the initial public offering (IPO) were
utilized to pay down existing debt and resulted in decreased interest expense on
a comparative basis.
INCOME TAXES
The Company's provision for income taxes represents estimated federal, state
and foreign income taxes.
The income tax rate for the fourth quarter was 42%, approximately two
percentage points higher than the 1995 comparable quarter. This is attributable
to the mix of U.S. and international profits and state and local taxes. The
income tax rate was approximately 40% in 1996 and 1995. The income tax rate was
46% in 1994 because of losses in a foreign subsidiary which were incurred and
not tax effected.
NET INCOME
Net income increased by $1.8 million or 59% in the fourth quarter of 1996
compared to the fourth quarter of 1995. For the 1996 year, net income increased
to $14.5 million or 40% over 1995 net income of $10.4 million. Earnings per
share for the year was $0.64 per share in 1996 compared to $0.49 per share in
1995. This represents a 31% increase despite a 7% increase in the number of
shares outstanding in 1996 over 1995. The increase in net income for the fourth
quarter and 1996 year compared to 1995 is attributable to the factors cited
above. Net income and earnings per share increased by 68% and 75%, respectively,
in 1995 compared to 1994 due to higher earnings and the Company's redemption of
shares which reduced the number of shares outstanding by approximately 1
million.
FINANCIAL CONDITION AND LIQUIDITY
The Company strengthened its financial condition and liquidity in 1996
primarily as a result of its IPO. The net proceeds of the IPO of approximately
$52 million and cash generated from operations enabled the Company to pay down
existing debt. Total long-term debt, including the current portion, was $10.4
million as of December 31, 1996 compared to $62.8 million at December 31, 1995.
Of the debt outstanding at December 31, 1996, $8 million pertains to the
Company's leasing subsidiary and is collateralized, without recourse, by rents
receivable. As of December 31, 1996, the Company had an available and unused $50
million line of credit. Capital expenditures in 1996 and 1995 remained level at
approximately $30 million.
The Company collects from its clients and remits to the U.S. Postal Service
a significant amount of postage. Substantially all contracts allow the Company
to pre-bill and/or require deposits from its clients to mitigate the effect on
cash flow. As of December 31, 1996 and 1995, accounts receivable were $73.5
million and $59.9 million, respectively, including $21.5 million and $18.3
million in amounts due from clients for postage.
The Company continues to make significant investments in capital equipment,
research and development as well as to expand into new domestic and
international markets. The Company believes that net
15
<PAGE>
cash from operations and the Company's borrowing availability will be sufficient
to support operations through the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, changes in the cable
television market, the Company's ability to retain existing customers and
attract new customers, the Company's continuing ability to develop products that
are responsive to the evolving needs of its customers, increased competition,
changes in operating expenses, changes in government regulation of the Company's
clients and general economic factors.
DEPENDENCE ON THE CABLE TELEVISION MARKET
The Company is highly dependent on the cable television market. During 1996,
approximately 63% of the Company's revenue was derived from sales to cable
television service providers compared to 67% in 1995. The number of providers of
cable television service in the U.S. has been 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, a decrease in the number of cable
subscribers or 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 grows or converges 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. Further, 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.
The failure of such development projects could have a material adverse effect on
the financial condition and results of operations of the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly and annual operating results may fluctuate from
quarter to quarter and year to year 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.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is highly competitive,
and competition is increasing as additional market opportunities arise. The
Company believes its most significant competitors for customer management
software and services are independent providers of such software and services
and in-house systems. TCI, which represented approximately 21% of the Company's
revenue for 1996 and
16
<PAGE>
1995, respectively, has announced that it is developing and testing an in-house
system and that such in-house system will replace the Company's customer
management software system. Another client, which accounted for 4% of total
revenue in 1996 and recently extended its contract with the Company to early
1997, has orally advised the Company that it may move to an alternative solution
for its customer management software requirements.
COMPETITION
In addition, competitive factors could influence or alter the Company's
overall revenue mix between customer management software, services, including
bill processing 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.
CONCENTRATION OF CLIENT BASE
Aggregate revenue from the Company's ten largest clients accounted for
approximately two-thirds of total revenue. Loss of all or a significant part of
the business of any of these clients or a decrease in their respective customer
bases would have a material adverse effect on the financial condition and
results of operations of the Company. Three of the Company's clients represented
approximately 47% and 46% of total revenue in 1996 and 1995, respectively. See
"BUSINESS--CLIENTS" regarding these clients and other factors that may impact
future revenue.
MANAGEMENT OF GROWTH
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.
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, certain of the Company's contracts
do not require clients to make any minimum purchase. Others require minimum
purchases that are substantially below the current level of business under such
contracts and all such 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.
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 in
20 countries. While approximately 5% of the Company's customer management
software and services revenue came from international sources, the Company is
expanding its international presence, primarily through third party marketing
and distribution alliances. The Company's current and proposed international
business activities are subject to certain inherent risks. There can be no
assurance that such risks 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.
17
<PAGE>
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.
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.
GOVERNMENT REGULATION
The Company's existing and potential clients are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued deregulation 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.
POSSIBLE VOLATILITY OF STOCK PRICE
Although the Company believes that it has the product offerings and
resources needed for continuing success, future revenue and margin trends cannot
be reliably predicted and may cause the Company to adjust its operations. The
Company's stock price, like that of other technology companies, is subject to
significant volatility. The announcement of new products, services or
technologies by the Company or its competitors, quarterly variations in the
Company's results of operations, changes in revenue or earnings estimates by the
investment community and speculation in the press or investment community are
among the factors affecting the Company's stock price. In addition, the stock
price may be affected by general market conditions and domestic and
international macroeconomic factors unrelated to the Company's performance.
Because of the foregoing reasons, recent trends should not be considered
reliable indicators of future stock prices or financial results.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... 21
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................... 22
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994................. 23
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994....... 24
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................. 25
Notes to Consolidated Financial Statements................................................................. 26
Quarterly Financial Information (Unaudited)................................................................ 36
</TABLE>
19
<PAGE>
REPORT OF MANAGEMENT
Stockholders of
USCS International, Inc.
The Company's management is responsible for the preparation, integrity, and
objectivity of the consolidated financial statements and other financial
information presented in this report. The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles and
reflect the effects of certain estimates and judgments made by management.
Management maintains an effective system of internal control that is
designed to provide reasonable assurance that assets are safeguarded and
transactions are properly recorded and executed in accordance with management's
authorization. The system is continuously monitored by direct management review
and by internal audit. The Company selects and trains qualified people who are
provided with and expected to adhere to the Company's standards of business
conduct. These standards, which set forth the highest principles of business
ethics and conduct, are a key element of the Company's control system. It is
management's responsibility to proactively foster an environment conducive to
these principles.
The Company's consolidated financial statements have been audited by Price
Waterhouse LLP, independent accountants. Their audits were conducted in
accordance with generally accepted auditing standards, and included a review of
financial controls and test of accounting records and procedures as they
considered necessary in the circumstances. Management made available to them all
of the Company's financial records and data. Management believes that all
representations made to Price Waterhouse LLP were valid.
The Audit Committee of the Board of Directors meets regularly with
management, the internal auditors and the independent accountants to review
accounting, reporting, auditing and internal control matters. The committee has
direct and private access to both internal and external auditors.
By: /s/ JAMES C. CASTLE By: /s/ DOUGLAS L. SHURTLEFF
---------------------------------- ----------------------------------
James C. Castle Douglas L. Shurtleff,
CHIEF EXECUTIVE OFFICER AND SENIOR VICE PRESIDENT OF FINANCE
CHAIRMAN OF THE BOARD OF DIRECTORS AND
(PRINCIPAL EXECUTIVE OFFICER) CHIEF FINANCIAL OFFICER
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of USCS International, Inc.
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. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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.
/s/ PRICE WATERHOUSE LLP
- ---------------------------------------
Price Waterhouse LLP
Sacramento, California
February 14, 1997
21
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................................................... $ 8,452 $ 6,627
Accounts receivable..................................................................... 73,458 59,907
Current portion of net investment in leases (note 11)................................... 4,922 6,868
Paper products and other inventory...................................................... 4,418 5,608
Other................................................................................... 8,972 4,904
---------- ----------
Total current assets................................................................ 100,222 83,914
Property and equipment, net (note 3)...................................................... 94,350 85,385
Net investment in leases, net of current portion (note 11)................................ 6,252 7,320
Other..................................................................................... 4,735 3,831
---------- ----------
Total assets.............................................................................. $ 205,559 $ 180,450
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (note 3).......................................... $ 48,975 $ 44,974
Current portion of long-term debt (note 5).............................................. 4,772 11,679
Deferred revenue........................................................................ 9,434 3,821
---------- ----------
Total current liabilities........................................................... 63,181 60,474
Long-term debt, net of current portion (note 5)........................................... 5,647 51,155
Customer deposits......................................................................... 12,752 13,497
Other liabilities......................................................................... 8,646 8,734
---------- ----------
Total liabilities................................................................... 90,226 133,860
---------- ----------
Commitments and Contingencies (note 6)
Stockholders' Equity (note 7 and 9):
Preferred Stock, $.05 par value, 10,000,000 shares authorized; no shares issued and
outstanding
Common Stocks, $.05 par value
Authorized 40,000,000 shares; Issued and outstanding: 23,068,826 and 19,042,015 shares
at December 31, 1996 and 1995....................................................... 1,153 952
Additional paid-in capital................................................................ 53,902 --
Retained earnings......................................................................... 60,437 45,966
Foreign currency translation adjustment................................................... (159) (328)
---------- ----------
Total stockholders' equity.......................................................... 115,333 46,590
---------- ----------
Total liabilities and stockholders' equity................................................ $ 205,559 $ 180,450
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Software and services................................................. $ 240,848 $ 197,282 $ 155,247
Equipment sales and services.......................................... 22,366 31,981 33,558
------------ ------------ ------------
Total revenue........................................................... 263,214 229,263 188,805
Cost of Revenue:
Software and services................................................. 147,743 127,702 103,046
Equipment sales and services.......................................... 13,180 19,538 19,476
------------ ------------ ------------
Total cost of revenue................................................... 160,923 147,240 122,522
------------ ------------ ------------
Gross profit............................................................ 102,291 82,023 66,283
------------ ------------ ------------
Operating Expenses
Research and development.............................................. 25,140 17,815 16,700
Selling, general and administrative................................... 49,631 42,102 33,796
------------ ------------ ------------
Total operating expenses................................................ 74,771 59,917 50,496
------------ ------------ ------------
Operating income........................................................ 27,520 22,106 15,787
Interest expense........................................................ 3,185 4,966 4,284
------------ ------------ ------------
Income before income taxes.............................................. 24,335 17,140 11,503
Income tax provision (note 8)........................................... 9,826 6,770 5,334
------------ ------------ ------------
Net income.............................................................. $ 14,509 $ 10,370 $ 6,169
------------ ------------ ------------
------------ ------------ ------------
Earnings per share (note 7)............................................. $ 0.64 $ 0.49 $ 0.28
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares and equivalents.......................... 22,555,412 21,137,863 21,881,516
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
----------------------- ADDITIONAL CURRENCY
NUMBER PAR PAID-IN RETAINED TRANSLATION
OF SHARES VALUE CAPITAL EARNINGS ADJUSTMENT
------------ --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.............................. 19,776,804 $ 989 -- $ 35,162 $ (518)
Issuance of common stock.............................. 161,406 8 $ 332 -- --
Repurchase of common stock............................ (560,067) (28) (332) (2,146) --
Translation adjustment................................ -- -- -- -- 225
Net income............................................ -- -- -- 6,169 --
------------ --------- ----------- --------- -----
Balance, December 31, 1994............................ 19,378,143 969 -- 39,185 (293)
Issuance of common stock.............................. 708,393 35 1,608 -- --
Repurchase of common stock............................ (1,044,521) (52) (1,608) (3,589) --
Translation adjustment................................ -- -- -- -- (35)
Net income............................................ -- -- -- 10,370 --
------------ --------- ----------- --------- -----
Balance, December 31, 1995............................ 19,042,015 952 -- 45,966 (328)
Issuance of common stock.............................. 4,034,240 201 53,902 -- --
Repurchase of common stock............................ (7,429) -- -- (38) --
Translation adjustment................................ -- -- -- -- 169
Net income............................................ -- -- -- 14,509 --
------------ --------- ----------- --------- -----
Balance, December 31, 1996............................ 23,068,826 $ 1,153 $ 53,902 $ 60,437 $ (159)
------------ --------- ----------- --------- -----
------------ --------- ----------- --------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 14,509 $ 10,370 $ 6,169
Adjustments to net income:
Depreciation and amortization............................................. 20,311 16,000 13,734
Loss on sale of assets.................................................... 583 102 148
Changes in operating assets and liabilities:
Accounts receivable..................................................... (13,551) (8,388) (2,955)
Net investment in leases................................................ (7,440) (7,230) (8,904)
Collections on leases................................................... 10,454 13,745 11,201
Paper products and other inventory...................................... 1,190 (898) (1,961)
Other assets............................................................ (4,972) (558) (372)
Customer deposits....................................................... (745) 1,857 4,820
Other liabilities....................................................... 9,526 4,022 5,712
---------- ---------- ----------
Net cash provided by operating activities................................... 29,865 29,022 27,592
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures, net................................................... (29,397) (29,231) (33,412)
Capitalized software expenditures, net...................................... (293) (2,000) --
---------- ---------- ----------
Net cash used in investing activities....................................... (29,690) (31,231) (33,412)
---------- ---------- ----------
Cash flows from financing activities:
Net (paydown) borrowings under revolving credit agreements.................. (30,000) 22,000 8,000
Proceeds from issuance of long-term debt.................................... 2,765 4,096 4,678
Payments on long-term debt.................................................. (25,180) (15,620) (10,884)
Proceeds from issuance of common stock less expenses........................ 54,103 1,643 340
Repurchase of common stock.................................................. (38) (5,249) (2,506)
---------- ---------- ----------
Net cash provided by (used in) financing activities......................... 1,650 6,870 (372)
---------- ---------- ----------
Net increase (decrease) in cash............................................... 1,825 4,661 (6,192)
Cash at beginning of year..................................................... 6,627 1,966 8,158
---------- ---------- ----------
Cash at end of year........................................................... $ 8,452 $ 6,627 $ 1,966
---------- ---------- ----------
---------- ---------- ----------
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest.................................................................. $ 4,595 $ 5,145 $ 4,277
Income taxes.............................................................. 9,748 4,210 7,228
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
USCS International, Inc. (the Company), a Delaware Corporation, formerly
U.S. Computer Services, a California Corporation, operates in one segment
providing transaction based comprehensive customer management software and
services and bill processing services to the global communications industry, and
sells, maintains and leases computer systems primarily in North America. The
Company generally provides software and bill processing services to cable
television and multi-service providers under long-term bundled service
contracts. The Company also provides bill processing services on a stand-alone
basis primarily to clients in the telecommunications market.
In June 1996, the Company completed an initial public offering (IPO) of its
common stock. Upon the close of the IPO, the Company effected certain stock
splits and conversions of its Voting and Non-Voting Common Stock. See Note 9.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the accounts of
the Company 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 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 a component of fees billed under bundled service contracts and
are recognized as revenue over the life of the license based on usage. Revenue
from equipment sales 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 potentially subject
the Company 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 the cable television and telecommunications industries.
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 of all accounts receivable. Uncollectible amounts 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 software development costs incurred prior to
the achievement of technological feasibility. The Company capitalizes software
development costs after the products reach technological feasibility. These
26
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 useful life of the product. No amortization has been recorded to date.
The Company evaluates the net realizable value of capitalized software
development costs on a product-by-product basis in accordance with SFAS 86. The
cost of custom development that is required by a specific client is charged to
cost of revenue.
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 subject to repayment
is deferred until the related repayment obligations lapse. Funding not subject
to repayment is offset against related software development costs.
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 subsidiary 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--Income taxes are recorded using the liability method under which
current or deferred taxes are recognized 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 the IPO are included in the calculations as if they
were outstanding for all periods presented (using the treasury stock method at
the public offering price).
Stock Options--The Company accounts for its stock option plans in accordance
with APB 25, under which no compensation expense is recognized in the financial
statements except where the grants have been issued at less than fair market
value on the determination date. The Company has presented the pro forma
disclosure of compensation expense under the fair value provisions of the
recently issued SFAS 123 "Accounting for Stock Based Compensation" in Note 7.
27
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS AT DECEMBER 31 (IN THOUSANDS)
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Computer and production equipment........................... $ 122,105 $ 102,381
Plant and property.......................................... 32,545 31,375
Leasehold improvements...................................... 12,715 10,532
Office equipment............................................ 8,674 7,271
Capital projects-in-progress................................ 5,723 6,795
---------- ----------
181,762 158,354
Less accumulated depreciation and amortization.............. 87,412 72,969
---------- ----------
$ 94,350 $ 85,385
---------- ----------
---------- ----------
</TABLE>
Accounts payable and accrued expenses consists of the following:
<TABLE>
<S> <C> <C>
Trade accounts payable...................................... $ 20,791 $ 19,981
Book overdraft.............................................. -- 2,720
Accrued payroll and related expenses........................ 13,915 11,752
Accrued retirement plan contributions....................... 5,218 4,419
Income taxes payable........................................ 5,553 1,727
Other accrued expenses...................................... 3,498 4,375
--------- ---------
$ 48,975 $ 44,974
--------- ---------
--------- ---------
</TABLE>
4. BENEFITS 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 Company is required to make a contribution of 3% of
each eligible employee's annual compensation. Commencing in 1996, under the
plan's profit-sharing element, the Company also contributes 10% of pretax
profits. Prior to 1996, under the plan's profit-sharing element, the Company
could contribute up to 3% of each eligible employee's compensation determined at
the discretion of the Board of Directors. The Company's contribution expense was
$5,179,000, $4,204,000 and $3,763,000 in 1996, 1995 and 1994, 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 1996, 1995 and 1994. Under the
plans, the Company was obligated, at the employee's option, to repurchase vested
shares at the current fair market value upon termination or retirement.
Substantially all share repurchases in 1996 and prior years resulted from the
repurchase of shares from former employees. The Company's repurchase obligations
under the plans lapsed effective with the IPO.
The Company has non-qualified deferred compensation plans for senior
management and certain highly compensated employees. The plans permit
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
28
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BENEFITS PLANS (CONTINUED)
or the underlying investments. At December 31, 1996, amounts deferred under the
plans and the related accrued interest were not material.
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
MATURITIES 1996 1995
-------------- --------- ---------
<S> <C> <C> <C>
Credit agreement with a finance company, collateralized, without recourse,
by minimum rentals receivable of $10,401. Principal and interest payable
monthly at fixed interest rates resulting in a weighted average interest
rate of 8.78% at December 31, 1996....................................... 1997 to 2000 $ 8,027 $ 9,486
Bonds payable, with interest (rates at 5.75% and 6.83% at December 31,
1996) and principal repayable in approximately equal monthly
installments, collateralized by first deeds of trust on buildings with a
net book value of $12,476................................................ 1998 to 1999 2,392 3,695
Notes payable to a bank, paid in August, 1996.............................. -- -- 1,653
Credit line with two banks refinanced in September, 1996................... 2001 -- 30,000
Notes payable to insurance companies, prepaid in September, 1996........... -- -- 18,000
--------- ---------
10,419 62,834
Less current portion....................................................... 4,772 11,679
--------- ---------
Total long-term debt....................................................... $ 5,647 $ 51,155
--------- ---------
--------- ---------
</TABLE>
In September 1996, the Company renegotiated its existing revolving credit
agreements into a new five-year unsecured revolving credit line with two banks
in the amount of $50 million. Borrowings under the agreement bear interest at
the Company's choice of LIBOR (plus a margin ranging from .55% to 1.25%), the
bank's base rate or a quoted rate.
Under the borrowing agreements, the Company is required to maintain certain
financial ratios and meet a net worth test. In addition, the Company has two
outstanding standby letters of credit totaling $4,661,000 at December 31, 1996.
Based on the borrowing rates currently available to the Company for credit
facilities and bonds with similar terms and average maturities, the carrying
value of long-term debt at December 31, 1996, is considered to approximate fair
value.
Maturities of long-term debt at December 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................... $ 4,772
1998............................................... 4,194
1999............................................... 1,395
2000............................................... 58
---------
$ 10,419
---------
---------
</TABLE>
29
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $9,594,000 in
1996, $ 8,798,000 in 1995 and $7,317,000 in 1994.
Future minimum rental commitments under operating leases are (in thousands):
<TABLE>
<S> <C>
1997................................................ $ 6,550
1998................................................ 4,637
1999................................................ 3,626
2000................................................ 2,550
2001................................................ 964
Thereafter.......................................... 565
</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.
7. STOCK OPTION PLANS
The Company has five stock option plans under which shares of the Company's
common stock have been reserved for issuance to directors, officers and key
employees.
Under the 1988, 1990, 1993 and 1996 Stock Option Plans, 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.
Under the Director's Stock Option Plan, options may be granted at fair
market value. Options vest annually over three years and expire five years after
the date of grant.
30
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Shares under option:
Outstanding at January 1, 1994.................................. 2,295,783 $ 1.87
Granted....................................................... 305,550 4.35
Exercised..................................................... (161,406) 1.00
Canceled...................................................... (257,040) 2.10
---------- -----
Outstanding at December 31, 1994................................ 2,182,887 2.25
Granted....................................................... 551,775 5.05
Exercised..................................................... (708,393) 1.44
Canceled...................................................... (243,663) 3.00
---------- -----
Outstanding at December 31, 1995................................ 1,782,606 3.34
Granted....................................................... 1,229,074 13.20
Exercised..................................................... (538,412) 2.10
Canceled...................................................... (259,807) 4.30
---------- -----
Outstanding at December 31, 1996................................ 2,213,461 $ 9.00
---------- -----
---------- -----
</TABLE>
At December 31, 1996, 2,651,025 shares were available for future grants
under the stock option plans.
For purposes of the following pro forma disclosures required by SFAS 123,
the estimated fair value of options is amortized to expense over the options'
vesting period. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option valuation model. The Black-Scholes option
model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. In addition, option
valuation models, such as the Black-Scholes model, require the input of highly
subjective assumptions, including the expected stock price volatility, which are
subject to change from time to time. For this reason, and because the SFAS 123
fair-value based method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation costs are not
necessarily indicative of costs to be expected in future years.
The following pro forma information has been prepared as if the Company had
accounted for its employee stock options using the fair value based method of
accounting established by SFAS 123(Net income in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C> <C>
Net income As reported...................................... $ 14,509 $ 10,370
Pro forma........................................ 14,036 10,265
Earnings per share As reported...................................... $ 0.64 $ 0.49
Pro forma........................................ 0.63 0.49
</TABLE>
SFAS 123 pro forma calculations are based on the following assumptions for
grants in 1996 and 1995, respectively: risk-free weighted-average interest rates
of 5.7% and 5.9%; volatility factors of the expected
31
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
market price of the Company's common stock of 43.3%; and weighted average
expected option lives of 7.3 years and 6.9 years.
Summary information concerning outstanding and exercisable employee option
as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------------------------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.39-$ 2.05............................ 38,682 2.90 $ 1.71 38,682 $ 1.71
2.44- 2.80............................ 170,075 5.96 2.63 115,625 2.65
3.73- 4.35............................ 342,453 7.07 3.99 273,342 3.90
5.05- 5.05............................ 481,687 8.45 5.05 94,150 5.05
7.38- 7.38............................ 6,300 9.17 7.38 -- --
12.50- 16.50............................ 1,093,764 9.35 12.91 -- --
17.50- 18.63............................ 80,500 7.15 18.09 -- --
----------- --- ----------- ----------- -----
$ 1.39-$18.63............................ 2,213,461 8.35 $ 9.00 521,799 $ 3.67
----------- --- ----------- ----------- -----
----------- --- ----------- ----------- -----
</TABLE>
Exercise prices of some options differ from the market price of the stock on
the grant date. The following table summarizes options by those that have
exercise prices equal to the market price on the grant date. There were no
grants in 1996, 1995, or 1994 with exercise prices less than the market price on
the grant date. The weighted average fair values below have been determined
using the Black-Scholes model.
<TABLE>
<CAPTION>
EXERCISE
PRICE
EQUAL TO
MARKET PRICE
-------------
<S> <C>
1996:
Options granted................................................................ 1,229,074
Weighted average exercise price................................................ 13.20
Weighted average fair value.................................................... 13.20
1995:
Options granted................................................................ 551,775
Weighted average exercise price................................................ 5.05
Weighted average fair value.................................................... 5.05
1994:
Options Granted................................................................ 305,550
Weighted average exercise price................................................ 4.35
</TABLE>
Total compensation recognized under APB 25 was $77,000, $296,000, and
$140,000 in 1996, 1995 and 1994, respectively.
32
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
In April of 1996, the Company adopted an Employee Stock Purchase Plan (the
"Plan") which was implemented after 1996. The Plan provides a method for
employees of the Company to purchase shares of the Company's Common Stock
through payroll deductions. Under the 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 or last business day of each calendar quarter. Shares purchased
under the Plan may not be sold or otherwise transferred for six months after
issuance.
8. INCOME TAXES
The deferred tax assets and liabilities are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Compensation and employee benefits related items.................................. $ 4,714 $ 3,527
Differences in revenue recognition for book and tax purposes...................... 2,840 1,097
Accruals and other non-deductible reserves........................................ 3,542 2,700
--------- ---------
Total deferred tax assets....................................................... 11,096 7,324
--------- ---------
Deferred tax liabilities:
Tax in excess of book depreciation................................................ 6,163 5,259
Capital leases recorded as operating leases for tax purposes...................... 1,762 2,619
Other............................................................................. 674 584
--------- ---------
Total deferred tax liabilities.................................................. 8,599 8,462
--------- ---------
Net deferred tax (asset) liability.................................................. $ (2,497) $ 1,138
--------- ---------
--------- ---------
</TABLE>
The income tax provision is comprised of the following for the years ended
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal....................................................... $ 11,675 $ 4,883 $ 4,644
State......................................................... 1,786 838 1,033
--------- --------- ---------
13,461 5,721 5,677
--------- --------- ---------
Deferred
Federal....................................................... (3,311) 924 72
State......................................................... (324) 125 (415)
--------- --------- ---------
(3,635) 1,049 (343)
--------- --------- ---------
$ 9,826 $ 6,770 $ 5,334
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
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>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income tax computed using U.S. statutory rate......................... 34.4% 34.7% 34.1%
State income taxes, net of federal benefits........................... 4.4 6.1 6.1
Effect of loss of foreign subsidiary.................................. -- -- 6.6
Other................................................................. 1.6 (1.3) (0.4)
--- --- ---
Income tax provision................................................ 40.4% 39.5% 46.4%
--- --- ---
--- --- ---
</TABLE>
9. STOCK SPLITS
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.
On May 16, 1996, the Board and a majority of the Company's stockholders
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 effective upon the close of the
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. Also, upon the
closing of the IPO, the Common Non-Voting Stock converted to Common Voting Stock
on a one-for-one basis and the Common Non-Voting Class was eliminated. The
effect of these transactions has been retroactively reflected in the financial
statements.
10. SIGNIFICANT CUSTOMERS AND RELATED PARTY TRANSACTIONS
The Company has three significant customers. Revenue from the largest
customer was $55,651,000, $47,287,000 and $42,842,000 or 21%, 21% and 23% of
total revenue in 1996, 1995 and 1994, respectively. Revenue and percentage of
total revenue, respectively,from the other significant customers totaled
$41,066,000 or 16% and $25,013,000 or 10% in 1996, $38,849,000 or 17% and
$17,858,000 or 8% in 1995, and $24,569,000 or 13% and $10,323,000 or 5% in 1994.
Advisory services were provided to the Company in the amount of $430,500 in
1996 and 1995 and $400,000 in 1994, by Westar Capital, a stockholder.
34
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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 at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Total minimum lease payments receivable................................. $ 15,516 $ 16,100
Estimated unguaranteed residual value of leased property................ 8 203
--------- ---------
Gross investment in leases.............................................. 15,524 16,303
Less unearned income.................................................... 4,350 2,115
--------- ---------
Net investment in leases................................................ 11,174 14,188
Less current portion.................................................... 4,922 6,868
--------- ---------
Non-current portion..................................................... $ 6,252 $ 7,320
--------- ---------
--------- ---------
</TABLE>
Future payments to be received under sales-type leases are (in thousands):
<TABLE>
<S> <C>
1997............................................... $ 7,898
1998............................................... 5,661
1999............................................... 1,566
2000............................................... 391
---------
$ 15,516
---------
---------
</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
At December 31, 1996 and 1995, the Company's wholly-owned leasing subsidiary
had total assets of $16,197,000 and $18,256,000 and long-term debt of $8,027,000
and $11,139,000, respectively. Net income was $1,147,000, $1,352,000 and
$1,403,000 in 1996, 1995 and 1994, respectively.
35
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Total revenue......................................................... $ 60,255 $ 63,572 $ 69,357 $ 70,030
Gross profit.......................................................... 22,094 23,801 27,713 28,683
Operating income...................................................... 5,443 5,841 7,912 8,324
Net income............................................................ 2,563 2,843 4,328 4,775
Net income per share.................................................. 0.12 0.13 0.18 0.20
YEAR ENDED DECEMBER 31, 1995
Total revenue......................................................... $ 53,012 $ 56,151 $ 56,677 $ 63,423
Gross profit.......................................................... 19,498 19,053 20,044 23,428
Operating income...................................................... 4,937 5,016 5,965 6,188
Net income............................................................ 2,281 2,287 2,794 3,008
Net income per share.................................................. 0.11 0.11 0.13 0.14
YEAR ENDED DECEMBER 31, 1994
Total revenue......................................................... $ 40,692 $ 49,917 $ 45,586 $ 52,610
Gross profit.......................................................... 13,637 18,385 16,301 17,960
Operating income...................................................... 2,028 5,906 4,201 3,652
Net income............................................................ 531 2,638 1,654 1,346
Net income per share.................................................. 0.02 0.12 0.08 0.06
</TABLE>
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company who are standing for
reelection is set forth under "Election of Directors" on pages 1 and 2 of the
Company's Proxy Statement For Annual Meeting Of Stockholders, dated April 17,
1997, which pages are incorporated herein by reference.
The executive officers and directors of the Company and their ages as of
March 10, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
James C. Castle, Ph.D. 60 Chairman of the Board and Chief Executive Officer
Michael F. McGrail 49 President of CableData, Inc. and Director
C. Randles Lintecum 52 President of International Billing Services, Inc.
Douglas L. Shurtleff 50 Senior Vice President, Finance and Chief Financial Officer
Claudia D. Coleman 45 Vice President, Corporate Development
George L. Argyros, Sr. (1)(2) 60 Director
George M. Crandell, Jr. (1) 51 Director
Charles D. Martin (2) 60 Director
Larry W. Wangberg (1)(2) 54 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 and Chief
Executive Officer 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. Since
December 1993, Mr. McGrail has been President and Managing Director of CableData
International, Ltd., a wholly-owned subsidiary of CableData, Inc. Prior to his
joining CableData, Mr. McGrail served as President of Gandalf International,
Ltd. ("Gandalf"), a wide and local area network communications products company.
He was also Managing Director of Infotron Systems International Ltd., which was
acquired by Gandalf in 1991. Mr. McGrail
37
<PAGE>
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 1989 to May
1993, Mr. Lintecum was Executive Vice President of Corporate Marketing for
Infonet Services Corporation ("Infonet"), an international data network services
company. From 1988 to 1989, Mr. Lintecum was division Vice President of
Marketing for Computer Science Corporation, a computer services company. From
1985 to 1987, Mr. Lintecum was division Vice President of New Business
Development for Computer Science Corporation. 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, and
Treasurer of Infonet. From October 1984 to September 1988, Mr. Shurtleff was
Group Vice President, Finance and Administration, of Computer Sciences
Corporation. 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.
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, in the investment division of Alex.
Brown & Sons ("Alex. Brown"). Prior to joining Alex. Brown, Ms. Coleman was a
Vice President in the investment banking division of Drexel Burnham Lambert from
1984 to 1988. From 1979 to 1984, Ms. Coleman held various positions, including
Vice President, Corporate Planning, at Bank of America. Ms. Coleman received a
B.A. and a M.B.A. from the University of California.
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, Inc., and Dogloo, Inc. 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, director of Independent Colleges of Southern
California, 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.
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 /
Crandell Capital , 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, 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 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.
38
<PAGE>
CHARLES D. MARTIN has been a Director of the Company since November 1990.
Mr. Martin has been a general partner of Enterprise Partners, a Southern
California-based venture capital firm, since its formation in 1985. He has also
been a general partner of Westar Capital Associates, which is the sole general
partner of Westar, since its formation in 1987. Mr. Martin also serves on the
Board of Directors of Apria Healthcare, Inc., Tecstar, Inc., All Post, Inc.,
Dogloo, Inc., ObjectAutomation 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 is Chairman of the Board of Trustees of the
Orange County Museum of Art.
LARRY W. WANGBERG has been a Director of the Company since April 1996. Mr.
Wangberg has served as Chairman of the Board of Directors and Chief Executive
Officer of StarSight Telecast, Inc. ("StarSight") since April 1996. From
February 1995 to April 1996, Mr. Wangberg served as StarSight's President and
Chief Executive Officer. Mr. Wangberg was elected to the Board of Directors of
StarSight in May 1993. From 1983 to February 1995, Mr. Wangberg served as
President and Chief Executive Officer of Times Mirror Cable Television, Inc. a
provider of broadband-based network and cable broadcast services. Mr. Wangberg
simultaneously served as Senior Vice President of the parent The Times Mirror
Company, a major information provider. Mr. Wangberg is a past chairman of the
National Cable Television Association (NCTA). Mr. Wangberg has also served on
the Board of Directors of Zilog, Inc. since April 1996.
There are no family relationships between any directors or executive
officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company's compensation of its executive officers
is set forth under "INFORMATION REGARDING EXECUTIVE OFFICERS COMPENSATION" on
pages 5 through 8 of the Company's Proxy Statement For Annual Meeting Of
Shareholders, dated April 17, 1997, which pages are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth under "BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND MANAGEMENT" on pages 4 and 5 of the Company's Proxy Statement For
Annual Meeting Of Shareholders, dated April 17, 1997, which pages are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on page 9 of the
Company's Proxy Statement For Annual Meeting Of Shareholders, dated April 17,
1997, which pages are incorporated herein by reference.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) The following documents are filed as part of this report:
1. Financial Statements
Financial Statements and Report of Independent Accountants: See Part II,
Item 8 hereof.
2. Financial Statement Schedule
All Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because
such schedules are not required under the related instructions, are not
applicable or the required information is given in the financial
statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
December 31, 1996.
(c) Exhibits
<TABLE>
<S> <C> <C>
1. Not applicable.
2. Plan of acquisition, reorganization, arrangement, liquidation or succession
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. (1)
2.2 Reference exhibits 10.37, 10.38, 10.39 & 10.40.
3. Articles of Incorporation
3.1 Second Amended and Restated Certificate of Incorporation of USCS
International, Inc.
3.2 Bylaws of the Registrant. (1)
3.3 Certificate of Designation of Rights, Preferences and Privileges of
Series A Preferred Stock. (1)
4. Instruments defining the rights of security holders, including indentures
4.1 Reference Exhibit 3.1.
4.2 Stockholder Rights Plan. (1)
5-9. Not applicable
10. Material Contracts
10.1 Amended and Restated 1988 Stock Option Plan. (3)
10.2 The Registrant's Employee Stock Ownership Plan ("ESOP") 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. (1)(3)
10.3 Amended and Restated 1993 Stock Option Plan. (3)
10.4 1996 Stock Option Plan. (1)(3)
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
10.5 1996 Directors' Stock Option Plan. (1)(3)
10.6 Employee Stock Purchase Plan. (1)(3)
10.7 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Trust Indenture
dated as of December 1, 1987 between the Registrant and Sun Bank, as
Trustee. (1)
10.8 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Reimbursement
Agreement dated as of December 1, 1987 between the Registrant and
Sanwa Bank of California. (1)
10.9 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Trust Indenture
dated as of June 30, 1989 between the Registrant and Sun Bank, as
Trustee. (1)
10.10 Agreement pursuant to Rule 601(b)(4)(iii)(A) to file Reimbursement
Agreement dated as of June 30, 1989 between the Registrant and Sanwa
Bank of California. (1)
10.11 Amended and Restated 1990 Stock Option Plan. (3)
10.12 Credit Agreement dated as of February 15, 1996 among International
Billing Services, Nationsbank of Texas and the Lender Parties named
therein. (1)
10.13 Credit Agreement dated as of February 15, 1996 among the Registrant,
Nationsbank of Texas and the Lender Parties named therein. (1)
10.14 Form of Standard On/Line Operating and License Agreement. (1)
10.15 Form of Standard Equipment Maintenance Agreement. (1)
10.16 Form of Master Lease, Lease Request and Certificate of Acceptance.
(1)
10.17 Form of Standard Agreement for the Sale and Installation of
Equipment. (1)
10.18 Form of Standard Statement Production Services Agreement. (1)
10.19 Strategic Business Agreement dated January 19, 1992 between the
Registrant and International Business Machines Corporation and
Addendum Number One to Strategic Business Agreement dated June 4,
1993 between the Registrant and International Business Machines
Corporation. (1)
10.20 Business Alliance Program Agreement between Oracle Corporation and
CableData. (1)
10.21 Development Agreement dated December 5, 1994 between the Registrant
and Tandem Computers Incorporated. (1)
10.22 Porting Agreement dated January 25, 1996 between CableData and
Hewlett-Packard Company. (1)
10.23 Amended, Consolidated and Restated Credit Agreement dated as of
September 30, 1996 among the Registrant as borrower and NationsBank,
N.A. and Mellon Bank, N.A. as lender. (2)
10.24 On/Line Operating and License Agreement dated June 7, 1996 between
CableData, Inc. and TCI Cable Management Corporation. (1)
10.25 Master Lease Agreement No. DO4347 dated as of April 16, 1993 between
the Registrant and First Equipment Company. (1)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10.26 On/Line Operating and Licensing Agreement dated December 17, 1993
between the Registrant dba CableData and Continental Cablevision. (1)
10.27 Statement Production Services Agreement dated August 20, 1993 between
the Registrant dba International Billing Services and Ameritech
Corporation. (1)
10.28 Software Development Agreement dated December 27, 1995 between
CableData and BellSouth Interactive Media Services. (1)
10.29 CableData's Intelecable Operating and License Agreement dated
December 27, 1995 between CableData and BellSouth Interactive Media
Services, Inc. (1)
10.30 Software License and Service Agreement and Network User License
Addendum dated May 18, 1994 between the Registrant and Oracle
Corporation. (1)
10.31 Strategic Business Alliance Agreement dated February 28, 1997 between
the Registrant and CBIS. (4)
10.32 Tandem Alliance Agreement dated January 1, 1995 between Tandem and
CableData. (1)
10.33 Contract for Computer Software (Postalsoft Software License
Agreement) dated February 13, 1996 between IBS and Postalsoft, Inc.
(1)
10.34 Employment Agreement dated August 10, 1992 between the Registrant and
James C. Castle. (1)(3)
10.35 Employment Agreement dated June 29, 1995 with Michael McGrail. (1)
10.36 Form of Severance Agreement. (1)(3)
10.37 Asset Acquisition Agreement dated March 31, 1995 by and between the
Registrant and CableData. (1)
10.38 Asset Acquisition Agreement dated March 31, 1995 by and between the
Registrant and IBS. (1)
10.39 Asset Acquisition Agreement dated March 15, 1995 by and between U.S.
Computer Systems Leasing and CableLease, Inc. (1)
10.40 Asset Acquisition Agreement dated March 15, 1995 by and between U.S.
Computer Systems Leasing and RPA, Inc. (1)
10.41 Building Lease for property located at 2969 Prospect Park Drive
between the Registrant and F.I.A. Profile Fund I dated January 19,
1994. (1)
10.42 Alternate Mailing System Agreement dated March 28, 1996 between the
United States Postal Service and IBS. (1)
10.43 Alternate Mailing Systems Agreement dated April 18, 1996 between the
United Postal Service and International Billing Services, Inc. (1)
10.44 Form of Directors' Indemnification Agreement. (1)(3)
10.45 Amendment No. 11 to the ESOP. (1)(3)
11. Statement recomputation of earnings per share.
12-20. Not applicable.
21. List of Subsidiaries. (1)
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
22. Not applicable.
23. Consent of Independent Accountants.
24. Power of Attorney. Contained in page 44 of this Annual Report on Form 10-K and
incorporated herein by reference.
25-26. Not applicable.
27. Financial data schedule.
28. Not applicable.
99. None.
</TABLE>
- ------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
S-1, Registration No. 333-3842, filed pursuant to Section 5 of the
Securities Act of 1933, as amended.
(2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996.
(3) Represents a management contract or compensatory plan or arrangement.
(4) Portions of Exhibit 10.31 have been redacted pursuant to a confidential
treatment request.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Rancho
Cordova, State of California, on the 21st day of March, 1997.
USCS INTERNATIONAL, INC.
By: /s/ DOUGLAS L. SHURTLEFF
------------------------------------------
Douglas L. Shurtleff,
SENIOR VICE-PRESIDENT OF FINANCE AND
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Each of the officers and directors of USCS International, Inc. whose
signature appears below hereby constitutes and appoints James C. Castle and
Douglas L. Shurtleff, and each of them, their true and lawful attorneys-in-fact
and agents, with full power of substitution, each with power to act alone, to
sign and execute on behalf of the undersigned any amendment or amendments to
this report and to file the same, with exhibits thereto, and other documents in
connection therewith, and to perform any acts necessary in order to file such
amendment or amendments, exhibits and documents with the Securities and Exchange
Commission, and each of the undersigned does hereby ratify and confirm all that
said attorneys-in-fact and agents, or their or his substitutes, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
Chief Executive Officer and
/s/ JAMES C. CASTLE Chairman of the Board of
------------------------------------ Directors (Principal March 21, 1997
James C. Castle Executive Officer)
/s/ GEORGE L. ARGYROS, SR.
------------------------------------ Director March 21, 1997
George L. Argyros, Sr.
/s/ GEORGE M. CRANDELL, JR.
------------------------------------ Director March 21, 1997
George M. Crandell, Jr.
/s/ CHARLES D. MARTIN
------------------------------------ Director March 21, 1997
Charles D. Martin
/s/ MICHAEL F. MCGRAIL
------------------------------------ Director March 21, 1997
Michael F. McGrail
/s/ LARRY W. WANGBERG
------------------------------------ Director March 21, 1997
Larry W. Wangberg
</TABLE>
44
<PAGE>
<TABLE>
<C> <S> <C>
Senior Vice-President of
/s/ DOUGLAS L. SHURTLEFF Finance and Chief Financial
------------------------------------ Officer (Principal Financial March 21, 1997
Douglas L. Shurtleff Officer)
Controller and Chief
/s/ ZAIDA A. KLEIN Accounting Officer
------------------------------------ (Principal Accounting March 21, 1997
Zaida A. Klein Officer)
</TABLE>
45
<PAGE>
EXHIBIT 3.1
TO FORM 10-K FOR 1996 USCS INTERNATIONAL, INC.
SECOND 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 First Amended and Restated Certificate of Incorporation of USCS
International, Inc. was adopted by the Board of Directors and the sole
shareholder of USCS International, Inc. on April 18, 1996; and
WHEREAS, the First Amended and Restated Certificate of Incorporation of USCS
International, Inc. provided for an automatic stock split, conversion of
Non-Voting Common to Voting Common and the elimination of the Non-Voting Common
class of stock upon an initial public offering of the stock of USCS
International, which initial public offering took place on June 21, 1996; and
WHEREAS, on March 5, 1997, the Board of Directors and holders of the majority of
shares of USCS International, Inc. entitled to vote decided it is in the best
interests of the company to amend and restate the Certificate of Incorporation
to delete references to the events which have already automatically taken place
because of the happening of the initial public offering and to thereby more
clearly state the current capital structure of the company;
NOW, THEREFORE, the Second 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 fifty million
(50,000,000). The number of shares of Common Stock authorized to be issued is
forty million (40,000,000), 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
1
<PAGE>
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.
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 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
2
<PAGE>
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
SECOND 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 March 5, 1997 at which all Board
members were present, the Second 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 Second Amended and Restated Certificate of
Incorporation of USCS International, Inc. was duly approved by a majority of the
shares of the corporation entitled to vote thereon on March 5, 1997.
We declare under penalty of perjury that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: March 5, 1997
/James C. Castle/
------------------------------
James C. Castle
Chief Executive Officer
USCS INTERNATIONAL, INC.
/Mary G. Jordan/
------------------------------
Mary G. Jordan
Secretary
USCS INTERNATIONAL, INC.
4
<PAGE>
STOCKHOLDER CONSENT TO
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF USCS INTERNATIONAL, INC.
Pursuant to Section 228(a) of the Delaware General Corporation Law, the
undersigned stockholders, owning in the aggregate a majority of the issued and
outstanding stock of USCS International, Inc. (the "Company"), do hereby consent
to and ratify the adoption of the Second Amended and Restated Certificate of
Incorporation of the Company.
WESTAR CAPITAL
By: Westar Capital Associates, its General Partner
/Charles Martin/
Charles Martin, General Partner
3/5/97
USCS INTERNATIONAL EMPLOYEE STOCK OWNERSHIP PLAN
By: Imperial Trust Company, Trustee
/Charles Driscoll/
Charles Driscoll, Trust Officer
3/5/97
5
<PAGE>
EXHIBIT 10.1
TO 10-K FOR 1996 USCS INTERNATIONAL, INC.
AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION PLAN
AS OF MARCH 5, 1997
1. PURPOSES OF THE PLAN.
This 1988 Stock Option Plan is designed to enable executives and other key
managers of USCS International, Inc., a Delaware corporation, and its
wholly-owned Subsidiaries to acquire or increase a proprietary interest in
the Company and thus to share in the future success of the Company's
business. The Plan is intended as a further means of attracting and
retaining outstanding management personnel. Since the executives and
managers eligible to receive Options under the Plan will be those
5
<PAGE>
who are in positions to make important and direct contributions to the
success of the Company, the directors believe that the grant of Options
under the Plan will be in the Company's interest. Options granted
hereunder may be either Incentive Stock Options or Nonstatutory Stock
Options at the discretion of the Committee.
2. DEFINITIONS.
As used herein, and in any Option granted hereunder, the following
definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean USCS International, Inc., a Delaware corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board
does not appoint or ceases to maintain a Committee, the term
"Committee" shall refer to the Board.
(f) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or
termination of service as an Employee or Non-Employee Director by the
Company or any Subsidiary. Continuous Employment shall not be
considered interrupted during any period of sick leave, military leave
or any other leave of absence approved by the Board or in the case of
transfers between locations of the Company or between the Company and
any Parent, Subsidiary or successor of the Company.
(g) "DISINTERESTED PERSON" shall mean a person who has not at any time
within one year prior to service as a member of the Committee (or
during such service) been granted or awarded Options or other equity
securities pursuant to the Plan or any other plan of the Company or
any Parent or Subsidiary. Notwithstanding the foregoing, a member of
the Committee 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) promulgated under the Exchange Act.
(h) "EMPLOYEE" shall mean any person, including officers (whether or not
they are directors), employed by the Company or any Subsidiary.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan
and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
(k) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the
Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(l) "OPTION" shall mean a stock option granted pursuant to the Plan.
(m) "OPTION AGREEMENT" shall mean 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 Committee pursuant to the Plan.
(n) "OPTIONED SHARES" shall mean the Common Stock subject to an Option.
(o) "OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
(p) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(q) "PLAN" shall mean this 1988 Stock Option Plan.
(r) "REGISTRATION DATE" shall mean June 21, 1996, the effective date of
the first registration statement filed by the Company pursuant to
Section 12(g) of the Exchange Act with respect to any class of the
Company's equity securities.
(s) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(t) "SHARE" shall mean a share of the Common Stock subject to an Option,
as adjusted in accordance with Section 11 of the Plan.
(u) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK 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 945,000
Shares. The Shares may be authorized but unissued or reacquired shares of
Common Stock. If an Option expires or becomes unexercisable for any reason
without having been exercised in full, the Shares which were subject to the
Option but as to
6
<PAGE>
which the Option was not exercised shall, unless the Plan shall have been
terminated, become available for other Option grants under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE AFTER REGISTRATION DATE. The Plan shall be administered
either by: (i) the full Board, provided that all members of the Board
are Disinterested Persons; or (ii) a Committee of three (3) or more
directors, each of whom is a Disinterested Person. 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 13 of the Plan, and said regulations.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii)
to determine the exercise price of Options to be granted, the
Employees, Directors or consultants to whom and the time or times at
which Options shall be granted, and the number of Shares to be
represented by each Option; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to determine the terms and provisions of each Option granted
under the Plan (which need not be identical) and, with the consent of
the holder thereof, to modify or amend any Option; (vi) 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
Committee; (vii) defer an exercise date of any Option (with the
consent of the Optionee), subject to the provisions of Section 9(a) of
the Plan; (viii) to determine whether Options granted under the Plan
will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to
make all other determinations deemed necessary or advisable for the
administration of the Plan; and (x) to designate which Options granted
under the Plan will be issued in reliance on Rule 701.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options may be granted under the Plan to
key executives and managers who are Employees of the Company. All
determinations by the Compensation Committee of the persons to whom
Options shall be granted hereunder shall be conclusive. An Employee
who has been granted an Option, if he or she is otherwise eligible,
may be granted an additional Option or Options. However, the
aggregate fair market value (determined in accordance with the
provisions of Section 8(a) of the Plan) of the Shares subject to one
or more Incentive Stock Options grants that are exercisable for the
first time by an Optionee during any calendar year (under all stock
option plans of the Company and its Parents and Subsidiaries) shall
not exceed $100,000 (determined as of the grant date); all grants in
excess of the $100,000 limit shall be designated as Nonstatutory Stock
Option.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. 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 employment or other
service with the Company or any Subsidiary, nor shall the Plan
interfere in any way with the right of the Optionee or the right of
the Company (or any Parent or Subsidiary) to terminate such employment
or service at any time.
6. TERM OF PLAN.
The Plan shall become effective as of July 1, 1988 and subject to
Section 13 hereof, shall extend for a term of ten (10) years from that
date pursuant to approval of the Plan granted by the holders of a
majority of the outstanding Shares at the annual meeting of
Shareholders of the Company held May 6, 1988.
7. TERM OF OPTION.
7
<PAGE>
Unless the Committee determines otherwise, the term of each Option
granted under the Plan shall be ten (10) years from the date of grant.
The term of the Option shall be set forth in the Option Agreement. No
Incentive Stock Option shall be exercisable after the expiration of
ten (10) years from the date such Option is granted; provided that, no
Incentive Stock Option granted to any Employee who, at the date such
Option is granted, owns (within the meaning of Section 425(d) of the
Code) more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary
shall be exercisable after the expiration of five (5) years from the
date such Option is granted.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. Except as provided in subsection (b) below, the
exercise price for the Shares to be issued pursuant to any Option
shall be such price as is determined by the Committee, which shall in
no event be less than, in the case of Incentive Stock Options, the
fair market value of such Shares on the date the Option is granted,
PROVIDED THAT, in the case of any Optionee owning stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the
Company, the exercise price shall be 110% of fair market value on the
date the Incentive Stock Option is granted. Fair market value of the
Common Stock shall be determined by the Committee, using such criteria
as it deems relevant; provided, however, that for such time as 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) TEN PERCENT STOCKHOLDERS. No Option shall be granted to any Employee
who, at the date such Option is granted, owns (within the meaning of
Section 424(d) of the Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, unless the exercise price for the Shares to be
issued pursuant to such Option is at least equal to 110 percent (110%)
of the fair market value of such Shares on the grant date determined
by the Committee in the manner set forth in subsection (a) above.
(c) CONSIDERATION. The consideration to be paid for the Optioned Shares
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 or such other consideration and method of payment for the
issuance of Optioned Shares as is authorized by the Committee 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.
(a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at
such times and under such conditions as determined by the Committee
and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option. Options
granted under the Plan shall vest at a rate of at least twenty percent
(20%) per year.
(b) EXERCISE PROCEDURES. 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 agreement evidencing the
Option, and full payment for the Shares with respect to which the
Option is exercised has been received by the Company.
An Option may not be exercised for fractional shares. As soon as
practicable following the 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. After the Registration Date, the exercise of an Option by
any person subject to short-swing trading liability under Section
16(b) of the
8
<PAGE>
Exchange Act shall be subject to compliance with all applicable
requirements of Rule 16b-3(d) or (e) promulgated under the Exchange
Act.
(c) DEATH OF OPTIONEE. In the event of the death during the Option period
of an Optionee who is at the time of his death, or was within the
ninety (90)-day period immediately prior thereto, an Employee or
Non-Employee Director, and who was in Continuous Employment as such
from the date of the grant of the Option until the date of death or
termination, the Option may be exercised, at any time prior to the
expiration of the Option period, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the accrued right to exercise
at the time of the termination or death, whichever comes first.
(d) DISABILITY OF OPTIONEE. In the event of the disability during the
Option period of an Optionee who is at the time of such disability, or
was within the ninety (90)-day period prior thereto, an Employee or
Non-Employee Director, and who was in Continuous Employment as such
from the date of the grant of the Option until the date of disability
or termination, the Option may be exercised at any time within one (1)
year following the date of disability, but only to the extent of the
accrued right to exercise at the time of the termination or
disability, whichever comes first, subject to the condition that no
option shall be exercised after the expiration of the Option period.
(e) TERMINATION OF STATUS AS EMPLOYEE. If an Optionee shall cease to be
an Employee for any reason other than disability or death, , the
Optionee may, but only within ninety (90) days (or such other period
of time as is determined by the Committee) after the date he or she
ceases to be an Employee, exercise his or her Option to the extent
that he or she was entitled to exercise it at the date of such
termination, subject to the condition that no option shall be
exercisable after the expiration of the Option period.
(f) EXERCISE OF OPTION WITH STOCK AFTER REGISTRATION DATE. After the
Registration Date, the Committee 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 exercise 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 exercise 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 Committee, 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.
(g) TAX WITHHOLDING. After the Registration Date, 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 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.
9
<PAGE>
Any withholding of Optioned Shares with respect to taxes arising in
connection with the exercise of an Option by any person subject to
short-swing trading liability under Section 16(b) of the Exchange Act
shall satisfy the following conditions:
(i) An advance election to withhold Optioned Shares in settlement of a tax
liability must satisfy the requirements of Rule 16b-3(d)(1)(i),
regarding participant-directed transactions;
(ii) Absent such an election, the withholding of Optioned Shares to settle
a tax liability may occur only during the quarterly window period
described in Rule 16b-3(e);
(iii)Absent an advance election or window-period withholding, the Optionee
may deliver shares of Common Stock owned prior to the exercise of an
Option to settle a tax liability arising upon exercise of the Option,
in accordance with Rule 16b-3(f); or
(iv) The delivery of previously acquired shares of Common Stock (but not
the withholding of newly acquired Shares) will be allowed where an
election under Section 83(b) of the Code accelerates the Tax Date to a
day that occurs less than six (6) months after the advance election
and is not within the quarterly window period described in
Rule 16b-3(e).
Any adverse consequences incurred by an Optionee with respect to the
use of shares of Common Stock to pay any part of the exercise price or
of any tax in connection with the exercise of an Option, including
without limitation any adverse tax consequences arising as a result of
a disqualifying disposition within the meaning of Section 422 of the
Code shall be the sole responsibility of the Optionee. 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 or
the rules thereunder, and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITAL-IZATION.
Subject to any required action by the stockholders of the Company, the
number of Optioned Shares covered by each outstanding Option, and the per
share exercise price of 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.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number or class of
securities covered by any Option, as well as the price to be paid therefor,
in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of
shares of its outstanding Common Stock, and in the event of the Company
being consolidated with or merged into any other corporation.
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 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
10
<PAGE>
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. TIME OF GRANTING OPTIONS.
Unless otherwise specified by the Committee, the date of grant of an Option
under the Plan shall be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a reasonable
time after the date of such grant.
13. 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 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.
14. 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
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.
15. 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. Inability of the Company to obtain from any
regulatory body having jurisdiction and authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
16. INFORMATION TO OPTIONEE.
During the term of any Option granted under the Plan, the Company shall
provide or otherwise make available to each Optionee a copy of its
financial statements at least annually.
17. OPTION AGREEMENT.
Options granted under the Plan shall be evidenced by Option Agreements.
18. 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 within twelve (12) months before or after the Plan is
adopted. Any option exercised before stockholder approval is obtained must
be rescinded if stockholder approval is not obtained within twelve (12)
months before or after the Plan is adopted. Shares issued upon the
exercise of such options shall not be counted in determining whether such
11
<PAGE>
approval is obtained. Any amendments to the Plan which require stockholder
approval shall be by the affirmative vote of the holders of a majority of
the outstanding capital stock of the Company entitled to vote.
--end of plan--
12
<PAGE>
EXHIBIT 10.3
TO 10-K FOR 1996 USCS INTERNATIONAL, INC.
AMENDED AND RESTATED 1993 INCENTIVE STOCK OPTION PLAN
AS OF MARCH 5, 1997
1. PURPOSES OF THE PLAN.
The purposes of this Stock Option Plan are to reward outstanding
performance and contribution, to provide a means for sharing in the
Company's value growth, and to promote long-term commitment to the Company.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options at the discretion of the Committee.
2. DEFINITIONS.
As used herein, and in any Option granted hereunder, the following
definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean USCS International, Inc., a Delaware corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board
does not appoint or ceases to maintain a Committee, the term
"Committee" shall refer to the Board.
(f) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or
termination of service as an Employee by the Company or any
Subsidiary. Continuous Employment shall not be considered interrupted
during any period of sick leave, military leave or any other leave of
absence approved by the Board or in the case of transfers between
locations of the Company or between the Company and any Parent,
Subsidiary or successor of the Company.
(g) "DISINTERESTED PERSON" shall mean a person who has not at any time
within one year prior to service as a member of the Committee (or
during such service) been granted or awarded Options or other equity
securities pursuant to the Plan or any other plan of the Company or
any Parent or Subsidiary. Notwithstanding the foregoing, a member of
the Committee 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) promulgated under the Exchange Act.
(h) "EMPLOYEE" shall mean a person employed by the Company or any
Subsidiary.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan
and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
12
<PAGE>
(k) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the
Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(l) "OPTION" shall mean a stock option granted pursuant to the Plan.
(m) "OPTION AGREEMENT" shall mean 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 Committee pursuant to the Plan.
(n) "OPTIONED SHARES" shall mean the Common Stock subject to an Option.
(o) "OPTIONEE" shall mean an Employee at the level of vice president or
above who receives an Option.
(p) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(q) "PLAN" shall mean this 1993 Stock Option Plan.
(r) "REGISTRATION DATE" shall mean June 21, 1996, the effective date of
the first registration statement filed by the Company pursuant to
Section 12(g) of the Exchange Act with respect to any class of the
Company's equity securities.
(s) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(t) "SHARE" shall mean a share of the Common Stock subject to an Option,
as adjusted in accordance with Section 11 of the Plan.
(u) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 11 of the Plan, The number of Shares
under this Plan shall be, and shall not exceed, an aggregate of 1,260,000
shares of Common voting stock of USCS International, Inc. The Shares may be
authorized but unissued or reacquired shares of Common Stock. If an Option
expires or becomes unexercisable for any reason without having been
exercised in full, the Shares which were subject to the Option but as to
which the Option was not exercised shall, unless the Plan shall have been
terminated, become available for other Option grants under the Plan.
The Company intends that as long as it is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act and is not an
investment company registered or required to be registered under the
Investment Company Act of 1940, all offers and sales of Options and Shares
issuable upon exercise of any Option shall be exempt from registration
under the provisions of Section 5 of the Securities Act, and the Plan shall
be administered in such a manner so as to preserve such exemption. The
Company intends that the Plan shall constitute a written compensatory
benefit plan within the meaning of Rule 701(b) of 17 CFR Section 230.701
promulgated by the Securities and Exchange Commission pursuant to such Act.
The Committee shall designate which Options granted under the Plan by the
Company are intended to be granted in reliance on Rule 701.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The Board
may appoint a Committee consisting of not less than three (3) members
of the Board to administer the Plan, subject to such terms and
conditions as the Board may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee
and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for Options
or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of Options pursuant to the
Plan, except that no such member shall act upon the granting of an
Option to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board or the Committee
during which action is taken with respect to the granting of an Option
to him or her.
13
<PAGE>
The Committee shall meet at such times and places and upon such notice
as the Chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the Committee may be taken at any
meeting at which a quorum is present and shall be by majority vote of
those members entitled to vote. Additionally, any acts reduced to
writing or approved in writing by all of the members of the Committee
shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding subsection (a)
above, after the date of registration of the Company's Common Stock on
a national securities exchange or the Registration Date, the Plan
shall be administered either by: (i) the full Board, provided that all
members of the Board are Disinterested Persons; or (ii) a Committee of
three (3) or more directors, each of whom is a Disinterested Person.
After such date, 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 13 of the
Plan, and said regulations.
(c) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii)
to determine the exercise price of Options to be granted, the persons
to whom and the time or times at which Options shall be granted, and
the number of Shares to be represented by each Option; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and
regulations relating to the Plan; (v) to determine the terms and
provisions of each Option granted under the Plan (which need not be
identical) and, with the consent of the holder thereof, to modify or
amend any Option; (vi) 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 Committee; (vii) defer an exercise
date of any Option (with the consent of the Optionee), subject to the
provisions of Section 9(a) of the Plan; (viii) to determine whether
Options granted under the Plan will be Incentive Stock Options or
Nonstatutory Stock Options; (ix) to make all other determinations
deemed necessary or advisable for the administration of the Plan; and
(x) to designate which Options granted under the Plan will be issued
in reliance on Rule 701.
(d) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted
only to Employees who are vice presidents or above of the Company or
any Subsidiary whom the Committee, in its sole discretion, may
designate from time to time. An Employee who has been granted an
Option, if he or she is otherwise eligible, may be granted an
additional Option or Options. However, the aggregate fair market
value (determined in accordance with the provisions of Section 8(a) of
the Plan) of the Shares subject to one or more Incentive Stock Options
grants that are exercisable for the first time by an Optionee during
any calendar year (under all stock option plans of the Company and its
Parents and Subsidiaries) shall not exceed $100,000 (determined as of
the grant date); all grants in excess of the $100,000 limit are
designated as Nonstatutory Stock Option.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. 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 employment or other
service with the Company or any Subsidiary, nor shall the Plan
interfere in any way with the right of the Optionee or the right of
the Company (or any Parent or Subsidiary) to terminate such employment
or service at any time.
6. TERM OF PLAN.
The Plan shall become effective upon its adoption by the Board or its
approval by vote of the holders of the outstanding shares of the Company
entitled to vote on the adoption of the Plan (in accordance with the
provisions of Section 18 hereof), whichever is earlier. It shall continue
in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
14
<PAGE>
7. TERM OF OPTION.
Unless the Committee determines otherwise, the term of each Option granted
under the Plan shall be ten (10) years from the date of grant. The term of
the Option shall be set forth in the Option Agreement. No Incentive Stock
Option shall be exercisable after the expiration of ten (10) years from the
date such Option is granted; provided that, no Incentive Stock Option
granted to any Employee who, at the date such Option is granted, owns
(within the meaning of Section 425(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary shall be exercisable after the
expiration of five (5) years from the date such Option is granted.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. Except as provided in subsection (b) below, the
exercise price for the Shares to be issued pursuant to any Option
shall be such price as is determined by the Committee, which shall in
no event be less than, in the case of Incentive Stock Options, the
fair market value of such Shares on the date the Option is granted,
PROVIDED THAT, in the case of any Optionee owning stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the
Company, the exercise price shall be 110% of fair market value on the
date the Incentive Stock Option is granted. Fair market value of the
Common Stock shall be determined by the Committee, 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) TEN PERCENT STOCKHOLDERS. No Option shall be granted to any Employee
who, at the date such Option is granted, owns (within the meaning of
Section 424(d) of the Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, unless the exercise price for the Shares to be
issued pursuant to such Option is at least equal to 110 percent (110%)
of the fair market value of such Shares on the grant date determined
by the Committee in the manner set forth in subsection (a) above.
(c) CONSIDERATION. The consideration to be paid for the Optioned Shares
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 or such other consideration and method of payment for the
issuance of Optioned Shares as is authorized by the Committee 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.
(a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at
such times and under such conditions as determined by the Committee
and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option. Options
granted under the Plan shall vest at a rate of at least twenty percent
(20%) per year.
(b) EXERCISE PROCEDURES. 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 agreement evidencing the
Option, and full payment for the Shares with respect to which the
Option is exercised has been received by the Company.
An Option may not be exercised for fractional shares. As soon as
practicable following the 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
15
<PAGE>
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. After the Registration Date, the exercise of an Option by any
person subject to short-swing trading liability under Section 16(b) of
the Exchange Act shall be subject to compliance with all applicable
requirements of Rule 16b-3(d) or (e) promulgated under the Exchange
Act.
(c) DEATH OF OPTIONEE. In the event of the death during the Option period
of an Optionee who is at the time of his death, or was within the
ninety (90)-day period immediately prior thereto, an Employee, and who
was in Continuous Employment as such from the date of the grant of the
Option until the date of death or termination, the Option may be
exercised, at any time prior to the expiration of the Option period,
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent
of the accrued right to exercise at the time of the termination or
death, whichever comes first.
(d) DISABILITY OF OPTIONEE. In the event of the disability during the
Option period of an Optionee who is at the time of such disability, or
was within the ninety (90)-day period prior thereto, an Employee, and
who was in Continuous Employment as such from the date of the grant of
the Option until the date of disability or termination, the Option may
be exercised at any time within one (1) year following the date of
disability, but only to the extent of the accrued right to exercise at
the time of the termination or disability, whichever comes first,
subject to the condition that no option shall be exercised after the
expiration of the Option period.
(e) TERMINATION OF STATUS AS EMPLOYEE. If an Optionee shall cease to be
an Employee for any reason other than disability or death, the
Optionee may, but only within ninety (90) days (or such other period
of time as is determined by the Committee) after the date he or she
ceases to be an Employee, exercise his or her Option to the extent
that he or she was entitled to exercise it at the date of such
termination, subject to the condition that no option shall be
exercisable after the expiration of the Option period. Upon such
exercise and if so provided in the Restricted Stock Transfer
Agreement, the Company may, but only within ninety (90) days (or such
other period of time as is determined by the Committee) after the date
of such exercise, repurchase from the Optionee the Optionee's Option
Shares at the higher of the original purchase price for the Option
Shares or fair market value (as determined by the Company's Board of
Directors) of the Option Shares on the date of termination of
employment. The right to repurchase shall be exercisable for cash or
cancellation of purchase money indebtedness.
(f) EXERCISE OF OPTION WITH STOCK AFTER REGISTRATION DATE. After the
Registration Date, the Committee 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 exercise 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 exercise 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 Committee, 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.
(g) TAX WITHHOLDING. After the Registration Date, 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
16
<PAGE>
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 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 by any person subject to
short-swing trading liability under Section 16(b) of the Exchange Act
shall satisfy the following conditions:
(i) An advance election to withhold Optioned Shares in settlement of a tax
liability must satisfy the requirements of Rule 16b-3(d)(1)(i),
regarding participant-directed transactions;
(ii) Absent such an election, the withholding of Optioned Shares to settle
a tax liability may occur only during the quarterly window period
described in Rule 16b-3(e);
(iii)Absent an advance election or window-period withholding, the Optionee
may deliver shares of Common Stock owned prior to the exercise of an
Option to settle a tax liability arising upon exercise of the Option,
in accordance with Rule 16b-3(f); or
(iv) The delivery of previously acquired shares of Common Stock (but not
the withholding of newly acquired Shares) will be allowed where an
election under Section 83(b) of the Code accelerates the Tax Date to a
day that occurs less than six (6) months after the advance election
and is not within the quarterly window period described in
Rule 16b-3(e).
Any adverse consequences incurred by an Optionee with respect to the
use of shares of Common Stock to pay any part of the exercise price or
of any tax in connection with the exercise of an Option, including
without limitation any adverse tax consequences arising as a result of
a disqualifying disposition within the meaning of Section 422 of the
Code shall be the sole responsibility of the Optionee. 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 or
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 Optioned Shares covered by each outstanding Option, and the per
share exercise price of 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.
17
<PAGE>
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number or class of
securities covered by any Option, as well as the price to be paid therefor,
in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of
shares of its outstanding Common Stock, and in the event of the Company
being consolidated with or merged into any other corporation.
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 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. TIME OF GRANTING OPTIONS.
Unless otherwise specified by the Committee, the date of grant of an Option
under the Plan shall be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a reasonable
time after the date of such grant.
13. 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 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.
14. 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
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.
15. 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. Inability of the Company to obtain from any
regulatory body having jurisdiction and authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
16. INFORMATION TO OPTIONEE.
18
<PAGE>
During the term of any Option granted under the Plan, the Company shall
provide or otherwise make available to each Optionee a copy of its
financial statements at least annually.
17. OPTION AGREEMENT.
Options granted under the Plan shall be evidenced by Option Agreements.
18. 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 within twelve (12) months before or after the Plan is
adopted. Any option exercised before stockholder approval is obtained must
be rescinded if stockholder approval is not obtained within twelve (12)
months before or after the Plan is adopted. Shares issued upon the
exercise of such options shall not be counted in determining whether such
approval is obtained. Any amendments to the Plan which require stockholder
approval shall be by the affirmative vote of the holders of a majority of
the outstanding capital stock of the Company entitled to vote.
--end of plan--
19
<PAGE>
EXHIBIT 10.11
TO 10-K FOR 1996 USCS INTERNATIONAL, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
AS OF MARCH 5, 1997
1. PURPOSES OF THE PLAN.
The purposes of this Stock Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to Employees, and to promote the success of the
Company's business. Options granted hereunder may be either Incentive
Stock Options or Nonstatutory Stock Options at the discretion of the
Committee.
2. DEFINITIONS.
As used herein, and in any Option granted hereunder, the following
definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean USCS International, Inc., a Delaware corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board
does not appoint or ceases to maintain a Committee, the term
"Committee" shall refer to the Board.
19
<PAGE>
(f) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or
termination of service as an Employee or Non-Employee Director by the
Company or any Subsidiary. Continuous Employment shall not be
considered interrupted during any period of sick leave, military leave
or any other leave of absence approved by the Board or in the case of
transfers between locations of the Company or between the Company and
any Parent, Subsidiary or successor of the Company.
(g) "DISINTERESTED PERSON" shall mean a person who has not at any time
within one year prior to service as a member of the Committee (or
during such service) been granted or awarded Options or other equity
securities pursuant to the Plan or any other plan of the Company or
any Parent or Subsidiary. Notwithstanding the foregoing, a member of
the Committee 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) promulgated under the Exchange Act.
(h) "EMPLOYEE" shall mean any person, including officers (whether or not
they are directors), employed by the Company or any Subsidiary.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan
and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
(k) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the
Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(l) "OPTION" shall mean a stock option granted pursuant to the Plan.
(m) "OPTION AGREEMENT" shall mean 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 Committee pursuant to the Plan.
(n) "OPTIONED SHARES" shall mean the Common Stock subject to an Option.
(o) "OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
(p) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(q) "PLAN" shall mean this 1990 Stock Option Plan.
(r) "REGISTRATION DATE" shall mean June 21, 1996, the effective date of
the first registration statement filed by the Company pursuant to
Section 12(g) of the Exchange Act with respect to any class of the
Company's equity securities.
(s) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(t) "SHARE" shall mean a share of the Common Stock subject to an Option,
as adjusted in accordance with Section 11 of the Plan.
(u) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK 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 1,039,500
Shares. The Shares may be authorized but unissued or reacquired shares of
Common Stock. If an Option expires or becomes unexercisable for any reason
without having been exercised in full, the Shares which were subject to the
Option but as to which the Option was not exercised shall, unless the Plan
shall have been terminated, become available for other Option grants under
the Plan.
The Company intends that as long as it is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act and is not an
investment company registered or required to be registered under the
Investment Company Act of 1940, all offers and sales of Options and Shares
issuable upon exercise of any Option shall be exempt from registration
under the
20
<PAGE>
provisions of Section 5 of the Securities Act, and the Plan shall be
administered in such a manner so as to preserve such exemption. The
Company intends that the Plan shall constitute a written compensatory
benefit plan within the meaning of Rule 701(b) of 17 CFR Section 230.701
promulgated by the Securities and Exchange Commission pursuant to such Act.
The Committee shall designate which Options granted under the Plan by the
Company are intended to be granted in reliance on Rule 701.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The Board
may appoint a Committee consisting of not less than three (3) members
of the Board to administer the Plan, subject to such terms and
conditions as the Board may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee
and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for Options
or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of Options pursuant to the
Plan, except that no such member shall act upon the granting of an
Option to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board or the Committee
during which action is taken with respect to the granting of an Option
to him or her.
The Committee shall meet at such times and places and upon such notice
as the Chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the Committee may be taken at any
meeting at which a quorum is present and shall be by majority vote of
those members entitled to vote. Additionally, any acts reduced to
writing or approved in writing by all of the members of the Committee
shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwith-standing subsection (a)
above, after the date of registration of the Company's Common Stock on
a national securities exchange or the Registration Date, the Plan
shall be administered either by: (i) the full Board, provided that all
members of the Board are Disinterested Persons; or (ii) a Committee of
three (3) or more directors, each of whom is a Disinterested Person.
After such date, 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 13 of the
Plan, and said regulations.
(c) POWERS OF THE COMMITTEE. Subject to the provis-ions of the Plan, the
Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii)
to determine the exercise price of Options to be granted, the
Employees, Directors or consultants to whom and the time or times at
which Options shall be granted, and the number of Shares to be
represented by each Option; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to determine the terms and provisions of each Option granted
under the Plan (which need not be identical) and, with the consent of
the holder thereof, to modify or amend any Option; (vi) 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
Committee; (vii) defer an exercise date of any Option (with the
consent of the Optionee), subject to the provisions of Section 9(a) of
the Plan; (viii) to determine whether Options
21
<PAGE>
granted under the Plan will be Incentive Stock Options or Nonstatutory
Stock Options; (ix) to make all other determinations deemed necessary
or advisable for the administration of the Plan; and (x) to designate
which Options granted under the Plan will be issued in reliance on
Rule 701.
(d) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted
only to Employees whom the Committee, in its sole discretion, may
designate from time to time. An Employee who has been granted an
Option, if he or she is otherwise eligible, may be granted an
additional Option or Options. However, the aggregate fair market
value (determined in accordance with the provisions of Section 8(a) of
the Plan) of the Shares subject to one or more Incentive Stock Options
grants that are exercisable for the first time by an Optionee during
any calendar year (under all stock option plans of the Company and its
Parents and Subsidiaries) shall not exceed $100,000 (determined as of
the grant date) ); all grants in excess of the $100,000 limit are
designated as Nonstatutory Stock Option.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. 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 employment or other
service with the Company or any Subsidiary, nor shall the Plan
interfere in any way with the right of the Optionee or the right of
the Company (or any Parent or Subsidiary) to terminate such employment
or service at any time.
6. TERM OF PLAN.
The Plan shall become effective upon its adoption by the Board or its
approval by vote of the holders of the outstanding shares of the
Company entitled to vote on the adoption of the Plan (in accordance
with the provisions of Section 18 hereof), whichever is earlier. It
shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.
7. TERM OF OPTION.
Unless the Committee determines otherwise, the term of each Option granted
under the Plan shall be ten (10) years from the date of grant. The term of
the Option shall be set forth in the Option Agreement. No Incentive Stock
Option shall be exercisable after the expiration of ten (10) years from the
date such Option is granted; provided that, no Incentive Stock Option
granted to any Employee who, at the date such Option is granted, owns
(within the meaning of Section 425(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary shall be exercisable after the
expiration of five (5) years from the date such Option is granted.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. Except as provided in subsection (b) below, the
exercise price for the Shares to be issued pursuant to any Option
shall be such price as is determined by the Committee, which shall in
no event be less than, in the case of Incentive Stock Options,
22
<PAGE>
the fair market value of such Shares on the date the Option is
granted, PROVIDED THAT, in the case of any Optionee owning stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or
Subsidiary of the Company, the exercise price shall be 110% of fair
market value on the date the Incentive Stock Option is granted. Fair
market value of the Common Stock shall be determined by the Committee,
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) TEN PERCENT STOCKHOLDERS. No Option shall be granted to any Employee
who, at the date such Option is granted, owns (within the meaning of
Section 424(d) of the Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, unless the exercise price for the Shares to be
issued pursuant to such Option is at least equal to 110 percent (110%)
of the fair market value of such Shares on the grant date determined
by the Committee in the manner set forth in subsection (a) above.
(c) CONSIDERATION. The consideration to be paid for the Optioned Shares
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 or such other consideration and method of payment for the
issuance of Optioned Shares as is authorized by the Committee 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.
(a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at
such times and under such conditions as determined by the Committee
and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option. Options
granted under the Plan shall vest at a rate of at least twenty percent
(20%) per year.
(b) EXERCISE PROCEDURES. 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 agreement evidencing the
Option, and full payment for the Shares with respect to which the
Option is exercised has been received by the Company.
An Option may not be exercised for fractional shares. As soon as
practicable following the 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. After the Registration Date, the exercise of an Option by
any person subject to short-swing trading liability under Section
16(b) of the Exchange Act
23
<PAGE>
shall be subject to compliance with all applicable requirements of
Rule 16b-3(d) or (e) promulgated under the Exchange Act.
(c) DEATH OF OPTIONEE. In the event of the death during the Option period
of an Optionee who is at the time of his death, or was within the
ninety (90)-day period immediately prior thereto, an Employee or
Non-Employee Director, and who was in Continuous Employment as such
from the date of the grant of the Option until the date of death or
termination, the Option may be exercised, at any time prior to the
expiration of the Option period, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the accrued right to exercise
at the time of the termination or death, whichever comes first.
(d) DISABILITY OF OPTIONEE. In the event of the disability during the
Option period of an Optionee who is at the time of such disability, or
was within the ninety (90)-day period prior thereto, an Employee or
Non-Employee Director, and who was in Continuous Employment as such
from the date of the grant of the Option until the date of disability
or termination, the Option may be exercised at any time within one (1)
year following the date of disability, but only to the extent of the
accrued right to exercise at the time of the termination or
disability, whichever comes first, subject to the condition that no
option shall be exercised after the expiration of the Option period.
(e) TERMINATION OF STATUS AS EMPLOYEE. If an Optionee shall cease to be
an Employee for any reason other than disability or death, the
Optionee may, but only within ninety (90) days (or such other period
of time as is determined by the Committee) after the date he or she
ceases to be an Employee, exercise his or her Option to the extent
that he or she was entitled to exercise it at the date of such
termination, subject to the condition that no option shall be
exercisable after the expiration of the Option period. Upon such
exercise and if so provided in the Restricted Stock Transfer
Agreement, the Company may, but only within ninety (90) days (or such
other period of time as is determined by the Committee) after the date
of such exercise, repurchase from the Optionee the Optionee's Option
Shares at the higher of the original purchase price for the Option
Shares or fair market value (as determined by the Company's Board of
Directors) of the Option Shares on the date of termination of
employment. The right to repurchase shall be exercisable for cash or
cancellation of purchase money indebtedness.
(f) EXERCISE OF OPTION WITH STOCK AFTER REGISTRATION DATE. After the
Registration Date, the Committee 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 exercise 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 exercise 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 Committee, 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.
24
<PAGE>
(g) TAX WITHHOLDING. After the Registration Date, 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 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 by any person subject to
short-swing trading liability under Section 16(b) of the Exchange Act
shall satisfy the following conditions:
(i) An advance election to withhold Optioned Shares in settlement of a tax
liability must satisfy the requirements of Rule 16b-3(d)(1)(i),
regarding participant-directed transactions;
(ii) Absent such an election, the withholding of Optioned Shares to settle
a tax liability may occur only during the quarterly window period
described in Rule 16b-3(e);
(iii)Absent an advance election or window-period withholding, the Optionee
may deliver shares of Common Stock owned prior to the exercise of an
Option to settle a tax liability arising upon exercise of the Option,
in accordance with Rule 16b-3(f); or
(iv) The delivery of previously acquired shares of Common Stock (but not
the withholding of newly acquired Shares) will be allowed where an
election under Section 83(b) of the Code accelerates the Tax Date to a
day that occurs less than six (6) months after the advance election
and is not within the quarterly window period described in
Rule 16b-3(e).
Any adverse consequences incurred by an Optionee with respect to the
use of shares of Common Stock to pay any part of the exercise price or
of any tax in connection with the exercise of an Option, including
without limitation any adverse tax consequences arising as a result of
a disqualifying disposition within the meaning of Section 422 of the
Code shall be the sole responsibility of the Optionee. 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 or
the rules thereunder, and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
25
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the stockholders of the Company, the
number of Optioned Shares covered by each outstanding Option, and the per
share exercise price of 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.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number or class of
securities covered by any Option, as well as the price to be paid therefor,
in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of
shares of its outstanding Common Stock, and in the event of the Company
being consolidated with or merged into any other corporation.
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 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. TIME OF GRANTING OPTIONS.
Unless otherwise specified by the Committee, the date of grant of an Option
under the Plan shall be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a reasonable
time after the date of such grant.
13. 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 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.
14. CONDITIONS UPON ISSUANCE OF SHARES.
26
<PAGE>
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
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.
15. 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. Inability of the Company to obtain from any
regulatory body having jurisdiction and authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
16. INFORMATION TO OPTIONEE.
During the term of any Option granted under the Plan, the Company shall
provide or otherwise make available to each Optionee a copy of its
financial statements at least annually.
17. OPTION AGREEMENT.
Options granted under the Plan shall be evidenced by Option Agreements.
18. 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 within twelve (12) months before or after the Plan is
adopted. Any option exercised before stockholder approval is obtained must
be rescinded if stockholder approval is not obtained within twelve (12)
months before or after the Plan is adopted. Shares issued upon the
exercise of such options shall not be counted in determining whether such
approval is obtained. Any amendments to the Plan which require stockholder
approval shall be by the affirmative vote of the holders of a majority of
the outstanding capital stock of the Company entitled to vote.
--end of plan--
27
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
27
<PAGE>
EXHIBIT 10.31
TO 10-K FOR 1996 USCS INTERNATIONAL, INC.
STRATEGIC BUSINESS ALLIANCE AGREEMENT DATED FEBRUARY 28, 1997
BETWEEN THE REGISTRANT AND CBIS.
--------------------------------------------
STRATEGIC BUSINESS ALLIANCE AGREEMENT
INTERNATIONAL BILLING SERVICES, INC., a California corporation (hereinafter
called "IBS"), and CINCINNATI BELL INFORMATION SYSTEMS INC., an Ohio corporation
(hereinafter called "CBIS"), agree as follows:
This Agreement terminates and replaces in its entirety that Statement Production
Services Agreement dated October 9, 1990 between U.S. Computer Services
(predecessor in interest to IBS) and CBIS.
1. TERM OF AGREEMENT. The initial term of this Agreement shall be for five
(5) years commencing on the date of full execution. After the initial
term, this Agreement shall be automatically renewed for one two (2)-year
period unless either party hereto provides to the other written notice of
intent not to renew at least ninety (90) days prior to the expiration date
of the original term.
2. MARKETING RELATIONSHIP
2.1 MARKETING TO NON-CABLE CUSTOMERS IN THE COMMUNICATIONS MARKET.
2.1.1 IBS recognizes that CBIS considers rating, usage processing,
formatting and consolidation to be strategic parts of CBIS's services.
CBIS and IBS will work together to develop account development plans
and strategies that are mutually advantageous and meet customer needs.
One mutual strategy may include an interim or initial solution of bill
consolidation and formatting by IBS followed by a later implementation
of the long term bill consolidation solution by CBIS exclusively.
2.1.2 IBS' primary business is statement production services. IBS
considers CBIS its preferred partner for outsourced rating, usage
processing, formatting and consolidation of communications usage with
the target clients defined in Attachment D. CBIS and IBS will work
together to determine the most appropriate marketing strategy for
their respective services within these target clients.
2.1.3 CBIS and IBS will work together in the following manner to meet
their own strategic priorities and customers' bill consolidation
needs: (a) if a current CBIS/IBS customer requires bill
consolidation, CBIS/IBS will work together to determine the best
course of action; (b) if there is a new opportunity for both CBIS and
IBS, under the spirit of the agreement both parties should bid
together as first option but may agree to a different strategy. By
October 1, 1997, CBIS and IBS will (i) develop a mutually agreeable
plan relative to the international marketplace;
28
<PAGE>
(ii) develop a plan to market new products and services designed to
provide CBIS with unique market capabilities; and (iii) develop the
technical strategies and plans for bill consolidation.
29
<PAGE>
2.2 MARKETING TO CABLE CUSTOMERS
2.2.1 "Cable customers" are defined as those customers whose primary
business is cable TV and broadband services, but who may be providing
multiple services in addition to cable TV and broadband services.
2.2.2 As to Cable customers, IBS will take a neutral position
concerning CBIS and CableData with companies for whose business CBIS
and CableData compete
2.2.3 Each party will ensure all its employees and the employees of
its parent or affiliates do not disclose the terms of this
relationship. IBS will take positive actions to educate relevant USCS
and CableData employees of the importance of and grievous consequences
of breach of this provision. The parties both understand that
information on the existence of this relationship could come from a
variety of sources and that any customers or potential customers may
have obtained information from such other sources. If either party
believes the other has breached this provision, then within ninety
(90) days of the alleged breach, the aggrieved party may resort to
remedies pursuant to Paragraph 4.3. Upon adjudication in its favor in
arbitration that such disclosure was made with intent to disparage,
the aggrieved party may deem the breach to be incurable.
2.2.4 If required, IBS may develop a unique capability for CBIS'
exclusive use with cable industry customers, upon agreement as to
parameters and price. CBIS will have the ability to sell IBS'
statement processing services either bundled or unbundled with CBIS'
processing services.
2.3 DEDICATED MANAGERS. IBS will appoint a dedicated Account Manager, and
CBIS will appoint a dedicated Sales and Marketing Director to drive the
relationship. Through these representatives, the parties will work to
define operational roles and responsibilities, define target accounts and
target communications markets, prepare customer specific plans, define and
meet specific objectives, provide understanding of future strategies,
requirements, and education on services and define support and resources
for identified opportunities.
3. STATEMENT PRODUCTION SERVICES
3.1 DEFINITION AND PROCESS
3.1.1 SERVICES. Statement production services ("Services") are
detailed in Attachment A and include the following: Computer
Processing for statement production, Image Printing, Inserting,
Technical Support, Inventory Management, First Page Form, Additional
Page Form, Send Envelope, Remit Envelope, Flat Envelope, Variable
Depth Box, Programming, Image Based Microfiche, Microfiche Copies,
Forms Creation (Pre-printed), Forms Creation (Electronic), Creative
Design Services, Custom Reports, Hold, Halt/Restart/Abort, Insert
Handling,
30
<PAGE>
Storage, Invalid ZIP code & Foreign Mail, Pulled Statement, Held
Statement, Over 11oz. Statement, and Packaging
3.1.2 PROCESS. Statement production begins with the delivery of
data (as defined in 3.3.1) to IBS and concludes with IBS' distribution
of the final statement to the U.S. Postal Service.
3.2 PREFERRED PROVIDER
3.2.1 SERVICES. The parties agree that IBS will be the provider of
statement production Services for a minimum of 85 percent of CBIS's
statement production. If at any time CBIS falls below the 85 percent,
the parties will mutually agree to move the appropriate production
volume required to achieve the minimum to IBS as soon as operationally
possible, but not to exceed 180 days, unless IBS is unable to convert
the volumes within the 180 days. If the 85 percent is not achieved
within the 180 days (unless excused by IBS's inability to convert
within that time frame), then the remedies set forth in Paragraph 4.3
shall be invoked. The statement production volumes covered by this
paragraph will exclude any statement production that CBIS provides for
traditional cable TV and broadband services as defined in Paragraph
2.2, which statements shall not be counted toward the minimum 85
percent under the Agreement. Notwithstanding the foregoing, IBS and
CBIS shall not be precluded from working together to pursue such
business, as appropriate. There will be no charge for migration to IBS
of existing CBIS customers listed in Attachment F subject to and based
on an agreement of both parties on the format standards as set forth
in Paragraph 3.3.1 below.
3.2.2 PAPER STOCK. CBIS agrees that IBS will be the provider of
paper materials for all current CBIS customers for whom IBS or CBIS
presently provides paper and for all future CBIS customers covered by
this Agreement. All paper/materials provided by a customer covered by
this Agreement must conform to IBS specifications as defined by the
IBS Qspec process at the time the request for materials is made. The
Qspec process on the date of this Agreement is set forth in
Attachment H. These specifications will be reviewed with CBIS in order
to ensure compliance. If a specific customer cannot conform to these
specifications, then IBS will not be held responsible for turnaround
or quality issues associated with paper.
3.3 DELIVERY OF MATERIAL AND DATA FOR PROCESSING
3.3.1 DATA. CBIS will provide IBS with print or fixed format data to
be processed by IBS to provide Services. CBIS and IBS agree that data
will be provided by CBIS in standard format or formats jointly
agreeable to the parties. The parties will cooperatively undertake a
due diligence analysis regarding mutually beneficial standard format
or formats (eg., Xerox DJDE, IBS Standard AFP or as otherwise agreed
by the parties) and will determine the best strategies and resource
commitment by each party. Each party will provide a project manager
and a
31
<PAGE>
technical resource person to assess the format requirements for each
customer's application software. Based on the agreed-to plan, the
appropriate resources will be made available by each party to form a
team, including the project manager and technical resource person from
each party, to insure the timely implementation of that plan. Each
party will be responsible for its implementation costs associated with
the modification of its systems to conform to these standards. In the
future, if changes to the agreed-upon format are required on a
customer's behalf, each party will charge for its respective share of
these changes, as appropriate, wherever possible.
3.3.2 TESTING FOR NEW SYSTEMS. Testing of the systems necessary to
provide Services as set forth in Attachment A of this Agreement for
new systems will occur as mutually agreed. This will include
exercising all aspects of the Services package provided for in this
Agreement. Agreed-upon testing may include live production, which
will be billable.
3.3.3 FORMATS AND PROTOCOLS; CHANGES. IBS and CBIS will initially
agree upon statement, envelope, print file, and tape formats;
electronic data transmission protocol (if applicable); cutoff volumes
and statement cutoff dates. Once the format, protocol and cutoff
dates are agreed upon, changes must be by written notification to IBS
by CBIS and must adhere to the following schedule and conform to IBS'
then current Insert Ordering Guide (see Attachment G for a copy of the
Insert Ordering Guide in effect as of the date of this Agreement):
<TABLE>
<CAPTION>
<S> <C>
Forms Printing: Artwork approval 45 days prior to live use
Envelope Printing: Artwork approval 45 days prior to live use
Insert ("Stuffer") Printing: Artwork approval 21 days prior to live use
Electronic Forms: Format approval 5 days prior to live use for
New Forms; 15 days for revisions
Data or Print File Format: 90 days written notification
Tape Format: 90 days written notification
Data Transmission Protocol: Mutually agreed
Inserting Plan Setup: 5 days written notification
</TABLE>
Certain changes may involve custom programming charges which will be
quoted in advance. Changes involving a change of paper and/or
envelope stock which result in unused inventory of such stock are
subject to an unused stock fee as described in section 3.5.6.
Should CBIS request changes to specifications to be completed in less
time than the stated time schedule described above, then CBIS shall be
charged a rush charge. This rush charge is in addition to the quoted
prices in Attachment B and shall be quoted on a per order basis.
3.3.4 DELIVERY OF DATA. Delivery of the data or print file to the
IBS statement production facility will be via either tape, electronic
data line transmission, or other mutually agreed upon electronic
media. Delivery of tapes to IBS shall be at CBIS's expense. For
electronic data line transmission of statement production data, CBIS
and IBS shall share financial and operational responsibility for data
transmission from CBIS's current computer facilities (Lake Mary FL
and Cincinnati OH) to IBS' statement production facility in El
Dorado Hills. If CBIS
32
<PAGE>
adds additional computer facilities, the parties will agree on financial and
operational responsibility for data transmission to IBS' statement
production facility from the new facilities.
3.3.5 RELEASE FOR PRINT. CBIS may, at its option, transmit system
data before a final accuracy check has been made. IBS will, therefore,
hold all cutoffs in abeyance until a written release by facsimile (or
other method as otherwise mutually agreed) has been issued by CBIS.
Should retransmissions be necessary or a release be issued that is
later rescinded, CBIS shall pay IBS for any work performed prior to
rescission at Attachment B rates. Should CBIS's statements already
have been released to the U.S. Postal Service when the rescission was
issued, CBIS shall pay postage and IBS shall incur no liability for
incorrect statements. Processing begun by IBS before a release has
been issued by CBIS is at IBS' risk and CBIS will not be charged for
such work if retransmission is necessary.
3.3.6 SCHEDULES. CBIS agrees to set reasonable estimates of schedules
not less than thirty (30) days in advance as to date and estimated
volumes for cut off, data and print file transmissions for production
of statements.
3.4 PROCESSING AND NORMAL TIME FOR PRODUCTION
3.4.1 DEFINITIONS. As used herein, the following terms have the
following meanings: A "CUTOFF" is defined as IBS' complete receipt of
usable statement data print file and subsequent CBIS release for
print. The term "MAILING" is defined as the entry of statements into
the U.S. Postal Service ("USPS"). "TRAY TURNAROUND TIME" is defined as
the elapsed time between cutoff and mailing of each USPS tray of
statements. A "STATEMENT RUN" is defined as the elapsed time between a
cutoff and the mailing of the last USPS tray for the cutoff.
3.4.2. TURNAROUND COMMITMENT. Agreement with regard to turnaround
commitment for specific end users will be made consistent with
Paragraph 2.3 and metrics will be implemented consistent with
Paragraph 3.8. Except as otherwise agreed by the parties with regard
to specific end users (such as the agreed to fixed schedule due out
dates for AWS), the following is the IBS turnaround commitment. IBS
will accommodate a peak load of six percent (6%) per product line in
any 24 hour period with an absolute Statement Run time of 24 hours,
subject to the maximum volumes per cycle set forth below. For a peak
load in excess of six percent (6%) of the prior month's image volume,
plus new cycles forecasted by CBIS for that month, in any 24 hour
period Statement Run time will be 24 hours for six percent (6%) and an
additional 12 hours for the amount greater than six percent (6%) up to
a maximum of nine percent (9%). In those instances where the peak is
exceeded due to IBS' acts, IBS will manage to the original turnaround
commitment for the specified cutoff. In any 24 hour period that the
CBIS demand exceeds maximum percentage limit, IBS will work with CBIS
to determine the priority with which different jobs will be run.
Whenever necessary, the list of jobs to be delayed will be provided by
CBIS. For all cycles that are less than 500,000 images, turnaround
will be 24 hours; for any cycles greater than 500,000 images,
turnaround will be 36 hours for a maximum cycle
33
<PAGE>
size of 750,000 images. There will be no rate differential for
36-hour turnaround. The cycle size limit will be reevaluated on an
annual basis or as required by CBIS clients' statement cycle sizes.
Should CBIS, after-cutoff has occurred, request IBS to place a hold on
statement production, the Statement Run time shall be extended by the
time of the hold. Likewise, should a hold on statement production be
necessary due to submission by CBIS of changes to print file format,
tape format, forms, envelopes, inserts, data transmission protocol or
statement cutoff dates later than the limits outlined in Paragraph
1.3, Statement Run time shall be extended by the time of the hold.
3.5 PRICE
3.5.1 PRICING COMMITMENTS. It is the parties' intent to offer the
most cost-effective value for statement production services presently
and throughout the life of the contract relationship. IBS guarantees
that, at the time of signing this Agreement, CBIS has the best rate
offered to any IBS clients (including CableData) for comparable
services, except with respect to simplex continuous forms. IBS will
provide consistent pricing for level of distribution; as a value-added
reseller of IBS services, IBS's price to CBIS (in the wireless and
wireline industry and in specific competitive situations with
similarly situated customers) will be lower than the IBS price to the
end user and no greater than the IBS price for other value added
resellers for like services and like terms for outsourced work
performed at IBS-managed facilities, except that IBS is not committed
to provide a lower price to CBIS in those unusual and extraordinary
circumstances that arise from time to time in the wireless and
wireline industry where IBS determines in good faith it must utilize
prices to the end user for strategic purposes (e.g. temporary
introductory pricing, competitive knock outs, etc.). IBS must give
notice to the CBIS Senior Vice President of Marketing or President of
CBIS (but without any discussions of price, because of antitrust)
where it intends to use the "unusual and extraordinary circumstance"
exception. Where (a) IBS had invoked the "unusual and extraordinary
circumstance" exception and (b) pursuant to the exception, IBS has
made a lower price bid to the end user and (c) CBIS and IBS
subsequently agree on a joint bid for the end user, then IBS and CBIS
will jointly determine the best joint marketing approach which may
include the lower price being made available to CBIS for the specific
end user opportunity (which special pricing will not carry over into
or affect other prices under this Agreement). As used in this
Paragraph 3.5.1, "like services and like terms" means the end user is
on substantially the same printing platform (see Attachment A for
description of current printing platforms), uses forms of the same
size and grade paper (material specifications), has comparable volumes
of images, has comparable volumes of statements, has comparable number
of inserts, has comparable data input methods and protocol, has
comparable computer processing requirements, has comparable number of
cutoffs, has comparable payment terms and has comparable turnaround
obligations (including peak).
3.5.2 OPERATIONAL TEAM. Each party will create a designated team to
ensure that economies are realized by reducing costs and increasing
value.
3.5.3 SENIOR EXECUTIVE REVIEW. Each party will designate at least one
member at the vice president or above level to meet semi-annually to
assess the ongoing issue of competitiveness of pricing, to set short
and long-term objectives, to ensure that performance goals are met;
and to review Services and the prices of
34
<PAGE>
those services, and work together to identify areas where economies of
scale can be realized (i.e., processing, materials, and the
application of new technology) and to review methods of reducing
postage and paper stock costs.
3.5.4 PRICE SCHEDULE. The price schedule for the Services is set
forth in Attachment B, subject to certain processing discounts, as
more specifically set forth in Attachment C, and subject to
adjustments as set forth below. Pricing excludes the cost of CBIS's
postage. Programming services will be subject to a [ * ]
discount from IBS' standard programming rates as described in
Attachment B.
IBS will waive all minimum fees, with the exception of those for
special services as specified in Attachment B, if CBIS will
standardize each individual CBIS customer's format and materials for
treatment runs and work to minimize the number of small runs. Those
complete plans and/or cutoffs identified as all foreign mail will not
be charged foreign mail special handling charges as specified in
Attachment B. IBS will utilize an international remailer or the US
Postal Service (whichever is most economic) to minimize the handling
and postage charges and CBIS would pay only those service fees and/or
postage as applicable.
3.5.5 PRICE ADJUSTMENTS FOR PRICES OTHER THAN PAPER. Prices,
excluding paper prices (which will be subject to separate price
adjustment set forth in Paragraph 3.5.6), will be subject to annual
inflation increase at a rate not to exceed 75 percent of CPI-U, as
follows: IBS may, one (1) year after the effective date of this
Agreement and thereafter (but no more than once in each twelve (12)
month period), upon forty-five (45) days' written notice to CBIS,
implement such increase, provided, however, that the percentage
increase in such prices shall not exceed [ * ] of the applicable
percentage increase in the Consumer Price Index for All Urban
Consumers (CPI-U) for Other Goods and Services, published by the U.S.
Department of Labor, Washington, D.C. The CPI-U in effect on the
Effective Date shall be the rate used in determining the initial year
increase.
3.5.6 PRICE ADJUSTMENTS FOR PAPER. IBS may each calendar quarter
during the term of the Agreement, commencing on the first day of the
calendar quarter beginning the initial statement run, increase or
decrease prices set forth in Attachment B under "Paper Products" by
the same percentage as the weighted average percentage increases or
decreases of the relevant subweight (as specified in Attachment A) for
electrophotographic bond or recycled grade roll stock (for forms) and
of the relevant subweight (as specified in Attachment A) of white
wove or white wove recycled envelope roll stock (for envelopes).
White wove envelope grade roll stock mill price increases and
decreases will be determined from notices from James River
Corporation. Electrophotographic grade roll stock price increases and
decreases will be determined from Champion International Corporation.
Recycled roll stock increases and decreases will be determined from
James River/Eureka. Bond grade roll stock increases and decreases
will be determined from James River/MOCR. The base date for mill
prices shall be January 1, 1997. A weighted daily average of the
appropriate index will be compared to the weighted daily average for
the preceding calendar quarter. For example, within 15 days after the
end of Q1, new prices are determined based on the weighted daily
average prices in Q1; such prices to take effect as of the first day
of Q2. The Controller of IBS shall notify CBIS of price increases or
decreases within fifteen (15) days after the commencement of the
calendar quarter for which the increase or decrease applies.
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential
35
<PAGE>
treatment request.
36
<PAGE>
IBS may order Forms and Envelope Stock in not more than one hundred
twenty (120) day increments; any price increase or decrease under this
Paragraph 3.5.6 shall be effective for all Forms and Envelopes as
provided herein (including forms in inventory) for the calendar
quarter following the quarterly determination of increase or decrease.
The parties understand and agree that rush charges are not part of the
"Forms and Envelopes" prices but are in addition to those prices and
will be billed to CBIS at the time that they occur.
As referenced in Paragraph 3.3.3 above, any unused envelopes or
statement stock provided by IBS will be charged to the Customer at the
time they are discarded at the rates set forth in Attachment B, as
modified within this section.
3.5.7 ADJUSTMENT FOR USPS CHANGES. In the event that the U.S. Postal
Service modifies or announces new postal regulations and such
regulations increase IBS' cost of mailing CBIS's statements, then the
following provisions shall be operative:
(a) If such changes are mandatory (i.e., IBS must comply with
such regulations to enter mail into the USPS), IBS will give CBIS
notice of such changes, the parties will review the overall costs
and benefits, CBIS and IBS will develop an implementation plan to
pass through costs and CBIS and IBS will jointly present the
changes to the end users. The parties will work together to
determine the best method of passing through and apportioning
these additional costs (such as one-time charge, per statement
charge, etc.). IBS may increase the Statement charge as set
forth in Attachment B; this increase will be limited as follows:
(i) for current CBIS customers without contract escalators
who will not, after good faith attempt by CBIS, agree to a
pass through of increases, this IBS increase to CBIS will be
limited to one-half of CBIS's fair-share allocated portion
of the actual increase in cost to IBS rounded to the next
highest thousandth of a dollar.
CBIS will be charged a percentage of IBS's cost that will be
computed as a ratio of (1) the weighted average of the
combination of CBIS' monthly statement volume and the
remaining term of CBIS's contract to (2) the volume and
remaining term of all IBS customers.
(ii) for current CBIS customers with contract escalators,
for future CBIS customers, and for CBIS customers whose
contracts were renewed after the signing of this Agreement,
CBIS will be charged its fair-share allocated portion of the
actual increase in cost to IBS rounded to the next highest
thousandth of a dollar.
(b) If such changes are optional or discretionary (i.e., IBS is
not required to make such changes in order to enter mail into the
USPS), IBS will give CBIS notice of such changes, review the
overall costs and benefits, CBIS and IBS will develop an
implementation plan to pass through costs and CBIS and IBS will
jointly present the changes to the end users. CBIS and IBS will
agree on any allocation of costs prior to the changes being
implemented.
37
<PAGE>
3.5.8 ELIGIBILITY FOR NEW CUTSHEET PRICING. CBIS will be entitled to
new cutsheet pricing when its monthly volumes reach eight million
statements, or on April 1, 1997, whichever occurs first. The cutsheet
platform is defined in Attachment A. Subject to IBS' ability to
successfully migrate and accept said volumes, if CBIS' volumes are
below eight million statements on July 1, 1997 or any time thereafter,
cutsheet pricing will revert to the Current Prices, as specified in
Attachment B-Current Statement Rate Card, while all other platform
pricing will be subject to a ten percent (10%) increase. New business
will be entitled to the new contract pricing upon conversion. An
exception to the minimum volume clause will be conceded by IBS if any
statement processing related to AT&T Wireless Services (AWS) is taken
back in-house or directly outsourced to IBS by AWS. In this situation
the eight million statement minimum will be computed using the sum of
the CBIS volumes and the then-current AWS statement counts. In the
event that an existing CBIS customer for whom IBS provides statement
production services chooses to contract directly with IBS, those
statement volumes will be included in determining the eight million
statement minimum for as long as the customer remains a CBIS customer.
IBS and CBIS will work together to develop a formal marketing plan
designed to motivate CBIS' cutsheet customers to move from their
current cutsheet print platform to an alternate platform.
3.5.9 PRICING TERMS CONFIDENTIAL. Both parties agree that the prices
charged to CBIS under this Agreement will be maintained in confidence
and will not be disclosed to any third parties without the prior
written consent of the other party, except as required by law.
3.6 PAYMENT
3.6.1 PAYMENT FOR SERVICES. IBS shall invoice CBIS periodically for
Services. Standard payment terms are net cash, without discount, due
and payable within thirty (30) days from the date of the invoice. In
the event that CBIS does not render full payment of undisputed amounts
within sixty (60) days of the date payable, IBS may, after notifying
CBIS, cease any and all Services until such account is brought current
and, at its election, may terminate this Agreement.
3.6.2 TAXES. CBIS shall pay, or reimburse, IBS for any tax or
assessment, including but not limited to all sales, use, rental,
property, gross receipts, excise, or other taxes, duties, or charges
imposed by any government body or agency or subdivision thereof
(collectively "governmental body") by virtue of IBS' interest in or
sale, provision, or CBIS' use of any services or tangible personal or
intangible property pursuant to the terms of this Agreement. CBIS
shall pay to IBS or the appropriate governmental body, as the case may
be, such tax or assessment, together with any fines, penalties or
interest thereon, within thirty (30) calendar days of the date of the
invoice by IBS or the date on which CBIS received notice of such
requirement from the applicable governmental body, whichever is
earlier. Notwithstanding the foregoing, CBIS shall not be responsible
for paying or reimbursing IBS for corporate franchise tax, capital
tax, net worth tax, or taxes measured by reference to IBS' net income.
3.6.3 LATE PAYMENT FEE. If CBIS fails to pay any undisputed charges
when due and payable, CBIS agrees to pay a late payment service charge
of one percent
38
<PAGE>
(1%) per month, but not in excess of the lawful maximum, on the past
due balance.
3.7 CBIS'S POSTAGE
3.7.1 CBIS'S POSTAGE. CBIS agrees to prepay CBIS's postage. In the
event CBIS does not prepay postage, as set forth below, IBS reserves
the right to hold statements until sufficient funds are received. In
the event of an increase in U.S. Postal Service postage rates, postage
prepayment shall be increased by the amount of such postage rate
increase.
3.7.2 CURRENT POSTAGE DEPOSIT. CBIS agrees to maintain its current
postage deposit with IBS. The postage deposit shall be reviewed
quarterly by IBS and CBIS, and CBIS shall promptly adjust the postage
deposit amount to cover actual postage charges.
3.7.3 INCREASES IN POSTAGE DEPOSIT FOR NEW CBIS CUSTOMERS. For each
new CBIS customer brought under this Agreement, CBIS agrees to add to
its postage deposit with IBS equivalent to the amount of two (2)
months' postage charges for the new customer. invoiced to CBIS in two
installments: (a) The first installment shall be due no later than
fifteen (15) days prior to the new customer's first cutoff and (b) the
second installment shall be due no later than five (5) days prior to
the first cutoff of the next succeeding calendar month. Payment of
the first month's postage invoice for actual charges must be received
no later than five (5) days prior to the first cutoff of the third
calendar month. Payment of subsequent month's postage invoices must
be received no later than five (5) days prior to the first cutoff of
the next calendar month.
3.7.4 ADJUSTMENTS FOR USPS AUDIT. CBIS's postage payments may be
subject to audit by the U.S. Postal Service. In the event that such
an audit reveals a discrepancy between amounts paid and amounts
actually due for postage, CBIS will reimburse IBS for any payment
deficiencies for which it is liable and IBS will refund any excess
payments due to CBIS.
3.8 STANDARDS OF WORK. IBS warrants that the performance of Services
provided to CBIS under this Agreement shall be in conformance with the
requirements of this Agreement and with industry standards. Within ninety
(90) days of the effective date of this Agreement, the parties will agree
upon quality metrics for measuring performance which will be reviewed
periodically at the operational and executive levels.
3.9 LIMITATION OF REMEDY
3.9.1 FORCE MAJEURE. Neither IBS nor CBIS shall be considered in
default due to any failure in performance of this Agreement, in
accordance with its terms, should such failure arise out of causes
beyond their control and without their fault or negligence.
3.9.2 LIMITATION OF REMEDY. In the event of any error or omission,
whether human or mechanical, on the part of IBS or its employees, IBS
will reprocess the work and remail with an apology insert if necessary
at no extra cost to CBIS to
39
<PAGE>
correct said error or omission. IBS' liability for loss of any CBIS
data or materials shall be limited to the replacement or regeneration
of the lost items by the method or means deemed most reasonable by
IBS. EXCEPT AS PROVIDED IN 3.9.3 BELOW, AND EXCEPT FOR ATTORNEY'S
FEES AND COSTS OF ARBITRATION, AND, IF RELEVANT, COST OF CONVERSION,
AWARDED IN ARBITRATION PURSUANT TO PARAGRAPH 4.3.5, IBS' LIABILITY TO
CBIS FOR ANY LOSSES OR DAMAGES, DIRECT OR INDIRECT, ARISING OUT OF
THIS AGREEMENT SHALL NOT EXCEED THE TOTAL AMOUNT BILLED OR BILLABLE TO
CBIS, PLUS APPLICABLE POSTAGE, FOR THE PERFORMANCE WHICH GAVE RISE TO
THE LOSS OR DAMAGE. IBS SHALL NOT BE LIABLE FOR ANY SPECIAL OR
CONSEQUENTIAL DAMAGES IN ANY EVENT.
3.9.3 EXCEPTION FOR PENALTY CLAUSES IN CURRENT CBIS CONTRACTS. In
the event that CBIS incurs as contractual liability a penalty from a
current end-user due to an error or omission on the part of IBS, IBS
will reimburse CBIS for such penalty up to a maximum of [ * ]
per incident and [ * ] per calendar year based on
date of claim made by CBIS' customer; annual maximums are not
aggregated. This obligation shall only arise as to actual payment by
CBIS of penalties specifically set forth in CBIS contracts with end
users in effect as of the date of this Agreement where CBIS has
provided a copy of the penalty provision of said contract to IBS and
proof of payment. This provision will not apply to contracts CBIS
enters into with end users after the date of this Agreement unless
agreed to by IBS and will not apply to current CBIS contracts where
there is no penalty specifically set forth.
3.10 INSPECTIONS. It is understood that CBIS may inspect all work being
performed under this Agreement to the extent practical at all reasonable
times and places. However, it is also understood that such inspections by
CBIS shall not be performed in any way that shall unduly delay the work
being performed. Reasonable facilities and assistance shall be provided
for CBIS's inspection if any inspection is made by CBIS on the premises of
IBS. Such facilities and assistance shall be provided without extra charge.
However, should CBIS perform inspection at a place other than the premises
of IBS, such inspection shall be at the expense of CBIS.
3.11 DISASTER RECOVERY PLAN. Within 120 days of the effective date of
this Agreement, CBIS and IBS will develop a mutually acceptable Disaster
Recovery Plan pursuant to the guidelines set forth in Attachment E and will
have the ability to test such plan within 90 days after plan completion.
4. MISCELLANEOUS
4.1 EXISTING CBIS EQUIPMENT AND PERSONNEL. IBS will review the available
equipment at CBIS's plant that may be rendered surplus as a result of the
parties' agreement and will take appropriate action, which may include
acquiring such equipment, depending upon the type and condition of the
equipment. IBS will also review CBIS's available people resources and will
make a good faith effort to place qualified personnel at IBS wherever
possible.
4.2 NON-DISCLOSURE. Each party agrees that all information disclosed by
the other during performance of this Agreement shall be considered
proprietary, and shall be held in confidence and used only in performance
of this Agreement. No information provided
40
<PAGE>
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
41
<PAGE>
by either party to the other under this Agreement shall be duplicated or
furnished to another party without prior written consent of the party whose
information it is. Each party will exercise the same standard of care to
protect the other's proprietary data as is used to protect its own
proprietary data from unauthorized disclosure. The obligations in this
section shall survive the termination of this Agreement for a three year
period.
4.3 DISPUTE RESOLUTION.
4.3.1 Each party agrees that any disagreement, controversy or dispute
between the parties arising out of or relating to performance under or
interpretation of this Agreement will first be submitted in writing by
one party to the other.
4.3.2 If a dispute remains unresolved for a period of fifteen (15)
calendar days after such notice, then it shall be submitted in writing
to a panel of two executives at the senior vice president level, one
from each party, who shall promptly meet and confer in an effort to
resolve such dispute.
4.3.3 If the senior vice presidents are unable to resolve the dispute
within fifteen (15) days after submission to them, or if one of the
parties refuses to meet, then the dispute shall be submitted in
writing to a panel of two executives at the level of president or
above, one from each party, who shall promptly meet and confer in an
effort to resolve such dispute.
Any decisions of the executives must be in a writing signed by both
executives and will be final and binding on the parties
4.3.4 Each party's executives shall be identified by notice to the
other party, and may be changed at any time thereafter by notice to
the other.
4.3.5 In the event the executives at the level of president or above
are unable to resolve any dispute within fifteen (15) calendar days
after submission to them, either party may then refer such dispute to
binding arbitration in accordance with the rules of the American
Arbitration Association and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
The locale where the arbitration is to be held shall be Cincinnati OH.
Attorney's fees and costs of arbitration, and, if relevant, costs of
conversion, shall be allocated as part of any award as determined by
the arbitrator(s). Arbitration in accordance with this section may
not be commenced by either party until such executives determine in
good faith that a negotiated resolution is unlikely; provided,
however, that if one or both parties refuse to meet within fifteen
(15) calendar days of the notice of the meeting at the president or
above level set forth above, then arbitration may be instituted by
either party. Nothing herein shall prevent either party from
exercising its right to terminate the Agreement pursuant to the
provisions hereof.
4.4 ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party. This Agreement shall
inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors and permitted assigns.
4.5 AMENDMENT. This Agreement may be amended only by an instrument in
writing, executed by CBIS and IBS.
42
<PAGE>
4.6 GOVERNING LAW. This Agreement will be governed in all respects by the
laws of the State of California. Should any term(s) and condition hereof
be declared illegal or otherwise unenforceable it (they) shall be severed
from the remainder of this Agreement without affecting the legality or
enforceability of such remaining portions. IBS' remedies as set forth
herein are not exclusive and are in addition to any other remedy provided
by law.
4.7 TERMINATION FOR BREACH. Either party shall have the right to
terminate this Agreement if the other fails to substantially comply with
any of its material obligations under this Agreement. Except as to
non-payment, should either party elect to exercise this right to terminate
for breach, it must be done in writing specifically setting forth the
claimed breach. The other party shall then have thirty (30) days from
receipt of notification to remedy the breach. If such party corrects the
breach within this period, then this Agreement shall not be terminated
pursuant to this provision. Should such party fail to correct the breach
within the period, then the party claiming breach shall have the right to
terminate this Agreement forthwith. As to CBIS's non-payment of all or a
portion of undisputed amounts due, IBS shall have the rights as set forth
in Paragraph 3.6.1.
4.8 PLANT RULES AND SECURITY REQUIREMENTS. The employees and agents of
each party shall, while on the premises of the other, comply with all plant
rules and regulations in effect at such premises, including security and
safety requirements.
4.9 INFRINGEMENT. The following terms apply to any infringement, or
claims of infringement, of any patent, trademark, copyright, trade secret
or other proprietary interest based on the manufacture, normal use or sale
of any material, equipment, programs or services furnished by IBS to CBIS
hereunder or in contemplation hereof. IBS shall indemnify CBIS and its
subsidiaries, jointly and severally, for any loss, damage, expense or
liability that may result by reason of any such infringement. IBS shall
defend or settle, at IBS' own expense, any action or suit for which IBS is
responsible hereunder. CBIS shall notify IBS promptly of any claim of
infringement for which IBS is responsible, and shall cooperate with IBS in
every reasonable way to facilitate the defense of any such claim. If any
action is instituted against IBS based upon a claim that any materials such
as artwork or inserts provided by CBIS to IBS infringe a United States
patent, copyright or trademark, CBIS shall, for and on behalf of IBS,
defend and indemnify such action at CBIS's expense, provided IBS promptly
notifies CBIS in writing of said action and CBIS has sole control of the
defense and any settlement negotiations.
4.10 INDEPENDENT CONTRACTOR. Neither IBS nor its subcontractors nor the
employees or agents of any of them shall be deemed to be employees or
agents of CBIS, it being understood that IBS is an independent contractor
for all purposes and at all times; and IBS shall be solely responsible for
the withholding or payment of all federal, state and local personal income
taxes, social security, unemployment and sickness disability insurance and
other payroll taxes with respect to its employees, including contributions
from them when and as required by law.
4.11 SECTION HEADINGS. The headings of the several sections are inserted
for convenience of reference only and are not intended to be part of, or to
affect the meaning or interpretation of, this Agreement.
4.12 WAIVER. No provision of this Agreement shall be deemed waived,
amended, or modified by either party unless such waiver, amendment or
modification is in writing and
43
<PAGE>
signed by the party against whom it is sought to enforce the waiver,
amendment or modification.
4.13 SEVERABILITY. If any provision, or portion thereof, of this Agreement
is invalid under applicable statute or rule of law, it is only to that
extent to be deemed omitted.
4.14 NOTICES. Except for invoices and billing related communications, any
notice required or permitted to be given hereunder by either party to the
other shall be in writing, shall be deemed given when, (1) hand delivered;
or (2) sent by facsimile transmission to the addresses/fax numbers set
forth below; or (3) sent by first class or certified United States mail, or
overnight courier service, postage prepaid, addressed as follows:
If to IBS: International Billing Services
ATTENTION: Vice President of Account Management
5220 Robert J. Mathews Parkway
El Dorado Hills CA 95762-5712
Fax No.: 916/939-4561
with a copy to: General Counsel
USCS International, Inc.
2969 Prospect Park Drive
Rancho Cordova CA 95670
Fax No.: 916/636-4561
If to CBIS Cincinnati Bell Information Systems Inc.
ATTENTION: Senior Vice President of Marketing
600 Vine Street, P.O. Box 1638
Cincinnati OH 45201
Fax No: 513/784-5062
with a copy to: General Counsel
Cincinnati Bell Information Systems Inc.
600 Vine Street, P.O. Box 1638
Cincinnati OH 45201
Fax No: 513/784-5062
If either party changes its address, it shall so advise the other
party in writing and any notice thereafter required to be given shall
be sent as specified herein to such new address.
4.15 ENTIRE AGREEMENT. This Agreement and Attachments represent the entire
agreement between the parties and supersede and replace all prior oral and
written proposals, communications, and agreements with regard to the
subject matter hereof between CBIS and IBS.
44
<PAGE>
4.16 ATTACHMENTS. The following are attached to and by this reference made
a part of this Agreement:
Attachment A Description of Services
Attachment B Rate Sheet
Attachment C Discount Schedule
Attachment D Target Client List
Attachment E Guidelines for Disaster Recovery Plan
Attachment F List of existing CBIS customers for purposes of
Paragraph 3.3.1 free migration
Attachment G Insert Order Guide
Attachment H Qspec Process
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
28th day of February, 1997. Facsimile signatures on this document shall be
deemed to be originals for all purposes.
INTERNATIONAL BILLING SERVICES, INC. CINCINNATI BELL INFORMATION SYSTEMS
INC.
By /C Randles Lintecum/ By /Robert J. Marino/
(Signature) (Signature)
C. Randles Lintecum, Pres. Robert J. Marino, President & CEO
(Print Name and Title) (Print Name and Title)
3-4-97 2-28-97
(Date) (Date)
45
<PAGE>
ATTACHMENT A
DESCRIPTION OF STATEMENT PRODUCTION SERVICES ("SERVICES")
These items are individually charged on Attachment B and are described in the
following pages.
1. Computer Processing for statement production
2. Image Printing
3. Inserting
4. Technical Support
5. Inventory Management Fee
6. First Page Form
7. Additional Page Form
8. Send Envelope
9. Remit Envelope
10. Flat Envelope
11. Variable Depth Box
12. Programming
13. Image Based Microfiche
14. Microfiche Copies
15. Forms Creation (Pre-printed)
16. Forms Creation (Electronic)
17. Creative Design Services
18. Custom Reports
19. Hold
20. Halt/Restart/Abort
21. Insert Handling
22. Insert Storage
23. Invalid ZIP code & Foreign Mail
24. Pulled Statement
25. Held Statement
26. Over 11oz. Statement
27. Packaging
46
<PAGE>
PLATFORM DESCRIPTIONS
- CUTSHEET (CSI) : Cutsheet integrated. This platform combines Xerox
print technology with an integrated unit for the collating, folding,
and inserting of multi-form, 8 1/2" x 11", multi-page statements,
printed in duplex mode.
- BOOKBILL (CSU-X4) : Cutsheet universal. This platform combines
[ * ] with an [ * ] for the collating, folding, and
inserting of an [ * ] printed in
[ * ] mode.
- SINGLE FORM CONTINUOUS (CFN-MD) : Continuous forms non-integrated
multi-page. This platform combines Oce print technology with an
integrated unit for the collating, folding, and inserting of 8 1/2" x
11", single form, multi-page statements, printed in duplex mode.
- TWO FORM CONTINUOUS (CFI) : Continuous forms integrated. This
platform merges simplex printed summary pages from a Oce printing unit
with duplex printed detail pages from a Delphax printing unit. This
printing unit is combined with an integrated unit for the collating,
folding, and inserting of 8 1/2" x 11", multi-form, multi-page
statements.
* CUTSHEET SELF MAILER (CSI) : Cutsheet integrated. This platform
combines Xerox print technology with a self mailing unit for the
folding, gluing, and perfing of 8 1/2" x 11", single-page, duplex
printed statements.
* SIMPLEX CONTINUOUS (CFN-M) : Continuous forms non-integrated
multi-page. This platform combines Oce print technology with an
integrated unit for the collating, folding, and inserting of 8 1/2" x
11", single form, multi-page statements printed in simplex mode.
The Statement Production Services and Specifications relative to the defined
product platforms are detailed below.
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
47
<PAGE>
DETAIL OF PRODUCTS AND SPECIFICATIONS FOR ATTACHMENT "B"
1. COMPUTER PROCESSING:
Computer Processing is a per image charge for processing statement data and
includes the following:
- CASS Certification for automated mail discounts
- Postal sorting
- Postal calculation
- Manifest line generation
- Pre-processing
- Job scheduling and control
- Confirmation of statement, image, and page counts
- Direct Access-TM- Connection
IBS will optimize each inserting plan for maximum postal discount; the
level of postal discount is dependent upon mailing piece physical
characteristics and customer provided accuracy of ZIP and ZIP+4
information, address accuracy and density. Computer images are defined as
a logical statement page. In a simplex mode there will be a maximum of (1)
computer image per physical sheet of paper, in duplex mode there will be a
maximum of (2) computer images per physical sheet of paper, and in
quadraplex mode there will be a maximum of (4) computer images per physical
sheet of paper.
2. IMAGE PRINTING:
The image printing fee includes printing the image, inserting the image
into the statement and, where appropriate, collating summary forms with
detail forms, folding the statement and inserting the finished statement
into the appropriate sending envelope. Image Printing (Simplex) is defined
as (1) print image per physical sheet of paper. Image Printing (Duplex) is
defined as, (2) print images per physical sheet of paper (whether or not
data is printed on both sides). Image Printing (Quadraplex) is defined as,
(2) print images per physical sheet of paper (whether or not data is
printed on both sides).
3. INSERTING:
Inserting is charged per piece inserted. Inserting does not include the
printing of the piece. The charge covers the normal receiving and limited
storage, staging, and placement of each insert into the sending envelope.
Return envelopes are considered an insert; statement forms are not
considered an insert.
All inserts must meet requirements in the IBS Insert Order Guide.
4. TECHNICAL SUPPORT:
Technical Support is a per statement charge for 24 hour, 7 day a week
customer support services consisting of:
- Telephone Customer Support
- Monitoring of process controls
- Statement Statistical Reporting
48
<PAGE>
- Quality Control
Quality Checkpoints are included during all phases of the process. This
process is dedicated to ensuring the quality of the customer's statement
production run. There are many points in the process where quality
exceptions can be located and dealt with immediately. The Customer Services
group monitors and controls the job while it is in house and after its
completion to ensure a quality customer experience.
5. INVENTORY MANAGEMENT FEE:
Per form and envelope. Receiving, warehousing, control, management and
staging of forms, envelopes and inserts. Fees for Inventory Management
will be charged upon use of the item.
6-11 PAPER PRODUCTS - STATEMENT PRODUCTION SERVICES DETAIL
Includes the one time creation of artwork (thereafter artwork will be
separately charged), and ongoing purchasing, handling and custom printing
of forms and envelopes. A form is a sheet of paper pre-printed on one or
both sides. All forms will include any marks required for printing, forms
verification, and production equipment alignment purposes.
SPECIFICATIONS FOR PAPER PRODUCT ITEMS 6 - 11 ARE DETAILED ON EACH
STATEMENT CONFIGURATION RATE CARD. Cutsheet form and envelope
configurations are further detailed in Attachment B, cutsheet paper pricing
schedule. Detailed specifications for other statement configurations will
be developed as requirements are defined.
SPECIAL SERVICES
Special Services are charges for items not otherwise included in this contract
(see Attachment B for rates) and include, but are not limited to, the following:
12. PROGRAMMING
Preprocessor Development
IBS will develop, at Customer's expense, pre-processor software necessary
to pre-process customer's print images into the agreed statement format and
into the IBS standard format. Sixty (60) days prior to live implementation,
the parties shall agree in writing (Final Statement of Work) as an addendum
to this agreement on the scope of work for such pre-processor development
and the prices therefore.
Requested Enhancements
Other programming charges will apply if customer requests changes that
require custom programming over and above Statement of Work herein.
Non-Scheduled Programming (Process Interruption)
In the event that CBIS (or a CBIS customer) makes a change to its data
format without notifying IBS in advance and such change results in a
disruption of processing or printing, then CBIS will be charged a minimum
of four (4) hours' programming time to cover IBS' costs of implementing a
correction to enable processing or printing to continue. Should
49
<PAGE>
the estimated time needed to implement a correction be greater than four
(4) hours, then IBS will notify CBIS of such fact within six (6) hours of
the cessation of processing or printing. CBIS will then have the option of
authorizing IBS to effect the necessary corrections to allow processing or
printing to continue, or it may elect to retransmit the data in an
acceptable format. CBIS will be responsible for all processing and
printing charges incurred prior to the disruption of the statement run.
In the event that IBS makes a change to its data format without notifying
CBIS in advance and such change results in a disruption of processing or
printing, then IBS will be charged a minimum of four (4) hours' programming
time to cover CBIS' costs of implementing a correction to enable processing
or printing to continue. Should the estimated time needed to implement a
correction be greater than four (4) hours, then CBIS will notify IBS of
such fact within six (6) hours of the cessation of processing or printing.
IBS will then have the option of authorizing CBIS to effect the necessary
corrections to allow processing or printing to continue, or it may elect to
process the data in an acceptable format. IBS will be responsible for all
processing and printing charges incurred prior to the disruption of the
statement run.
13. IMAGE BASED MICROFICHE
Image based microfiche includes the fonts, graphics, and electronic
overlays used to print your statements.
14. MICROFICHE COPIES
Image based microfiche copies are available.
15. FORMS CREATION (PRE-PRINTED)
Creation of artwork for pre-printed forms and envelopes.
16. FORMS CREATION (ELECTRONIC)
Creation of laser printed electronic overlays.
17. CREATIVE DESIGN SERVICES
Creative design for forms, envelopes, and inserts.
18. CUSTOM REPORTS
Custom reports are created to suit customer specific requirements. These
will be charged on a per report basis, based on a mutually agreed to format
and price.
PROCESSING INTERRUPTIONS
19. HOLD
A Hold may be called by the customer when a statement run is still in the
Computer Processing mode and has not left the computer room for processing
on the Production Floor. There is no charge for this hold.
20. HALT/RESTART/ABORT
A halt is charged when the customer requests a halt to the processing of
any specific statement run in process. Upon such a request, IBS would
issue a stop order to all stations. All work in process is then retrieved
and caged. In a halt situation, a best effort will be made by IBS to
minimize mail processing; however no guarantee is made that mail will not
have been entered into the postal system. Following a halt, the customer
can
50
<PAGE>
issue a Restart or an Abort. IBS will provide the customer with a list, by
account number, of all mail pieces delivered into the postal system in the
event that some mail was entered into the postal system before a halt was
effected.
Restart/Abort
Restart/Abort charges are incurred when a restart or an abort is requested
by the customer.
Restart: After a Halt is canceled by the customer, the statement run is
restarted using original data.
Abort: An Abort signifies that the statement run is unusable and that the
customer will re-transmit the statement print file. Customer is liable, at
standard rates, for all processing charges, stock used, and any postage
incurred before the Abort was effected.
INSERT HANDLING
21. INSERT HANDLING
Charges will apply if IBS is required to perform special handling of
inserts as required by individual situations, such as hand inserting,
re-sorting inserts, identifying unlabeled inserts, or deinserting inserts
from statements. Please reference attached Insert Order Guide (Attachment
G).
22. INSERT STORAGE
Insert Storage fees will be charged for inserts stored (or received):
- more than 45 days beyond their last use,
- more than 60 days from prior to their scheduled use.
Insert storage fees do not apply to return envelopes. When IBS is printing
the inserts, insert storage fees will not apply unless the customer has
directed IBS to store inserts under the storage fee charge situations
listed above.
STATEMENT SPECIAL HANDLING
Statement Special Handling is defined as the following services:
23. INVALID ZIP CODE & FOREIGN MAIL
Any statement that is rejected by the IBS postal processor for not having a
valid U.S. address or zip code as defined by the U.S. Postal Service
national zip directory will be charged the Invalid Zip Code / Foreign fee.
This fee is charged on a per statement basis. Packaging charges may also
apply. If customer chooses to mail invalid Zip Codes as residual mail,
this charge will not apply (U.S. mail only).
24. PULLED STATEMENT
After processing and before mailing, any statement manually identified by
the customer by account number that needs to be located before mailing and
shipped to an address other than the sending address of the statement is
considered a pulled statement and will be charged the Pulled Statement Fee.
This fee is a per statement fee. Packaging charges may also apply.
51
<PAGE>
25. HELD STATEMENT
A Held Statement is any statement that is electronically flagged by the
customer, during processing, that is to be located and shipped to an
address other than the sending address of the statement. A fee will be
charged on a per statement basis. Packaging charges may also apply.
26. OVER 11OZ. STATEMENT
Any statement over 11 oz will require special handling and will be
charged the Over 11 oz. Statement Fee. Packaging charges may also apply.
27. PACKAGING
A Packaging charge will apply to all statements or predetermined groups of
statements that are unable to be mailed through the normal IBS manifest
mail system and require packaging. Does not apply to variable depth boxes.
52
<PAGE>
ATTACHMENT B
RATE SCHEDULE
I. PRICING FOR VOLUME LESS THAN [ * ] STATEMENTS PER MONTH IS SET FORTH ON
THE "CURRENT STATEMENT" RATE CARD.
II. PRICING FOR VOLUMES BETWEEN [ * ] AND [ * ] STATEMENTS PER MONTH
IS SET FORTH ON THE FOLLOWING RATE CARDS:
- CUTSHEET STATEMENT
- BOOKBILL STATEMENT
- SINGLE FORM CONTINUOUS STATEMENT
- TWO FORM CONTINUOUS STATEMENT
- CUT-SHEET SELF MAILER
- SIMPLEX CONTINUOUS STATEMENT
III. PRICING FOR VOLUMES IN EXCESS OF 10 MILLION STATEMENTS PER MONTH: THE
PRICING SCHEDULE SET FORTH IN PARAGRAPH II OF THIS ATTACHMENT B ABOVE
AS MODIFIED BY THE DISCOUNT SCHEDULE SET FORTH IN ATTACHMENT C.
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
53
<PAGE>
CURRENT STATEMENTS
8 1/2 X 11 DUPLEX / DUPLEX STATEMENTS
Cut-Sheet Integrated (CSI)
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Inserted Item
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
54
<PAGE>
CUTSHEET STATEMENTS
8 1/2 X 11 DUPLEX / DUPLEX STATEMENTS
Cut-Sheet Integrated (CSI)
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Inserted Item
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
55
<PAGE>
CUTSHEET ITEMIZED PAPER PRICING SCHEDULE
PAPER PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FORMS UNIT PRICE CHARGE UNIT
<S> <C> <C>
6., 7. 20# Paper - Up To 2 Colors [ * ] Each Form
6., 7. 24# Paper - Up To 2 Colors [ * ] Each Form
FORM ADDITIONS
Additional Color [ * ] Each Color
ENVELOPES
8. Send Envelope 2 Color [ * ] Each Envelope
9. Return Envelope 1 Color [ * ] Each Envelope
10. 9 x 12 Flat Envelope [ * ] Each Envelope
11. Box Envelope [ * ] Each Box
ENVELOPE ADDITIONS
Privacy Tint*:
Custom [ * ] Each Envelope
Lite [ * ] Each Envelope
Face Only [ * ] Each Envelope
Additional Color* [ * ] Each Color, max of 3
Glassine* [ * ] Each Envelope
Peel and Seal Flap [ * ] Each Envelope
</TABLE>
ITEM PAPER DESCRIPTIONS:
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
10. [ * ]
11. [ * ]
* Set up fee of [ * ] applied on all runs of less than[ * ]
-----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential
56
<PAGE>
treatment request.
57
<PAGE>
BOOKBILL STATEMENTS
8 1/2 X 14 QUADRAPLEX STATEMENTS
Cut-Sheet Integrated (CSI)
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Inserted Item
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
58
<PAGE>
SINGLE FORM CONTINUOUS SHEET STATEMENT
8 1/2 X 11 DUPLEX / DUPLEX STATEMENTS
Continuous Form Multipage
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Reply Envelope
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
59
<PAGE>
TWO FORM CONTINUOUS SHEET STATEMENT
8 1/2 X 11 SIMPLEX / DUPLEX STATEMENTS
Continuous Form Integrated (CFI)
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Inserted Item
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
60
<PAGE>
CUTSHEET SELF MAILER
8 1/2 X 11 DUPLEX / DUPLEX STATEMENTS
Cut-Sheet Integrated (CSI)
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Folding [ * ] Inserted Item
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each Page
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
61
<PAGE>
SIMPLEX CONTINUOUS SHEET STATEMENT
8 1/2 X 11 SIMPLEX / SIMPLEX STATEMENTS
Continuous Form Multipage
PROCESSING UNIT PRICE CHARGE UNIT
1. Computer Processing [ * ] Computer Image
2. Image Printing [ * ] Print Image
3. Inserting [ * ] Reply Envelope
4. Technical Support [ * ] Statement
5. Inventory Management [ * ] Each form & Envelope
AVERAGE PAPER PRODUCTS
6. First Page [ * ] Each 1st Page
7. Additional Page [ * ] Each Addl. Page
8. Send Envelope [ * ] Send Envelope
9. Remit Envelope [ * ] Return Envelope
ITEM PAPER DESCRIPTIONS:
- --------------------------------------------------------------------------------
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
62
<PAGE>
<TABLE>
<CAPTION>
SPECIAL SERVICES
- -----------------------------------------------------------------------------------------------------------
SPECIAL SERVICES CHARGE UNIT CHARGE PER EVENT EVENT
PER UNIT MINIMUM
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12. Programming(1)
Project Management / Design Per Hour [ * ] [ * ] Request
Development / QA Per Hour [ * ] [ * ] Request
Documentation Per Hour [ * ] [ * ] Request
13. Image-based Microfiche Per Fiche [ * ] [ * ] Request
14. Microfiche copies Per Fiche [ * ] [ * ] Request
15. Forms Creation (Preprinted) Per Hour [ * ] [ * ] Request
16. Forms Creation (Electronic) Per Hour [ * ] [ * ] Request
17. Creative Design Services Per Hour [ * ] [ * ] Request
18. Custom Reports Per Report [ * ] [ * ] Request
PROCESSING INTERRUPTIONS
- -----------------------------------------------------------------------------------------------------------
19 Hold Per Cut-Off [ * ] N/A Request
20. Halt / Restart / Abort Per Cut-Off [ * ] N/A Request
INSERT HANDLING
- -----------------------------------------------------------------------------------------------------------
21. Insert Handling Per Hour [ * ] [ * ] Request
22. Storage Per Month [ * ] [ * ] Request
STATEMENT SPECIAL HANDLING
- -----------------------------------------------------------------------------------------------------------
23. Invalid Zip Code & Foreign Mail Per Statement [ * ] [ * ] Request
24 Pulled Statement Per Statement [ * ] [ * ] Request
25. Held Statement Per Statement [ * ] [ * ] Request
26. Over 11 oz. Mail Per Statement [ * ] [ * ] Request
27. Packaging Per Box [ * ] [ * ] Request
</TABLE>
(1) Programming is subject to a [ * ] discount per 3.5.4.
----------------------
*Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
63
<PAGE>
ATTACHMENT C
DISCOUNT SCHEDULE
Incremental (Cumulative) Processing Discounts
<TABLE>
<CAPTION>
CBIS Monthly Single Form Two Form
Statement Volume Cutsheet(1) Bookbill Continuous(2) Continuous
(Millions)
processed by IBS
Inc. (Cum.) Inc. (Cum.) Inc. (Cum.) Inc. (Cum.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
13 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
15 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
17 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
20 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
(1) Includes Self Mailer Print Platform
(2) Includes Simplex and Duplex Print Platforms
[ * ] Incentive Bonus
An additional [ * ] processing discount will be applied to [ * ] rate
cards when [ * ] of total volume is [ * ], or a total volume of [ * ]
statements is achieved.
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
64
<PAGE>
DISCOUNT EXAMPLES:
SCENARIO I
CBIS is currently processing [ * ] cutsheet statements with IBS. CBIS
wins a contract which includes the statement production of [ * ] new
statements. CBIS' new customer has chosen the Bookbill platform. As a result
of this contract CBIS is entitled to a PROCESSING discount for the Bookbill
platform of [ * ] from the rate card price. The [ * ] is obtained as
follows; [ * ] reduction because CBIS is processing more that [ * ]
statements with IBS, an additional [ * ] reduction because the [ * ]
is over the [ * ] threshold, and an additional [ * ] reduction due to
[ * ].
SCENARIO II
CBIS is currently processing [ * ] statements with IBS all on the cutsheet
platform. One of CBIS' customers, which represents [ * ] statements, has
chosen to move its production to the Two Form Continuous platform. As a result
of this move CBIS is entitled to a PROCESSING discount for the Two Form
Continuous platform of [ * ] from the rate card price. The [ * ] is
obtained as follows; [ * ] reduction because CBIS is processing more that
[ * ] statements with IBS, and [ * ] reduction due to the [ * ].
SCENARIO III
CBIS is currently processing [ * ] statements with IBS all on the cutsheet
platform. CBIS wins a contract which includes the statement production of 3
million statements. CBIS' new customer has chosen the Single Form Continuous
platform. As a result of this contract CBIS is entitled to the following
discounts; a PROCESSING discount for the Cutsheet platform of [ * ] from
the rate card price, and a PROCESSING discount for the Single Form Continuous
platform of [ * ] .The [ * ] Cutsheet discount is obtained because
CBIS is now processing over [ * ] statements with IBS. The [ * ]
Single Form Continuous processing discount is obtained as follows; [ * ]
reduction for surpassing the [ * ] threshold, and additional [ * ]
reduction for surpassing the [ * ] threshold, and an additional [ * ]
reduction due to [ * ].
SCENARIO IV
CBIS is currently processing [ * ] cutsheet statements with IBS. CBIS wins
a contract which includes the statement production of [ * ] new statements.
CBIS' new customer has chosen the Cutsheet platform. As a result of this
contract CBIS is [ * ].
SCENARIO V
CBIS is currently processing [ * ] statements with IBS ([ * ] cutsheet
and [ * ] Two-Form Continuous). CBIS wins a contract which includes the
statement production of [ * ] new statements. CBIS' new customer has
chosen the Two Form Continuous platform. As a result of this new contract, CBIS
is entitled to a processing discount of [ * ] due to [ * ].
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
65
<PAGE>
ATTACHMENT D
Target Clients
(reference Paragraph 2.1.2)
[ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
66
<PAGE>
ATTACHMENT E
GUIDELINES FOR DISASTER RECOVERY
GENERAL
Business Continuity Planning for CBIS's statement print and mail operations at
IBS is required to assure the ability of CBIS to effectively process its
statements in the event of a significant failure of the equipment or facilities
at IBS I or II. These guidelines will be used to develop the temporary measures
and restoration procedures to insure that CBIS statements continue in the event
of such a major failure at IBS I or II. Both IBS I and IBS II will provide
mutual backup for CBIS and our other customers.
PLAN
In a Declared Disaster, the basic print and mail function will be replicated in
four phases.
During a period of a Declared Disaster, Customers will receive summary page
statements with only regulatory inserts permitted. This provides capacity to
produce CBIS Statements, Summary page only, on 8 1/2" x 11" paper.
RECOVERY PHASES
The general flow of the recovery will follow these phases:
PHASE ONE -- DISASTER NOTIFICATION AND EMERGENCY PLAN IMPLEMENTATION
- - Day 0 - Day 02 - Disaster Declaration will take place in accordance with
Appendix A, Disaster Declaration.
PHASE TWO -- 3 DAY TURN AROUND - SUMMARY PAGE ONLY
- - Day 03 - Day 47 -- Turnaround 72 Hours for all statements including special
handling. A one sheet summary page statement only will be produced.
PHASE THREE -- TURN AROUND - FULL STATEMENT PRODUCTION - CONTRACTUAL
REQUIREMENTS
- - Day 48 - Day 180 -- Turnaround would conform to contractual requirements
for all statements including special handling. Convert to full statement
production from summary page only.
NORMAL OPERATIONS
- - Day 181 -- Full return to pre-disaster production capability, including a
new disaster recovery plan.
RECOVERY PROCEDURES
- - Forms
- Phase II - A single 8 1/2" x 11" printed form, with electronic
overlays for the CBIS logo, and perforations will be used for the
first 45 days.
- Phase III - A single 8 1/2" x 11" Duplex printed form with color logo,
and perforations would be used after the first 45 days.
67
<PAGE>
- Phase II through III- A blank 8 1/2" x 11" sheet with logo's applied
using electronic overlays for all additional pages.
- - Envelopes
- Phase II & III - A single #10 1/2 one windowed envelope will be used
as a sending envelope. A single return address will be used on the
envelope.
- Phase II - A single 9 x 12 envelope with label will be used as a
sending envelope for flat mail.
- Phase II & III - A single 9 x 12 one window envelope will be used as a
sending envelope for flat mail. A single return address will be used
on the envelope.
- A single # 9 one windowed envelope will be used as a return envelope.
- - Processing
- Computer systems are located at IBS I & II to allow for full
processing functionality.
- - Data Transmission
- Data tapes will be delivered to Sacramento for the first 15 days using
an IBS courier, IBS will retain these tapes for 30 days from receipt
to ensure data integrity.
- Within the first 15 days, CBIS shall have responsibility for
re-routing the communication lines, and IBS for installing backup
communications equipment so as to implement the new network on day 16.
- IBS shall be responsible for all one time installation costs incurred
by CBIS as a result of this disaster.
- - Postal Issues
- Normal postal sorting would occur.
- - Inserts and Messaging
- The 8 1/2 x 11 form may allow for several lines of new messaging space
to be used for CBIS communications.
- No marketing inserts would be permitted during the Declared Disaster
period.
- Regulatory inserts would be permitted after the first 30 days.
Marketing inserts of a high priority nature would be permitted after
30 days, based on IBS' capability to handle this requirement.
- - Printing and Folding.
- Statements with 1 - 9 pages will be folded.
- Statements with 9 pages and greater will be inserted flat with no
folding.
- - Lockbox Processing
- CBIS shall be responsible for coordinating the capability of reading
this remittance document with their lockbox provider. IBS shall not
be responsible for any costs incurred as a result of adding this
capability.
68
<PAGE>
ATTACHMENT F
LIST OF EXISTING CBIS CUSTOMERS for purposes of Paragraph 3.3.1
[ * ]
----------------------
* Portions of this Exhibit 10.31 have been redacted pursuant to a
confidential treatment request.
69
<PAGE>
ATTACHMENT G
INSERT ORDER GUIDE
INSERT ORDERING GUIDE
- StatementsPLUS Customers -
Insert Ordering Guide
- -C- 1996 International Billing Services
El Dorado Hills. CA, USA 95762-5712
The information contained herein is proprietary.
Although every precaution has been taken in the preparation of this document,
Intentional Billing Services assumes no responsibility for errors or omissions.
Neither is any liability assumed for damages resulting from the use of the
information contained herein.
Throughout this document trademarked names are used. Rather than put a trademark
symbol in every occurrence of a trademarked name, we state that we are using the
names only in an editorial fashion and to the benefit of the trademark owner
with no intention of infringement on the trademark.
Printed in the United States of America.
70
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE
INTRODUCTION...................................................................
SECTION 1: INSERT ORDER FORM INSTRUCTIONS &
SECURING AN INSERT NUMBER........................................
Order Form Instructions...................................................
Overweight Postage Policy Disclaimer......................................
SECTION 2: INSERT AND ENVELOPE SPECIFICATIONS..................................
Definition of an Insert...................................................
Insert Dimensions.........................................................
Additional Requirements for Inserts.......................................
Insert Identification.....................................................
Contingency for Damage....................................................
SECTION 3: INSERT PACKAGING....................................................
Packaging................................................................
Labeling of the Insert Package...........................................
Sample of Label..........................................................
SECTION 4: SPECIAL HANDLING....................................................
Special Handling Charge ..................................................
SECTION 5: STORAGE.............................................................
Storage Charges..........................................................
SECTION 6: EXCESS/SHORTAGE OF INSERTS..........................................
Shortage of Inserts........................................................
Return of Excess Inserts...................................................
71
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The purpose of this guide is to provide you, the customer, with the
necessary specifications to design, order, and complete the process of utilizing
our inserting service. The format of this material is designed to guide you
through the entire process from beginning to completion, or to be used as a
quick reference for answers to questions and to locate details for the
specifications.
SECTION 1 -- INSERT ORDER FORM INSTRUCTIONS AND SECURING AN INSERT NUMBER,
provides you with the necessary information in completing the Insert Order Form
and how we assign an Insert Order Number.
SECTION 2 -- INSERT AND ENVELOPE SPECIFICATIONS, describes the information
required to properly package inserts and label the packages for shipment to IBS.
The importance of package size, shape and weight is explained in this section.
SECTION 3 -- INSERT PACKAGING, explains how your inserts must be packaged
to avoid damage to the inserts, which could result in special handling charges.
SECTION 4 -- SPECIAL HANDLING, explains how inserts are handled that do not
conform or comply with the requirements for automated inserting and handling.
SECTION 5 -- STORAGE, gives the user guidelines for requesting extended
storage of inserts.
SECTION 6 -- SHORTAGE OF INSERTS OR EXCESS INSERTS, describes how the user
can give instructions in advance on any variances from the anticipated total
inserts ordered and the actual amount of inserts received. This helps avoid
unnecessary delays in mailing the statements.
72
<PAGE>
SECTION 1: INSERT ORDER FORM INSTRUCTIONS & SECURING OF AN INSERT ORDER NUMBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The first step in the inserting process is the completion of the Insert Order
Form. The information outlined below is provided to assist our customers in
filling out the Insert Order Form.
The second step in the process is the assignment of the insert number. After
completing the Insert Order Form, simply fax your Insert Order Form to
International Billing Services Insert Control Department, fax number
916/939-4563. Insert Control will assign you an Insert ID number and fax the
Insert Order Form back to you with the insert number. This number will be used
to control your insert throughout the process and into your envelopes. Remember,
you will need a separate insert number for each and every insert.
INSERT ORDER FORM INSTRUCTIONS
Feel free to call the Insert Control Department at 800/545-8017 at any time if
you are unclear or need additional assistance in completing any of the forms.
Corp Name - Enter the business name IBS knows you by.
Corp Number - Enter the 5 digit IBS customer number. This number is used to
reference the necessary software, paper products, etc. used for your business.
Contact Name - The name of the individual to be contacted should a question
regarding this insert arise.
Telephone Number - Provide both a business ahd home telephone number. As we
operate 24 hours, 365 days a year, we often need to contact someone during your
non-business hours. If we cannot reach someone to clarify an instruction or make
a decision regarding the insert, it may cause a delay in the production of your
statements.
Alternate Contact - If we are unable to reach the designated contact, who else
may we contact to make the necessary decisions regarding this insert.
Alternate Telephone Number - The appropriate business and home telephone numbers
for the alternate contact person.
Insert Dates - Fill in the appropriate month, day, and year for the first and
last date the insert should run. ALL statement runs within this date range will
include this insert.
Title of Insert - The title of the insert should be the same as the main
information printed on the piece itself.
Expected Insert Count - How many inserts you will ship to IBS or how many
inserts IBS will be printing.
Printing Source - Identify the appropriate printing source for your inserts.
Delivery Date - When you expect the inserts to arrive at IBS.
Late Arrival of Inserts - Identity what you would like IBS to do if your inserts
do not arrive in time for your cutoff.
73
<PAGE>
Shortage of Inserts - Identify what you would like IBS to do if we do not have
enough inserts to complete the inserting process. If your inserts are printed at
IBS, we can go back to press and print any additional inserts.
Excess Inserts - Please identify what should be done with any remaining inserts
after all statement runs have been completed. If you want your excess inserts
returned, please complete the Return Address box as well as checking the box,
"Return to Corp".
Signature - The Insert Order Form must be signed. After you have signed the
Insert Order Form you may either fax or mail the completed form to Insert
Control.
FAX NUMBER: 916/9394563
MAILING ADDRESS:
INTERNATIONAL BILLING SERVICES
ATTENTION: INSERT CONTROL, M/S 6021
5220 ROBERT J. MATHEWS PARKWAY
EL DORADO HILLS, CA 95762-5712
IBS IS NOT RESPONSIBLE FOR EXCESS POSTAGE DUE TO
INSERTS CAUSING THE STATEMENT PACKAGE TO
EXCEED ONE OR MORE OUNCES IN WEIGHT.
REMEMBER THAT EACH INSERT INSERTED INTO YOUR STATEMENT
PACKAGE HAS AN IMPACT ON THE TOTAL PACKAGE WEIGHT.
INSERTS MUST ARRIVE AT IBS AT LEAST 5 DAYS PRIOR TO THE FIRST USAGE DATE.
74
<PAGE>
SECTION 2: INSERT AND ENVELOPE SPECIFICATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFINITION OF AN INSERT
An insert is any separate piece of material that is included with the mailing
address piece and inserted into the sending envelope.
INSERT DIMENSIONS
The minimum and maximum size allowable for an insert depends on the size of your
statement sending envelope. The minimum size of all inserts is determined by the
ability to run on the tracking belt of the inserting machines used to insert
your statements.
INSERT MINIMUM AND MAXIMUM MATRIX
<TABLE>
<CAPTION>
Insert Size
TITLE PLATFORM FORM SIZE FINISHED SEND
STATEMENT ENVELOPE Minimum Maximum
<S> <C> <C> <C> <C> <C> <C>
INSERTER, 6 5/8 X 7
6 STATION, CFN 6 5/8 X 9 1/3 3 1/2 X 6 5/8 3 7/8 X 7 1/2 3 1/4 X 5 1/2 3 1/2 X 6 3/4
610003-01 6 5/8 X 14
- -------------------------------------------------------------------------------------------------------
CSI 8 1/2 X 11 4 X 8 1/2 4 1/2 X 9 1/2 3 1/4 X 7 1/4 4 1/8 X 8 3/4
---------------------------------------------------------------------------------------------
INSERTER
4 1/8 X 9
620137-01 CFI 8 1/2 X 11 4 X 8 1/2 4 1/2 X 9 1/2 3 1/4 X 7 1/4 4 1/8 X 8 3/4
- -------------------------------------------------------------------------------------------------------
INSERTER
4 3/4 X 7, CFI 6 5/8 X 9 1/3 4 2/3 X 6 5/8 5 1/8 X 7 3/4 4 X 5 1/2 4 3/4 X 7
620010-01
- -------------------------------------------------------------------------------------------------------
INSERTER,
5 1/2 X 9, CSU-X4 8 1/2 X 14 5 1/2 X 8 1/2 6 X 9 1/2 3 1/4 X 7 1/4 3 3/4 X 8 3/4
620169-01
- -------------------------------------------------------------------------------------------------------
CFN-M 7 X 11 4 1/8 X 7 4 1/2 X 8 3 1/4 X 5 3/4 4 1/8 X 7 1/4
INSERTER ---------------------------------------------------------------------------------------------
4 1/8 X 7, CFN-M 6 5/8 X 9 1/3 3 1/2 X 6 5/8 3 7/8 X 7 1/2 3 1/4 X 5 1/2 3 1/2 X 6 3/4
620198-01 ---------------------------------------------------------------------------------------------
CFN-M 6 5/8 X 11 4 1/8 X 6 5/8 4 1/2 X 7 1/2 3 1/4 X 5 1/2 4 1/8 X 6 3/4
- -------------------------------------------------------------------------------------------------------
INSERTER,
5 1/2 X 7 CFN-M 6 5/8 X 11 5 1/2 X 6 5/8 5 7/8 X 7 5/8 3 1/4 X 5 1/2 3 1/4 X 6 7/8
620205-01
- -------------------------------------------------------------------------------------------------------
</TABLE>
*For Cable customers, the Pay Per View Guide insert Minimum size is
3 1/2" x 5 1/2.
For all other sending envelopes, contact Insert Control regarding the minimum
size for your inserts.
75
<PAGE>
MAXIMUM
the maximum size of an insert is determined by the size of the sending envelope.
The insert must be 3/4n less then the width of the sending envelope and 3/8"
less than the height of the sending envelope.
[DRAWING OF ENVELOPE]
[DRAWING OF ENVELOPE]
MIXING SIZES
When mixing different size inserts within the same envelope, the difference in
length of the inserts can be no more than 1 1/4".
ADDITIONAL REQUIREMENTS
PERFORATION REQUIREMENTS:
If a perforation is required on the insert, it must be a minimum of an 8 TPI
(teeth per inch) to avoid separation during shipping and the inserting process.
Perforation ties MUST be strong.
STICKERS:
Stickers and inserts with peel and stick requirements need to follow the size
and perforation guideline. A common problem with these types of inserts is that
they stick together during the inserting process, which causes significant
delays. To avoid delays caused by inserts sticking together, a one quarter inch
edge must be provided that does not have the adhesive backing. Please send a
sample for testing, prior to having the insert printed, to ensure that the
insert can be processed.
UNIFORMITY:
All inserts using the same insert number, MUST all be cut to the same size.
STAPLES:
If staples are required on the leading edge of an insert, staples must be at
least 1 3/4" from the center of the insert (a 3 1/2" wide staple free area) and
must be consistent on all inserts. Non-compliance with the stapling guideline
and placement will result in special handling charges. (See Section 3: SPECIAL
HANDLING).
ADDITIONAL SPECIFICATIONS:
The ideal insert paper stock is 60 lb. Perforations must be strong enough to
hold together during the inserting process: absolutely NO PLASTIC, METAL,
MAGNETS OR OTHER OBJECTS.
76
<PAGE>
WEIGHT STANDARD VELLUM GLOSS COATED
WOVE OFFSET
- --------------------------------------------------------------------------------
45 lb. Folded Only No No
- --------------------------------------------------------------------------------
50 lb. Folded Only Folded / Single No
- --------------------------------------------------------------------------------
60 lb. Folded / Single Folded / Single Folded Only
- --------------------------------------------------------------------------------
70 lb. Folded / Single Folded / Single Folded Only
- --------------------------------------------------------------------------------
80 lb. Folded / Single Folded / Single Folded / Single
- --------------------------------------------------------------------------------
100 lb. Folded / Single Single Folded / Single
- --------------------------------------------------------------------------------
** Anything over 100 lb. needs to be approved in advance.
INSERT IDENTIFICATION
IBS REQUIRES THAT THE INSERT IDENTIFICATION NUMBER BE PRINTED ON EACH INSERT.
THIS INSERT NUMBER IS USUALLY PLACED IN A LOWER CORNER OF THE INSERT IN SMALL
PRINT. IF THE INSERT IS FOLDED, THE INSERT NUMBER MUST BE PLACED ON THE OUTSIDE.
AS MANY INSERTS ARE VIRTUALLY IDENTICAL, SUBTLE DIFFERENCES ARE EASILY MISTAKEN.
THIS INSERT NUMBER ENSURES THE PROPER INSERT IS INSERTED INTO THE CORRECT
STATEMENTS.
FOLDS
All folds must be even, square, crisp and uniform. A fold on the short side of
the insert or an accordion fold is not insertable by machine. One, two or three
folds may be used as long as they are uniform and square and present one
finished edge. See the fold examples below.
diagram
Inserts not meeting these fold specifications require either hand inserting or
hand sorting. These situations could result in delay of the statements and slow
the machines inserting capabilities. Non-compliance of the fold specifications
will result in special handling charges.
CONTINGENCY FOR DAMAGE
Inserts may be damaged during shipping and inserting. The chart below will
assist you in understanding the percentage of additional inserts that should be
printed for contingency usage.
Damaged inserts will be discarded. If "good" and "bad" inserts are mixed, they
will be subject to a special handling charge for sorting.
QUANTITY SHIPPED % OF EXTRA REQUIRED
- --------------------------------------------------------------------------------
0-100 25%
- --------------------------------------------------------------------------------
101-5,000 10%
- --------------------------------------------------------------------------------
5,001-10,000 7%
- --------------------------------------------------------------------------------
10,001-50,000 5%
- --------------------------------------------------------------------------------
50,001-100,000 4%
- --------------------------------------------------------------------------------
100,001-1,000,000 3%
- --------------------------------------------------------------------------------
1,000,001 or more 2%
77
<PAGE>
SECTION 3: INSERT PACKAGING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PACKAGING
Boxes need to be packaged so that the contents do not shift, move, warp, or
otherwise be subject to damage during shipment. A major delay occurs in the
processing of inserts when a package is received with the contents damaged.
Inserts must be bundled in 4" packets and fit snugly into the box to avoid
slippage while being shipped. IBS recommends that the bundles be banded with
paper bands. Do not use shrink-wrap or rubber bands. Do not cross-stack the
inserts within a stack or bundle. All folds must face the same direction within
a stack or bundle. A divider must be placed between each layer of inserts so
that they do not intermingle, nest, or collate inside of each other during
shipment.
Do not use Styrofoam "peanuts" as packing. They allow the inserts to shift in
transit and handling, causing damage that may result in the need to hand sort
your inserts.
Because your inserts will be handled several times, shipping cartons must not
weigh more than 35 lb. Box size should not exceed 12" x 18" x 9".
Non-compliance with the packaging guidelines will result in special handling
charges.
LABELING OF THE INSERT PACKAGE
All boxes must be clearly marked to reflect their contents. For example, the
insert identification number (assigned by IBS) and your Corp number, must be on
the label in order to identify your inserts. The quantity in each box and the
total number of boxes must be printed on the label, example: 1,500 pieces; box 2
of 20. See sample of label on page 12. Packages that are received unmarked are
not entered into our system.
Unidentified inserts that arrive at IBS are located in a problem area of our
Materials Management Department. A sample of this insert, along with the return
label on the box is sent to Insert Control. Every attempt is made to locate the
proper recipient of these inserts. A special handling charge will apply once the
insert is identified.
Inserts that remain unidentified for 60 days will be discarded as well as any
insert that remains unidentified after an offer/date printed on the insert has
expired. Each box must be marked with the Insert Identification Number to avoid
any chance of your insert being discarded as unidentifiable. IBS CANNOT BE
RESPONSIBLE FOR UNIDENTIFIABLE INSERTS.
SAMPLE OF LABEL
INTERNATIONAL BILLING SERVICES
5220 ROBERT J MATHEWS PARKWAY
EL DORADO HILLS, CA 95762-5712
TOTAL SHIPPED ________________
INSERT # _____________________
BRIEF DESCRIPTION _____________
CORP # __________ BOX _____ OF _____
The above label is for statements being inserted at IBS I
INTERNATIONAL BILLING SERVICES
78
<PAGE>
9950 MILLS STATION
SACRAMENTO, CA 95827-2202
TOTAL SHIPPED ________________
INSERT # _____________________
BRIEF DESCRIPTION _____________
CORP # __________ BOX _____ OF _____
The above sample is for statements being inserted at IBS II
Please contact Insert Control if you have any questions as to which IBS location
your inserts should be shipped to.
79
<PAGE>
SECTION 4: SPECIAL HANDLING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL HANDLING CHARGE
A Special Handling charge will be assessed for any non-compliance with the
specifications. The amount of the charge is dependent upon the deviation from
the specification. Situations involving a Special Handling fee of $100 or less
will be resolved and automatically charged without notification. Any amount
above $100 will be quoted for each occurrence.
The following occurrences are situations which always generate Special Handling
Charges:
Unidentified inserts that arrive at IBS without an insert number on each box
require special handling, therefore, a flat fee of $100 will be charged.
Inserts arriving at IBS that are not uniform in size or weight require sorting.
Inorder to gain the maximum efficiency in preparing your statements for mailing,
we require that all inserts be uniform in size (length and width) and thickness
(paper weight or number of folds per insert).
Packaging specifications must be in compliance with IBS guidelines. If packaging
specifications are not adhered to, the cartons must be repackaged into sizes
that conform in both dimension and weight.
Folds that do not meet IBS specification.
Staples that are in non-compliance with the stapling guideline.
Inserts that do not meet IBS specifications, but can be run on the inserting
machines, resulting in Production slow down.
PLEASE NOTIFY YOUR PRINTER OF ALL IBS SPECIFICATIONS TO AVOID DELAYS AND SPECIAL
HANDLING CHARGES.
ALL OF THE GUIDELINES IN THIS DOCUMENT ARE FOR YOUR PROTECTION
IN CONTROLLING COSTS AND RESOURCES. IF YOU HAVE
ANY QUESTIONS REGARDING OUR INSERT GUIDELINES,
PLEASE CONTACT OUR INSERT CONTROL DEPARTMENT AT
800/545-801 7.
80
<PAGE>
SECTION 5: STORAGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STORAGE CHARGES
Inserts arriving at IBS more than 60 days prior to their scheduled use, or held
by request of the customer for more than 45 days beyond their last use, are
subject to a storage charge.
These charges will be calculated and charged based on your contract agreement.
81
<PAGE>
SECTION 6: SHORTAGE/EXCESS OF INSERTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All inserts must have pre-arranged instructions for disposition of unused
inserts via the Insert Order Form. Whenever Mail back" or disposition
instructions are not received, the unused materials will be disposed of by IDS.
IBS cannot be held responsible for disposition of inserts that do not have clear
disposition instructions.
SHORTAGE OF INSERTS
IBS offers customers two choices when faced with a shortage of inserts. Clear
instructions as to your decision must be marked on your Insert Order Form to
avoid delays in the mailing of your statements. These options are:
1. Run Without: Mail the remaining statements without the insert.
2. Call you for instructions. This can cause a delay in mailing your
statements. When selecting this option, we may need to reach you during
the night, weekends, or holidays. If there is a time during the night that
you do not want to be called, you must state this or the call will be
placed at anytime during the night. We ask that you provide accurate work
and home telephone numbers. If you are planning a vacation, you may want
to consider an alternate contact.
RETURN OF EXCESS INSERTS
Excess inserts will be returned to the customer only if requested on the Insert
Order Form. Excess inserts are returned within the first 2 weeks of each month.
All inserts are returned via UPS ground unless special arrangements have been
made. UPS ground takes 5 to 10 working days to reach the delivery address.
82
<PAGE>
ATTACHMENT H
QSPEC
ATTACHMENT H
PROCESS DOCUMENTATION
QSPEC
1.0 Account Management / Business Conversions
1.1 Receives new order from IBS Customer or a revision to an existing
order and initiates CFI - QSPEC Transmittal Form #G-1899 (for all
continuous forms products) or CSI - QSPEC Transmittal Form #G-1887
(for all cutsheet form products). This form will hereafter be referred
to as simply "QSPEC". CFI will hereafter refer to continuous form
products running on the CFI and/or the CFN-M production lines. CSI
will hereafter refer to cutsheet from products running on the CSI
and/or CSUX4 production lines.
1.2 Enters Information on First Four Fields of the QSPEC (5 Entries)
1.2.1 Enters Corp Number (Customer Billing Number). This number is
supplied by the Account Manager or Project Manager. Corp
Numbers are obtained from the Accounts Receivable
Department. They are designed to be useful for market
segmentation or to identify locations or groups within a
company.
1.2.2 Enters Customer Name = Account Name for this Order
1.2.3 Enters type of document being ordered:
1.2.3.1 1st Sheet
1.2.3.2 2nd Sheet
1.2.3.3 Send Envelope (Indicate With Indicia/Without
Indicia)
1.2.3.4 Flat Envelope (Indicate With Indicia/Without
Indicia)
1.2.3.5 Remit Envelope
1.2.4 Enters Old Insert Number taken off the previous form or
envelope if revising. If no previous number exists, enters
"new".
1.2.5 Enters New Insert Number assigned to each form or envelope
ordered. This number is obtained by calling Insert Control
and requesting a number or Paper Products Manager sends a
form to Insert Control indicating the Customer and Job Type.
Insert Control supplies the number and routes back.
1.3 Faxes copy of QSPEC to Materials Planning
l.4 Initiates Graphics & Printing Work Order IBS # 1502. G-1028
83
<PAGE>
1.5 Fills in all necessary information on the work order in the fields
above the dotted line. Information is obtained from the following
sources.
1.5.1 Customer, either directly or by reviewing prior form or
envelope orders
1.5.2 IBS Account Manager for this Customer
1.5.3 New Business Director
1.5.4 New Project Managers
1.6 Initials and Dates QSPEC Section 1, #1
1.7 Routes the following documents to the Customer Service Area in the
Graphics and Priming Department
1.7.1 Original QSPEC
1.7.2 Original Graphics and Printing Work Order
1.7.3 Any Samples provided by the Customer
1.7.4 Any Specifications for revisions supplied by the Customer
2.0 Materials Planning (see 1.3)
2.1 Receives faxed copy of QSPEC (13) from Account Management
2.2 Enters Old SKU number in space provided on QSPEC (if migration)
2.3 Assigns New SKU Number (core numbering system assigned by cost
accounting)
2.4 Verifies New SKU Number in Database System to make sure it is open,
available and updated
2.5 Reviews materials and inventory necessary for order.
2.5.1 Establishes run-out date for existing inventory
2.5.2 Establishes need dates for artwork to manufacture new
inventory
2.6 Initials and dates QSPEC, Section 2, #1
2.7 Initials and dates QSPEC, Section 2, #2
2.8 Faxes copy of QSPEC to Graphics and Printing Customer Service area
2.9 Holds original fax in department files
3.0 Graphics and Printing (Includes two areas: Graphics and Printing Customer
Service and Graphics and Printing Forms Production)
84
<PAGE>
3.1 Graphics and Printing Customer Service (Hereafter referred to as
"Customer Service")
3.1.1 Receives packet from Account Management with documents
listed in 1.7
3.1.2 Verifies that all documents listed in 1.7 are clear and
legible
3.1.2.1 If clarification necessary, notifies Account
Management who contacts the Customer
3.1.2.2 Works directly with Customers only if a notation
is made by Account Management on the Work Order
to do so
3.1.3 Fills in the Graphics and Printing Work Order using the
documents in 1.7. Enter all the specifications required to
produce the artwork on the portion of the Work Order that is
below the dotted line (above portion is already filled in by
Account Management); This is called "specing the work
order".
3.1.4 Receives a faxed copy of QSPEC from Materials Planning with
sign-offs on SKU information and inventory review (see 1.3
and 2.8)
3.1.5 Transfer the information on the fax to the original QSPEC
3.1.6 Faxes copy of QSPEC received from Materials Planning to
Account Management (Paper Products Manager) and files the
faxed copy received from Materials Management in the
department
3.1.7 Routes all documents in 1.7 to Forms Production to create
Laser Proof Pack Packet
3.1.7.1 Places items in a large envelope called a "job
jacket" and insert a YELLOW TAG to show the stage
of the artwork development
3.1.8 Note: Documents may be sent to Forms Production before the
fax is received from Materials Planning in which case,
Customer Service would hold the information (3.1.4) in the
department and enter it when the QSPEC is returned to them
by Forms Production
3.2 Graphics and Printing Forms Production Area (Hereafter referred to as
"Forms Production")
3.2.1 Reviews documents in 1.7 for the following:
3.2.1.1 Postal Requirements
3.2.1.2 Form Size and Placement Compatibility with
Envelope
3.2.1.3 Mechanical Restrictions
3.2.1.4 Bar-Code Compatibility with Systems
3.2.2 Supervisor initiates internal "Graphics Checklist: #G-1897
which tracks the customer order through the forms design and
development process
85
<PAGE>
3.2.2.1 Provides a checklist and sign-off for the Forms
Analysts as they create the graphics
3.2.2.2 Registers the job on the mainframe system and
tracks each Step
3.2.2.3 Serves as a quality control document
3.2.2.4 Utilizes first four sections of the checklist only
3.2.2.5 This is an internal control and is filed with the
Work Order in the Forms Production department upon
completion of the project
3.2.3 Using the documents in 1.7, creates a Laser Proof Packet
which contains the following:
3.2.3.1 Laser Printout of Proposed Artwork (100%
Composite)
3.2.3.1.1 At this point, Forms Analyst will
initial and date Section 3, #3 on the
QSPEC if there is a bar-code which needs
verification
3.2.3.2 Color separations
3.2.3.3 Specification Sheets
3.2.3.4 Folded mock-up of envelope(s)
3.2.4 Using the same documents in 1.7 creates a "Specifications
Only" packet
3.2.5 Routes both Packets to Customer Service
3.3 Customer Service area receives Laser Proof Packet and Specifications
Only Packet from Forms Production
3.3.1 Verifies and proof reads both packets against the documents
supplied by Account Management (1.7) for accuracy
3.3.2 If necessary, makes any correction in red ink
3.3.3 Initials and dates Line 3, one of the two boxes under
Graphics on the Work Order, indicating with or without
changes
3.3.4 Stamps the Laser Proof Packet (3.2.3) with the "Proof
Status" Stamp (on the Specification Sheet) and routes to
Account Management
[BOX FOR STAMP IMPRESSION]
3.3.4 Stamps the Specifications Only packet (3.2.4) with the
"Preliminary for Press Only" stamp and routes to Materials
Planning as a head start on securing stock and scheduling a
vendor. This packet is filed in the Management Planning area
[BOX FOR STAMP IMPRESSION]
3.4 Account Management
86
<PAGE>
3.4.1 Receives the Laser Proof packet from Customer Service
3.4.2 Verifies the Laser Proof Packet against the original order
as it was submitted
3.4.2.1 Checks the appropriate box on the Proof Status
Stamp
3.4.2.2 Initials and dates the stamp
3.4.2.3 These steps may be performed by either the Paper
Products Manager or the Account Director or both if
appropriate
3.4.3 If corrections are needed, uses blue ink and marks on
appropriate proof
3.4.4 Box #1 indicates information is correct as is, OK to print
3.4.5 Box #2 indicates changes to be made by Forms Production but
it's OK to print after changes are made and no further route
for approval is necessary
3.4.6 Box #3 indicates that changes need to be made by Forms
Production and a new Laser Proof Packet routed back to
Account Management which begins the approval process again
3.4.7 Routes Laser Proof Packet back to Customer Service
3.5 CUSTOMER SERVICE
3.5.1 Receives the Laser Proof Packet from Account Management
3.5.2 Routes Packet to Forms Production to create the Customer
Proof Packet and the QSPEC Packet (if box #1 or box #2 is
checked)
3.5.2.1 Removes the yellow tag from the job jacket and
inserts a BLUE TAG to show the stage of the artwork
development
3.5.2.2 Initials and Dates QSPEC. Section 3 #2
3.5.3 If box #3 is checked, routes to Forms Production to make
changes and when completed, reroutes for verification as in
3.3 and 3.4 and 3.5 above
3.5.4 After corrections are made, routes the Laser Proof Packet to
Forms Production to create the Customer Proof Packet and the
QSPEC Packet
3.6 Forms Production
3.6.1 Receives the Laser Proof Packet from Customer Service
3.6.2 Creates the Customer Proof Packet containing the following
3.6.2.1 Blue Line (Contact Image Negatives), Front and Back
3.6.2.2 Film Positive (Acetate), Front and Back
3.6.2.3 Specification Sheet(s)
3.6.2.4 Color Proof (Indicates Ink Colors), Front and Back
87
<PAGE>
3.6.3 Stamps the Blue Line (3.6.2.1) with the "Customer Approval
Stamps"
[BOX FOR STAMP IMPRESSION]
3.6.4 Concurrently Creates the entire QSPEC Packet which
contains the following:
3.6.4.1 QSPEC Artwork Transmittal Form
3.6.4.2 Buy-Off Loop Checklist
3.6.4.3 Laser Copy of Specification Sheet
(Verbiage/numbers)
3.6.4.4 Bar-Code Verification Sheet (if bar-code is
required)
3.6.4.5 Graphics & Printing Work Order
3.6.4.6 Samples Supplied by Customer (forms/envelopes)
3.6.4.7 Film Positive (Acetate)
3.6.4.8 Three Dimensional Mockup of any Envelopes
3.6.4.9 Color Proof (Indicates Ink Colors), Front & Back
3.6.4.10 Any E-Mail Correspondence related to the order
3.6.5 Routes the Customer Proof Packet (3.6.2) to Customer Service
to verify contents and completeness
3.6.6 Routes the QSPEC Packet (3.6.4) to the Graphics and Printing
Production Manager (or Supervisor) to verify contents,
completeness and accuracy
3.6.6.1 Manager or Supervisor, after verifying that the
job is correct, signs and dates the QSPEC form,
Section 3, #4 and adds comments
3.6.6.2 Routes the QSPEC Packet to Customer Service
3.7 Customer Service
3.7.1 Receives the Customer Proof Packet and the QSPEC Packet from
the Graphics and Printing Manager
3.7.2 Verifies that both packets are complete and accurate
3.7.3 Routes the Customer Proof Packet (3.6.2) to Account
Management who will obtain the Customer signature approvals
3.7.4 Initials and dates Section 3, #5 on the QSPEC form
3.7.5 Begins routing the QSPEC Packet (3.6.4) through production,
starting with Engineering (This happen at the same time as
the Customer Proof Packet is going out to Customer for
approval)
3.7.5.1 If no "send" envelopes are present, crosses off the
3rd Engineering discipline and routes to the first
two only
3.8 Account Management
3.8.1 Paper Products Manager receives the Customer Proof packet
from Customer Service
88
<PAGE>
3.8.2 Verifies Customer Proof Packet against the original
submission and if correct, sends to Customer via Federal
Express overnight delivery requesting signature approval on
blueline
3.8.2.1 If Customer Service has been directed by Account
Management to work directly with the customer,
Customer Service will send out the Customer Proof
Packet
3.8.2.2 Optimal turnaround is for Customer to fax back a
copy of the blueline with their approval within
3 days of receipt (signed blueline with
stamp (3.6.3)
3.8.2.3 If not correct, indicates changes and routes back
to Customer Service who resubmits to Forms
Production to make changes and then proceeds as
in 3.7.3
3.8.3 Receives faxed copy of blueline back from Customer
3.8.3.1 Routes faxed copy to Customer Service
3.8.3.2 Eventually receives original blueline and routes
also to Customer Service
3.8.3.3 Proof Status stamp signed by Customer instructs
Customer Service to
3.8.3.3.1 Print as is (Box #1)
3.8.3.3.2 Print with changes (Box #2)
3.8.3.3.3 Revise as indicated and resubmit a
revised proof by a specified date
(Box #3)
3.8.3.4 If Customer sends reminder of Proof Packet items
(3.6.2) back to IBS, Account Management files them
in the Department
3.8.4 Ameritech is a special account for IBS and has given
Customer approval authority to the IBS Account Director.
3.8.4.1 Account Director receives Customer Proof Packet
from Paper Products Manager and does the
following:
3.8.4.1.1 Looks at each item in the packet
3.8.4.1.2 Lines up film with color proof
3.8.4.1.3 Checks color schemes to make sure they
are correct
3.8.4.1.4 Reviews for changes submitted
3.8.4.1.5 Scans items that are not changed for
correct positions
3.8.4.2 Signs off on the Customer approval stamp as in
3.8.3.3
3.8.4.3 Routes packet back to Paper Products Manager who
proceeds as in 3.8.2
3.8.5 Other specific accounts also allow IBS Account Director(s)
to act on behalf of the Customer. In these cases, IBS
Account Director receives
89
<PAGE>
the Customer Proof Packet and assumes the role of the
Customer for sign-off purposes
3.8.6 After signing off, routes Customer Proof Packet back to
Customer Service
3.8.7 Account Management does the following in the remote event
that the project is canceled by the Customer
3.8.7.1 Informs Insert Control to cancel insert (Corp)
Number
3.8.7.2 Informs Materials Planning to cancel SKU
3.8.7.3 Document number of hours dedicated to the project
3.4.7.4 Informs Customer Service of cancellation
3.8.7.5 Requests Customer Service to route QSPEC Packet to
Forms Production to file
3.9 Customer Service
3.9.1 Receives the faxed copy of the blueline from Account
Management
3.9.1.1 If Box #3 on the blueline is checked, routes
blueline to Forms Production to revise
3.9.1.2 Forms Production makes changes and customer
service either submits new stamped blueline or
laser copy of revised art to Account Management
who resubmits to Customs as in 3.8
3.9.1.3 If Customer Service has been directed by Account
Management to work directly with the Customer,
Customer Service will resubmit
3.9.2 Note Customer Service eventually receives the original
blueline signed off by the Customer (either directly or
forwarded by Account Management). (3.8.3.2)
3.9.2.1 Customer Service holds on to the blueline until
Section 8 on the QSPEC is signed off and forwards
it on to Forms Production where it is used to
create the Vendor Art Packet. It is then filed in
that area for access in the event that it is needed
to confirm Customer acceptance.
4.0 Engineering (see 3.7.5)
4.1 Receives QSPEC Packet routed from (or hand carried by) Customer
Service
4.2 Reviews Specific items in the Packet for impact on the machines which
print the forms or envelopes. Engineering is interested in the
physical properties of these documents
4.3 Three Engineering disciplines verify compatibility with the print
machines
4.3.1 Mechanical Engineering reviews overall specifications
(Section 4, #1 on the QSPEC Form) on new forms and envelopes
that the my are expecting to see (physical properties)
90
<PAGE>
4.3.1.1 Form size
4.3.1.2 Envelope size
4.3.1.3 Clear zone on "send" envelopes (Double Detector
Zone)
4.3.1.4 Other physical properties that the machines are
expecting to SEE
4.3.2 Electrical Engineering verifies areas the machines are
expecting to read (Section 4, #2 on the QSPEC) on new forms
and envelopes, predominately bar-code
4.3.2.1 Forms verification bar codes and envelope bar
cores
4.3.2.2 Color and contrast of bar codes
4.3.2.3 Size of bar codes
4.3.2.4 Content of bar codes (value)
4.3.2.5 Any other physical properties that the machines
are expecting to READ
4.3.3 Sustaining Engineering looks at all documents as an overview
(Section 4, #3 on the QSPEC ) and signs off on all "Double
Detector Zone" checks. This discipline is considered "Post
R&D"
4.3.3.1 Verifies all items that the Mechanical and
Electrical R&D Engineers have already checked.
This is a 2nd verification process
4.3.3.2 Focuses on all of the above with relation to
PRODUCTION EQUIPMENT
4.4 After verifying that all forms and envelopes in the QSPEC Packet meet
correct specifications as relates to printing machinery, Engineering
marks the appropriate section on the QSPEC form (4.3.1, 4.3.2, 4.3.3
above) indicating one of the following, initials and dates the form in
each respective area send adds comments
4.4.1 OK to print as is
4.4.2 OK to print with indicated changes
4.4.3 Change * (need to see again)
4.5 Routes QSPEC back to Customer Service
4.5.1 If forms or envelopes are incorrect, indicates changes.
Currently form is not rerouted back to Engineering for a 2nd
look after changes are made
4.6 Customer Sentence receive QSPEC packet from Engineering and routes to
Postal area
4.6.1 If no envelopes are present, crosses off Postal on the QSPEC
and goes right to Printer Technology
5.0 Postal
5.1 Postal Liaison (Or Director) Receives QSPEC Packet (3.6.4) from Custom
Service
91
<PAGE>
5.2 Checks forms to see that address presentation in the envelope window
meets Postal regulations and standards
5.3 Verifies that every envelope in the packet meets postal requirements
5.3.1 Removes the envelope from the packet and lines it up with
the Postal Template provided by the United States Postal
Service, (USPS, 1992)
5.3.2 Verifies that envelopes meet all of the specifications for
automated mail processing as dictated in the DMM (Domestic
Mail Manual)
5.3.2.1 After printing and stuffing the envelopes, IBS
mails direct to the customers who are being billed
5.3.3 Inserts the forth into the window envelope exactly as it
will be produced to verify that the combination meets both
the Template and DMM guidelines
5.4 Makes corrections if any and returns all documents to the QSPEC Packet
5.5 Initials and dates Section 5 on the QSPEC Form, adds comments and
marks one of the following:
5.5.1 OK (as is)
5.5.2 OK (with indicated changes)
5.5.3 Change* (Need to again)
5.6 Routes QSPEC Packet back to Graphics Department, Customer Service and
currently does not receive the Packet back after change are made
5.7 Customer Service receives packet from Postal and routes to Printer
Technology
6.0 Printer Technology
6.1 Director of Computer Operations or Director of Software Technology
receives QSPEC Packet from Graphics Customer Service
6.2.1 Director of Computer Operations review only old CSI forms
that are being revised, otherwise his name is crossed out on
the QSPEC
6.2.2 Director of Software Technology reviews all other CFI and
CSI forms
6.2 Performs a General Review to ensure overall integrity of the form in
relation to data and verifies the following:
6.2.1 That the new form will match current print capabilities
6.2.2 That the information the Customer is providing via tape or
transmission will be compatible with the form design and
that the data will fit in the proper field positions on the
pre-printed form
6.2.3 That target boxes are the correct size for the print font
and placement
92
<PAGE>
6.2.4 That if repeats are used on fanfold forms, they will be
correct and in increments of 1/6 inches
6.2.5 On page one bill stock:
6.2.5.1 That the circle/dot relationship is correct for
alignment (CFI)
6.2.5.2 If a summary page bar-code is used, that it is on
the right side or bottom of the page and that there
is room for it
6.2.5.3 That the forms verification bar-code is present
6.2.6 On the detail page(s) bill stock:
6.2.6.1 That HOF marks are present for the Delphex Printer
6.2.6.2 That forms verification bar-codes are present
6.2.7 For forms printed the HP Printer, that nothing is in the
"unprintable area"
6.2.8 That there is a space for the data that must appear in the
envelope window
6.3 Initials and dates Section #6 on the QSPEC Form, adds comments and
marks one of the following:
6.3.1 OK (as is)
6.3.2 OK (with indicated changes)
6.4.3 Change* ( need to see again)
6.4 Routes to Customer Service
6.5 Customer Sentence receives QSPEC Packet from Printer Technology and
routes to Production
7.0 Production (CF1, CSI)
7.1 Director receives QSPEC Packet from Customer Service and verifies the
following:
7.1.1 Bar code verifications (on film positive) for readability
and decodeability
7.1.2 Fold marks on forms
7.1.3 Window placement and size on envelopes
7.1.4 Architecture and structure of envelopes
7.1.5 Alignment boxes and corner registration marks for Printers
7.1.6 HOF marks for Delphax Printers
93
<PAGE>
7.2 If all of the above meets specifications, initials Ed dates Q-Spec,
Section #7, adds comments and marks one of the following:
7.2.1 OK (as is)
7.2.2 OK (with indicated changes)
7.2.3 Change* (need to see again)
7.3 Routes packet to Customer Service
7.4 Customer Service receives Packet back from Director and routes to
Special Handling Production Area (if a manual process required)
7.4.1 If a manual process is not required, Customer Service
crosses out that name on the QSPEC and routes directly to
Account Management
7.5 Special Handling Production
7.5.1 Handles production of all non-standard flats, envelopes and
boxes which are not able to be produced on automated
equipment
7.5.2 Manager receives QSPEC Packet from Customer Service
7.5.2.1 Removes all items in the Packet and looks them
over
7.5.2.2 Locates the Change Sheet in the packet and
identifies the item which is being changed
7.5.2.3 Verifies that the change is correctly depicted in
the samples
7.5.2.4 If the data which appears in a window envelope is
being changed, verifies that the data is
compatible with the window on the envelope or box
7.6 Initials & Dates QSPEC, Section 7, adds comments if any, and marks one
of the following:
7.6.1 OK (as is)
7.6.2 OK (with indicated changes)
7.6.3 Change. (need to see again)
7.7 Routes Packet to Customer Service
7.8 Customer Service receives QSPEC Packet from Production or Special
Handling area
7.8.1 Routes Packet to Account Management
8.0 Account Management / New Business Conversions (see 7.3.2)
94
<PAGE>
8.1 Paper Products Manager receives QSPEC Packet from Customer Service and
performs a final review on all documents (forms and envelopes) against
the original order,. initials and dates Section 8, #1
8.2 If appropriate routes QSPEC Packet to Account Director or Manager, if
it is a form or envelope for an existing Customer or to the
appropriate New Business Development Manager, if it is for a new
Customer
8.3 Account Director or New Business Development Manager verifies that the
items in the Packet are correct and initials and dates the QSPEC Form,
Section 8, #2, adds comments and routes to Paper Products Manager
8.3.1 #2 will not be initialed in every instance if only Paper
Products Manager signature is required and the Packet is not
passed on
8.3.2 Account Manager or Paper Products Manager reviews the Packet
and if there are any changes makes comments on the form and
marks one of the following:
8.3.2.1 OK (as is)
8.3.2.2 OK (with indicated changes)
8.3.2.3 Change* (need to see again)
8.4 Routes the QSPEC Packet to Customer Service who routes to Forms
Production
9.0 Customer Service receives the QSPEC Packet and is already holding the
original signed-off blueline
9.1 Routes the following to Forms Production
9.1.1 Customer approved blueline (see 3.9.2)
9.1.2 Original signed QSPEC Packet (8.5)
9.2 Removes the blue tag from the job jacket and replaces it with a
GREEN TAG to document this stage in the artwork development
9.3 Forms Production receives the job jacket with the documents in 9.1 and
verifies contests for completeness and accuracy
9 3.1 Makes revisions indicted by everyone on the QSPEC routing if
any
9.3.1.1 At this point, if anyone on the QSPEC routing hut
requested to see their changes, the QSPEC Packet
is routed to those individuals to approve and
route back and then proceed as in 9.0 - 9 3
9.3.2 Using the items in the job jacket. creates the Vendor Art
Packet which contains the following:
9.3 2.1 Specification Sheets (3 sets)
9.3.2.2 Gold cony of the Q-Spec Form
9 3.2 3 Blueline
95
<PAGE>
9.3.2.4 Film Positives
9.3.2 5 Color Proof
9.3.2.6 Negatives
9.3.2.7 Floppy Disk containing all files and art for the
job
9.3.3 Makes 2 Vendor Packets for envelope and 1 for forms unless
indicated on the Work Order that 2 Art Packets are needed
for forms
9.3.4 Creates Receiving Dock Packet which includes:
9.3.4.1 Specification Sheet(s)
9.3.4.2 Film Positive(s)
9.3.5 Routes the Vendor Art Packet to the Graphics and Printing
Manager
9.3.6 Files the remainder of the QSPEC Packet in Forms Production
9.4 Graphics and Printing Manager
9.4.1 Verifies each item in the Packet for accuracy and Proofreads
9.4.2 If corrections are necessary, returns to Forms Production to
make changes and route back
9.4.3 Reviews changes and Initials and dates Section 9 indicating
that the artwork is ready for print
9.4.4 Routes the packet to Customer Service
9.5 Customer Service receives the Vendor Art Packet and the Receiving
Packet from Forms Production
9.5.1 Routes the Vendor Packet to Materials Planning
9.5.2 Routes the Receiving Packet to Materials Management
10.0 Materials Planning
10.1 Receives the Vendor Art Packet from Customer Service
10.1.1 Removes QSPEC form and one of the specification sheets and
files in the Department
10.1.2 Writes a purchase order for the print job and routes to
Purchasing Department
10.1.2.1 Includes remainder of Vendor Art Packet with order
11.0 Purchasing Department places order with Vendor and forwards the order with
the Vendor Art Packet included (Packet becomes property of Vendor)
12.0 Receiving Dock (Materials Management)
96
<PAGE>
12.1 Receives the Receiving Art Packet from Customer Service
12.2 Holds until product comes in and matches
12.2.1 Overlays the film positive on the product to males sure it
is exact
12.2.2 Verifies against the specification sheet(s) that the product
is made correctly
12.2.3 Verifies that the following elements are correct:
12.2.3.1 Perforations
12.2.3.2 Color Codes
12.2.3.3 Cut Tolerance
12.2.3.4 General Print Quality
12.2.3.5 Alignment to Specification Sheet
12.2.3.6 Use of correct materials
12.3 If all checks out OK, releases to Inventory
12.4 If the order is not correct, does the following:
12.4.1 Notifies purchasing that the order is incorrect
12.4.2 Places the product in Site 502 Quarantine
12.5 Receives verbal OK from Purchasing that the product is released as is
12.5.1 Moves product to Site 500, General Warehouse
12.6 If Purchasing inspects product and finds it is not releasable,
Purchasing
12.6.1 Inspects product (with Vendor representative present if made
outside IBS)
12.6.2 Initiates a CFC (Claim for Credit)
12.6.3 Initiates an ADA (Asset Disposition Authorization)
12.7 Eventually disposes of the unusable inventory
13.0 When product is received and released, Purchasing notifies Account
Management (Paper Products Manager), and in the event that it is
rejected, also notifies that area. Account Management in turn
notifies Insert Control when they begin to use the product or in the
case of a reject, begins the QSPEC process over.
[FLOW CHARTS GRAPHICALLY REPRESENTING THE ABOVE DESCRIBED PROCESSES]
97
<PAGE>
Exhibit 11.0
USCS INTERNATIONAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Years ended
December 31, December 31,
-----------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding
during the period 23,060 18,791 20,990 19,138
Common stock equivalents
considered to be outstanding
for the periods presented 1,045 2,005 1,565 2,000
-------- -------- --------- ---------
24,105 20,796 22,555 21,138
-------- -------- --------- ---------
-------- -------- --------- ---------
Net income $ 4,775 $ 3,008 $ 14,509 $ 10,370
-------- -------- --------- ---------
-------- -------- --------- ---------
Earnings per share $ 0.20 $ 0.14 $ 0.64 $ 0.49
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
40
<PAGE>
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-15895, 333-16739, 333-17747, 333-19873) of
USCS International, Inc. of our report dated February 14, 1997 appearing on
page 21 of this form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Sacramento, California
March 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF USCS INTERNATIONAL, INC. AS OF DECEMBER 31,
1996 FOR THE TWELVE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8452
<SECURITIES> 0
<RECEIVABLES> 73458
<ALLOWANCES> 0
<INVENTORY> 4418
<CURRENT-ASSETS> 100222
<PP&E> 181762
<DEPRECIATION> 87412
<TOTAL-ASSETS> 205559
<CURRENT-LIABILITIES> 63181
<BONDS> 5647<F1>
0
0
<COMMON> 1153
<OTHER-SE> 114180<F2>
<TOTAL-LIABILITY-AND-EQUITY> 205559
<SALES> 0
<TOTAL-REVENUES> 263214
<CGS> 0
<TOTAL-COSTS> 160923
<OTHER-EXPENSES> 74771<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3185
<INCOME-PRETAX> 24335
<INCOME-TAX> 9826
<INCOME-CONTINUING> 14509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14509
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<FN>
<F1>CONSISTS OF NOTES PAYABLE, CREDIT LINE AND BONDS PAYABLE
<F2>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS AND FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
<F3>CONSISTS OF RESEARCH AND DEVELOPMENT AND SELLING, GENERAL ADMINISTRATIVE
EXPENSES
</FN>
</TABLE>
