<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[_]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 1-13433
EXCEL COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2720091
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8750 NORTH CENTRAL EXPRESSWAY, 75231
DALLAS, TEXAS SUITE 2000 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(214) 863-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [_] No [X]
As of November 11, 1997, the registrant had outstanding 132,469,165 shares
of $.001 par value common stock.
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<PAGE>
EXCEL COMMUNICATIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997....................................... 1
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1997 and 1996. 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996........................ 3
Notes to Consolidated Financial Statements............... 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9-14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings........................................ 15
Item 2. Changes in Securities and Use of Proceeds................ 15
Item 3. Defaults upon Senior Securities.......................... 15
Item 4. Submission of Matters to a Vote of Security Holders...... 15
Item 5. Other Information........................................ 16
Item 6. Exhibits and Reports on Form 8-K......................... 16
Signatures........................................................... 17
Exhibit Index........................................................ 18
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $168,621 $169,846
Accounts receivable, net.......................... 184,490 206,309
Inventories....................................... 9,084 16,263
Deferred income tax asset......................... 1,938 1,897
Other current assets.............................. 6,069 2,517
-------- --------
370,202 396,832
-------- --------
Property and equipment, net......................... 112,580 76,912
-------- --------
Deferred subscriber acquisition costs............... -- 104,765
-------- --------
Other assets........................................ 5,894 655
-------- --------
$488,676 $579,164
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $108,719 $132,770
Commissions payable............................... 19,301 22,484
Accrued liabilities............................... 35,197 32,112
Income taxes payable.............................. 4,126 --
Current maturities of long-term debt and capital
lease obligations................................ 62 239
-------- --------
167,405 187,605
-------- --------
Long-term debt and capital lease obligations........ 118 100
-------- --------
Deferred management services fees................... 1,111 25,279
-------- --------
Deferred income taxes payable....................... 4,624 43,899
-------- --------
Commitments and contingencies....................... -- --
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000
shares authorized,
none outstanding................................. -- --
Common stock, $0.001 par value, 500,000,000 shares
authorized, 109,717,365 and 108,800,000 issued;
106,964,693
and 108,800,000 outstanding...................... 110 109
Additional paid-in capital........................ 148,562 139,880
Treasury stock, 2,752,672 shares at cost.......... (55,716) --
Retained earnings................................. 222,462 182,292
-------- --------
Total stockholders' equity...................... 315,418 322,281
-------- --------
$488,676 $579,164
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Communication services................ $ 294,430 $ 299,623 $891,029 $776,823
Marketing services.................... 30,892 67,036 96,234 215,991
--------- --------- -------- --------
Total revenues...................... 325,322 366,659 987,263 992,814
--------- --------- -------- --------
Operating expenses:
Communication......................... 153,061 162,299 475,546 427,234
Marketing services.................... 68,522 101,894 190,723 272,653
General and administrative............ 52,533 42,312 158,764 122,736
--------- --------- -------- --------
Total operating expenses............ 274,116 306,505 825,033 822,623
--------- --------- -------- --------
Operating income.................... 51,206 60,154 162,230 170,191
--------- --------- -------- --------
Interest income, net.................. 2,099 2,068 6,314 3,754
Other income (expense)................ 43 2,106 (18) 6,516
--------- --------- -------- --------
Income before income taxes.............. 53,348 64,328 168,526 180,461
--------- --------- -------- --------
Provision for income taxes............ 20,059 23,401 63,142 67,128
--------- --------- -------- --------
Income before cumulative effect of
change in accounting principle......... 33,289 40,927 105,384 113,333
Cumulative effect of change in
accounting principle, net of income
taxes.................................. -- -- 65,214 --
--------- --------- -------- --------
Net income.............................. $ 33,289 $ 40,927 $ 40,170 $113,333
========= ========= ======== ========
Net income per common and equivalent
share:
Income before cumulative effect of
change in accounting principle......... $ 0.31 $ 0.37 $ 0.96 $ 1.07
Cumulative effect of change in
accounting principle, net of income
taxes.................................. -- -- (0.59) --
--------- --------- -------- --------
Net income per share.................... $ 0.31 $ 0.37 $ 0.37 $ 1.07
========= ========= ======== ========
Weighted average shares and share
equivalents outstanding................ 109,098 110,925 109,884 105,931
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income............................................... $ 40,170 $113,333
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of change in accounting principle.... 65,214 --
Depreciation and amortization.......................... 12,641 3,697
Employee stock plan compensation....................... -- 4,662
Loss on disposal of assets............................. 152 91
Deferred income taxes.................................. 235 22,667
Changes in assets and liabilities:
Accounts receivable, net............................. 21,819 (91,691)
Deferred subscriber acquisition costs................ -- (42,359)
Accounts payable..................................... (24,051) 48,573
Commissions payable.................................. (3,183) 15,232
Deferred management services fees.................... (24,168) 13,843
Accrued liabilities.................................. 3,085 17,280
Income taxes payable................................. 4,126 (4,974)
Inventories and other................................ (1,612) (3,108)
-------- --------
Net cash provided by operating activities.............. 94,428 97,246
-------- --------
Investing activities:
Proceeds from sale of assets............................. 20 28
Purchase of property and equipment....................... (48,481) (61,642)
-------- --------
Net cash used in investing activities.................. (48,461) (61,614)
-------- --------
Financing activities:
Payments of debt and capital lease obligations........... (159) (407)
Payments of dividends.................................... -- (20,000)
Net proceeds from issuance of common stock............... 8,683 133,870
Purchase of treasury stock............................... (55,716) --
-------- --------
Net cash provided by (used in) financing activities.... (47,192) 113,463
-------- --------
Net increase (decrease) in cash............................ (1,225) 149,095
Cash, beginning of period................................ 169,846 30,387
-------- --------
Cash, end of period...................................... $168,621 $179,482
======== ========
Supplemental disclosure:
Interest paid during the period.......................... $ 44 $ 248
Income taxes paid during the period...................... 42,838 53,035
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements include the accounts of EXCEL
Communications, Inc. and its wholly-owned subsidiaries (collectively referred
to as the "Company" or "EXCEL"). All significant intercompany accounts and
transactions have been eliminated. The results of operations for the three and
nine month periods ended September 30, 1997 do not include the financial
results of Telco Communications Group, Inc. ("Telco") prior to October 14,
1997, the effective date of the merger between EXCEL and Telco (the "Merger"),
and are not necessarily indicative of the results to be expected for the full
year (see Note 5--EXCEL and Telco Merger). Telco's financial results will be
included in EXCEL's reported financial statements commencing with the
effective date of the Merger.
These Consolidated Financial Statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These Consolidated Financial Statements should be read in
conjunction with the notes to the financial statements in the Company's Form
10-K for the fiscal year ended December 31, 1996 and the Company's Forms 10-Q
for the quarterly periods ended June 30, 1997 and March 31, 1997.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
1. MARKETING ACTIVITIES
Marketing services revenues are primarily comprised of receipts for
materials and services rendered by EXCEL to independent representatives
("IRs") and area coordinators ("ACs"). Except in certain states, IRs are
required to make an initial refundable application deposit with EXCEL as an
expression of commitment. There is no additional cost to participate. IRs have
an option to purchase a start-up package, which includes a training class and
training materials, business forms, promotional and presentation materials,
ongoing technical and administrative support services, and monthly reports. If
the start-up package is purchased, the application deposit requirement is
waived. In addition, EXCEL offers training positions whereby ACs, certified by
the Company, provide training to new IRs.
Marketing services costs are directly related to the Company's marketing
activities. Marketing services costs include commissions and the costs of
providing training, business forms, promotional and presentation materials,
technical and administrative support services, and monthly reports.
Commissions are paid to IRs based upon the acquisition of new long distance
and paging subscribers ("subscriber acquisition costs") and for long distance
telephone and paging usage by subscribers. The Company also pays commissions
for the training of IRs and certain ACs. Effective January 1, 1997, the
Company changed its method of accounting for subscriber acquisition costs.
Previously, the Company had deferred the portions of commissions paid to IRs
that directly relate to the acquisition of long distance and paging
subscribers. Beginning January 1, 1997, the Company began fully expensing
subscriber acquisition costs in the period incurred in order to present its
operating results in a manner more consistent with other telecommunications
companies against which its results are now compared. The Company recognized a
one-time charge of $65.2 million, net of income taxes, ($0.59 per share) in
the first quarter of 1997 to reflect the change in accounting principle. On a
pro forma basis, the Company's net income for the three and nine month periods
ended September 30, 1996 would have been $39.8 million ($0.36 per share) and
$87.0 million ($0.82 per share), respectively, if this accounting change had
been retroactively applied.
4
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares of
common stock outstanding. In 1996, the weighted average shares outstanding
excluded employee stock ownership plan shares that had not been released to
employees at the end of the period. The weighted average shares outstanding
include common share equivalents which represent the effect, using the
treasury stock method, of options granted under the Company's stock option
plan.
The Company will adopt Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128"), effective December 15, 1997. SFAS 128
requires the calculation of basic earnings per share which is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period and diluted earnings per common share which is
computed using the weighted average number of shares of common stock and
common stock equivalents. Pro forma basic net income per share, calculated in
accordance with SFAS 128, would have been $0.31 and $0.38 for the three months
ended September 30, 1997 and 1996 and $0.37 and $1.09 for the nine months
ended September 30, 1997 and 1996, respectively.
3. INCOME TAXES
The components of the provision for income taxes are as follows for the nine
months ended September 30, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Current income tax expense:
Federal.............................................. $ 56,603 $ 41,811
State................................................ 6,304 2,650
-------- --------
$ 62,907 $ 44,461
Deferred income tax expense:
Federal.............................................. $ 211 $ 21,329
State................................................ 24 1,338
-------- --------
$ 235 $ 22,667
Provision for income taxes........................... $ 63,142 $ 67,128
======== ========
</TABLE>
4. STOCKHOLDERS' EQUITY
In June 1997, the Company's Board of Directors approved a plan to repurchase
up to 10.0 million shares of its common stock in the open market or through
privately negotiated transactions. Repurchases under this plan totaled
2,752,672 shares at a cost of $55.7 million through September 30, 1997.
5. EXCEL AND TELCO MERGER
On October 14, 1997, New RES, Inc., a Delaware corporation and newly formed
holding company ("Holdings"), succeeded to the businesses of EXCEL and Telco,
as a result of mergers of wholly-owned subsidiaries with and into EXCEL and
Telco, pursuant to the Agreement and Plan of Merger dated as of June 5, 1997.
At the closing of the Merger on October 14, 1997: (i) EXCEL and Telco became
wholly-owned subsidiaries of Holdings; (ii) each outstanding share of EXCEL
common stock converted into the right to receive one share of common stock of
Holdings; (iii) each outstanding share of Telco common stock converted into
the right to receive 0.7595 shares of common stock of Holdings and $15.00 in
cash; (iv) except for certain options, each then outstanding and unexercised
option to acquire one share of Telco common stock was assumed by
5
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Holdings and converted into an option to acquire 1.5190 shares of Holdings
common stock, and the exercise price per share with respect to each such
assumed option was adjusted to equal the exercise price under the original
option divided by 1.5190; (v) each then outstanding and unexercised option to
acquire one share of EXCEL common stock was assumed by Holdings and converted
into an option to acquire one share of Holdings common stock, and the exercise
price per share was unchanged; (vi) the name of EXCEL was changed to Excelcom,
Inc.; and (vii) the name of Holdings was changed to EXCEL Communications, Inc.
Consideration for the Merger consisted of $666.2 million in cash (including
$164.5 million of Telco debt assumed and paid by EXCEL) and 30.3 million
shares of common stock, $.001 par value, of the Company ("Company Common
Stock") (including shares of Company Common Stock reserved for issuance upon
the exercise of stock options of Telco assumed by the Company). Goodwill of
approximately $900 million related to the Merger will be amortized using the
straight-line method over 40 years.
On October 10, 1997, Holdings entered into a new credit facility for
borrowings up to $1 billion (the "New Credit Facility"). Borrowings under the
New Credit Facility are available for general corporate purposes including
acquisitions and are subject to various financial covenants. The interest rate
on the New Credit Facility is based on Holdings' prevailing debt ratio and
ranges on a Eurodollar (LIBOR) option from a spread of 0.625% to 1.75%, and on
a Base (Prime) Rate option from a spread of 0% to 0.50%. Total borrowing
availability under the New Credit Facility reduces to $800 million on
September 30, 2000, and to $500 million on September 30, 2001, and the New
Credit Facility expires on September 30, 2002.
On October 14, 1997, Holdings made an initial borrowing of approximately
$544 million under the New Credit Facility to fund the cash purchase price of
the Merger and related costs and expenses and to refinance existing
indebtedness of Telco. The initial LIBOR spread and Prime spread were 1.0% and
0%, respectively.
The merger of Telco into Holdings has been accounted for under the
"purchase" method of accounting, with EXCEL as the acquirer in accordance with
generally accepted accounting principles, and the merger of EXCEL into
Holdings has been accounted for as a reorganization. The periods covered by
this report on Form 10-Q ended before the closing of the Merger. Accordingly,
this report contains statements of operations and balance sheets of EXCEL and
its subsidiaries prior to the closing of the Merger. All references in the
Consolidated Financial Statements, the Notes to the Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations to EXCEL Communications, Inc., Excelcom, Inc. and the
Company refer to EXCEL prior to the Merger unless otherwise noted. Telco
financial results will be included in EXCEL's reported financial statements
commencing with the effective date of the Merger.
The following unaudited financial information represents the Company's
results of operations on a pro forma basis as if the Merger had occurred on
January 1, 1997 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Total revenues........................................ $1,409,237
==========
Net income before cumulative effect of change in
accounting principle................................. $ 88,088
==========
Net income............................................ $ 22,874
==========
Net income per share before cumulative effect of
change in accounting principle....................... $ 0.64
==========
Net income per share.................................. $ 0.17
==========
</TABLE>
6
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These pro forma amounts represent the historical operating results of EXCEL
and Telco combined with appropriate adjustments which give effect to
incremental goodwill amortization and interest expense incurred in connection
with the Merger. These pro forma amounts do not give effect to any potential
cost savings or synergies that could result from the Merger and exclude
certain nonrecurring Merger related transaction costs. The pro forma data are
not intended to be indicative of actual results had the Merger occurred on
January 1, 1997, nor do they indicate results which may be achieved in the
future.
6. COMMITMENTS AND CONTINGENCIES
EXCEL and Telco are parties from time to time to litigation in the ordinary
course of business including employment related litigation. Based upon
information presently available, management believes the final disposition of
these items will not have a material adverse effect on the results of
operations or financial position of EXCEL and Telco (the "Combined Company" or
"Holdings").
EXCEL and Telco have entered into employment and consulting agreements with
certain members of management. The agreements provide for the employees to
receive amounts not less than specified base annual salaries through the terms
of the agreements, which have terms of one to five years. Certain of the
contracts also include non-competition covenants and options to purchase
shares of Holdings' common stock.
EXCEL Litigation, Claims and Assessments
As disclosed in the Company's prior reports on Forms 10-Q and 10-K, on May
3, 1996, Linden Wood, Brad Campbell, Candy Campbell, Jerry Szeszulski, and
Team Excel of Independent Representatives (the "Wood Parties") filed suit in
state court in Tulsa County, Oklahoma, jointly and severally against EXCEL,
its indirect subsidiary, EXCEL Telecommunications, Inc. ("ETI"), Stephen R.
Smith, a director and Executive Vice President of Marketing of the Company,
and Kenny A. Troutt, a director, Chief Executive Officer, and Chairman of the
Board of the Company. The proceeding was subsequently moved before the
American Arbitration Association in Dallas, Texas. The Wood Parties asserted
several claims, including but not limited to defamation, unfair competition
and trade practices, interference with contractual relations, fraud, breach of
a special relationship, and intentional infliction of emotional distress; and
sought actual damages of $31.5 million and punitive damages in excess of $500
million as well as pre- and post-judgment interest, attorneys' fees and costs,
and such other relief as the court deems just and appropriate. On October 24,
1997, the Company entered into a settlement agreement with the Wood Parties
pursuant to which the Company agreed to pay $1.7 million to the Wood Parties
as a negotiated severance package in exchange for a full and complete release
of Mr. Troutt, Mr. Smith, the Company, and the Company's affiliates,
subsidiaries, directors, officers, and employees from any and all claims.
On August 30, 1996, AT&T filed suit in the United States District Court for
the District of Delaware against the Company, its subsidiary, Excel
Communications Marketing, Inc., and ETI alleging past and continued
infringement of a single patent without specifying the amount of damages. The
Company denies the allegations and will vigorously defend the litigation. The
Company does not believe that it infringes any valid claim of the patent.
While this litigation is still in the discovery stage and the outcome is
uncertain, based upon the information available to the Company, the Company
does not believe that these claims will have a material adverse effect on the
Company's results of operations or financial position; however, should an
unfavorable outcome result in this matter, it could have a material adverse
effect upon the Company's results of operations or financial position. The
trial is scheduled to begin March 23, 1998.
7
<PAGE>
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Telco Litigation, Claims and Assessments
In December 1996, Telco and its subsidiary, Long Distance Wholesale Club
("LDWC"), became involved in a civil action, AT&T Corp. v. Telco
Communications Group, Inc. and Long Distance Wholesale Club, pending in the
United States District Court for the District of New Jersey. In this
litigation, AT&T claims that certain LDWC advertisements stating that
consumers can save up to 50% off AT&T's basic rates are false and misleading
under federal and state law. AT&T seeks treble damages, statutory attorneys'
fees and costs, and an injunction. Telco denies the allegations in this
litigation and is vigorously defending against them, including that all
disclosures are contained clearly in LDWC's advertisements and that it is
possible for consumers in the United States to place calls that will achieve
up to a 50% savings. Further, Telco filed a separate complaint against AT&T
(which has now been consolidated with this litigation) and also asserted
additional counterclaims against AT&T based on AT&T's advertising which Telco
believes contains a variety of misleading and deceptive statements. If AT&T
prevails, Telco could be found liable for damages and an injunction might be
issued against future use of specific LDWC advertisements, both of which could
have a material adverse impact upon the Combined Company's results of
operations or financial position.
Legislative and Regulatory Matters
On February 8, 1996, the 1996 Telecommunications Act was enacted into law.
This comprehensive federal legislation will affect every sector of the
telecommunications industry. Included in the new statutory provisions is the
opening up of local telephone markets to competition from facilities-based and
resale carriers and, subject to certain safeguards, the elimination of
restrictions on Bell Operating Companies ("BOC") and GTE Operating Companies
("GTOC") entrance into the long distance telecommunications market. The FCC
adopted rules to govern the introduction of these new forms of competition in
its August 8, 1996 Interconnection Orders, significant aspects of which,
including provisions governing the pricing of resold local service, were
overturned by the U.S. Eighth Circuit Court of Appeals. It is unknown at this
time whether this Eighth Circuit decision will be appealed or what impact the
1996 Telecommunications Act or the Interconnection Orders will have on the
Company. Depending on the nature and timing of BOC and GTOC entry into the
long distance market, the Company will face significant additional competition
in the provision of long distance services. However, the 1996
Telecommunications Act opens the local telephone market to competition, which,
depending on the nature of such opening, the Company believes may provide
opportunities to compete in the provision of local services. The Company is
currently seeking certification to provide resold local exchange services in
several states. As of September 30, 1997, the Company is authorized to provide
resold local exchange services in 31 states.
The Pennsylvania Public Utility Commission ("PPUC") and the utility
regulatory bodies in all other states approved the Company's Reorganization
that occurred on January 1, 1996. However, the review by the Pennsylvania
Attorney General's ("PAG") Office of the Company's marketing practices, which
originally had delayed the approval of the Reorganization by the PPUC, is
continuing. In addition to the continuing review by the PAG Office, similar
discussions and reviews relating to the Company's marketing practices are
ongoing in various other states. Various governmental agencies monitor direct
selling activities, and the Company has occasionally been requested to supply
information regarding its marketing plan to certain of such agencies. Although
the Company believes that its network marketing system is in substantial
compliance with laws and regulations of Pennsylvania and other states relating
to direct selling activities, there is no assurance that legislation and
regulations adopted in particular jurisdictions in the future will not
adversely affect the Company's operations.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
Statements in this report concerning future results, performance,
achievements, expectations or trends, if any, are forward-looking statements.
Actual results, performance, achievements, events or trends could differ
materially from those expressed or implied by such forward-looking statements
as a result of known and unknown risks, uncertainties and other factors
including those described below and those identified by Holdings in its
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission in September 1997 as amended.
GENERAL
EXCEL, which was formed in December 1988 and commenced operations in 1989,
operates as a provider of long distance service to residential and small
business subscribers. In October 1996, the Company began offering nationwide
paging services to its subscribers.
In May 1996, a total of 11,500,000 shares of the Company's common stock were
sold in an initial public offering ("IPO") at $15 per share. Stockholders sold
1,700,000 shares, and 9,800,000 shares were sold by the Company which resulted
in net proceeds of approximately $133.9 million to the Company after deducting
the expenses of the IPO.
The Company currently has agreements with Frontier Communications Services,
Inc. ("Frontier"), IXC Long Distance, Inc. ("IXC Long Distance"), MCI
Telecommunications Corp. ("MCI"), and WorldCom Network Services, Inc.
("WorldCom") to provide switching services and network transmission of its
long distance subscribers' traffic. The agreements with IXC Long Distance,
MCI, and WorldCom each contain minimum usage commitments, while the agreement
with Frontier provides that Frontier is to be the exclusive carrier for
certain calling card calls and personal 800 service.
The Company's revenues consist of revenues for communication services and
marketing services. Revenues for communication services, as reflected in the
Company's Consolidated Financial Statements, are net of the effect of certain
adjustments, including those for unbillable call records. The Company's long
distance subscribers are located throughout the United States, and the Company
completes subscriber calls to all directly dialable locations worldwide. The
Company bills its subscribers for long distance usage based on the type of
calls, time of calls, duration of calls, the terminating phone numbers, and
each subscriber's rate plan in effect at the time of the call.
Marketing services revenues are primarily comprised of receipts for
materials and services rendered by EXCEL to independent representatives
("IRs") and area coordinators ("ACs"). Except in certain states, IRs are
required to make an initial refundable application deposit with EXCEL as an
expression of commitment. There is no additional cost to participate. IRs have
an option to purchase a start-up package, which includes a training class and
training materials, business forms, promotional and presentation materials,
ongoing technical and administrative support services, and monthly reports. If
the start-up package is purchased, the application deposit requirement is
waived. In addition, EXCEL offers training positions whereby ACs, certified by
the Company, provide training to new IRs. The portions of the marketing
services revenues received that relate to ongoing technical and administrative
support services are deferred and amortized over the period in which the
services are used in order to match those revenues with the costs of providing
the related support services.
Operating expenses include communication charges, marketing services costs,
and general and administrative expenses. Communication charges are paid by the
Company based on the Company's subscribers' long distance and paging usage.
The Company pays its carriers based on the type of calls, time of certain
calls, duration of calls, the terminating phone numbers, and the terms of the
Company's contract in effect at the time of the calls.
9
<PAGE>
Marketing services costs are directly related to the Company's marketing
activities. Marketing services costs include commissions and the costs of
providing training, business forms, promotional and presentation materials,
technical and administrative support services, and monthly reports.
Commissions are paid to IRs based upon the acquisition of new long distance
and paging subscribers ("subscriber acquisition costs") and for long distance
telephone and paging usage by subscribers. The Company also pays commissions
for the training of IRs and certain ACs. Effective January 1, 1997, the
Company changed its method of accounting for subscriber acquisition costs.
Previously, the Company had deferred the portions of commissions paid to IRs
that directly relate to the acquisition of long distance and paging
subscribers. Beginning January 1, 1997, the Company began fully expensing
subscriber acquisition costs in the period incurred in order to present its
operating results in a manner more consistent with other telecommunications
companies against which its results are now compared.
General and administrative expenses consist of the costs of providing
teleservices and other support services for subscribers, billing and
collecting long distance and paging revenues, and the costs of the information
systems and personnel required to support the Company's operations.
On October 14, 1997, New RES, Inc., a Delaware corporation and newly formed
holding company ("Holdings"), succeeded to the businesses of EXCEL and Telco
Communications Group, Inc. ("Telco") pursuant to the Agreement and Plan of
Merger dated as of June 5, 1997 (the "Merger"). The Merger creates the fifth
largest long distance company in the United States based on the number of
presubscribed lines, with pro forma consolidated annualized revenues of
approximately $2 billion, 11 billion annual long distance minutes of usage,
6.0 million customers, and 100,000 network miles of DS-3 fiber optic capacity.
Telco is a facilities-based provider of domestic and international long
distance telecommunications services to both residential and commercial
customers in the United States. The majority of Telco's current revenue is
generated by customers accessing the Telco network by dialing a unique five
digit Carrier Identification Code ("CIC Code") before dialing the number they
are calling. Using a CIC Code to access Telco's network is known as "dial
around" or "casual calling" because customers can use Telco's services at any
time without changing their existing presubscribed long distance carrier.
Telco also sells presubscribed telecommunications services to wholesale and
commercial customers using a direct sales force. On April 15, 1997, Telco
acquired the voice network assets of Advantis, which includes approximately
100,000 network miles of DS-3 fiber optic capacity under a long term right-to-
use agreement.
Current and future issues affecting the Combined Company's operations for
1997 and beyond include the following:
Ability of the Company to Migrate Traffic to Telco's Network. The Company's
realization of operating cost savings from the Merger will be affected by the
Company's ability to direct traffic to Telco's facilities-based network from
EXCEL's existing third party carriers, which is expected to result in an
overall lower cost per minute. The Company's ability to migrate this traffic
will be limited by operational and network infrastructure limitations as well
as by the continuing commitment requirements under EXCEL's agreements with
third parties.
Regulatory Changes. The operations of the Combined Company will continue to
be affected by the ongoing events associated with the 1996 Telecommunications
Act. Such events include access charge reform which could change existing
transmission costs for both the Combined Company and other long distance
companies, the entry by the Regional Bell Operating Companies into the long
distance marketplace and the ability of long distance companies like the
Combined Company to begin marketing local telephone services.
In conjunction with upcoming local competition, incumbent local phone
companies are not likely to provide billing services for customers
presubscribed to competitive local phone companies. This would force the
Combined Company to either bill the customer directly, enter into a billing
and collection agreement with new local phone companies or seek other
alternatives.
10
<PAGE>
Additionally, the Federal Communications Commission has mandated that by
June 30, 1998, all telecommunications companies must migrate from their
existing five digit CIC codes (10 + XXX) to seven digit CIC codes
(10 + 10 + XXX). This will require a change in the dialing patterns of the
Telco Consumer Division customers in order to utilize Telco's services, and
the Combined Company intends to integrate re-education materials into its
future marketing activities.
Competitive Factors. The Combined Company has observed increased competition
in all of its distribution channels as well as an increase in the number of
promotional, discounted calling plans available to all long distance
consumers, particularly relating to residential customers. The impact to the
Combined Company has included (i) a decline in the Company's residential
revenue per minute as the Company has responded to competitive pressures with
lower priced products, and (ii) a sequential decline in Telco's dial around
revenues.
Integration of the Companies. The Merger involves the integration of two
companies that have previously operated independently and there can be no
assurance that the Company will not encounter significant difficulties in
integrating the respective operations of EXCEL and Telco or that the benefits
expected from such integration will be realized. These benefits include the
migration of EXCEL traffic from third parties to the Telco network, the
expansion of commercial products to be sold by the IRs with the assistance of
Telco's commercial sales force, reduced capital spending and reductions in
various general and administrative expenses.
Increased Customer Acquisition. The Company has recently observed an
increase in its acquisition of new customers through its network marketing
channel. In connection with the Company's IR marketing plan, an upfront
customer acquisition commission is typically paid before a customer has
generated material usage revenue. In a period of customer growth, commissions
paid for new customers can exceed the corresponding profit generated by the
additional revenue in the current period and thus reduce net income.
Expansion of the Commercial Sales Division. The Combined Company intends to
continue the growth in the size of the Telco commercial direct sales force in
order to increase the Combined Company's ability to generate commercial sales.
The costs associated with this expansion are likely to continue to reduce
future net income.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
Revenues. Total revenues decreased 11.3% to $325.3 million for the three
months ended September 30, 1997 from $366.7 million for the three months ended
September 30, 1996. Communication services revenues decreased 1.7% to $294.4
million for the three months ended September 30, 1997 from $299.6 million for
the three months ended September 30, 1996 primarily due to a decrease in
communication services revenue per minute of usage. Long distance minutes of
usage increased 1% to 1,694.6 million minutes for the three months ended
September 30, 1997 from 1,680.0 million minutes for the three months ended
September 30, 1996. However, communication services revenues per minute of
usage decreased by 3.4% to 17.2 cents per minute for the three months ended
September 30, 1997 from 17.8 cents per minute for the three months ended
September 30, 1996. This decrease in revenue per minute of usage is due
primarily to an increase in the number of subscribers to the Company's Dime
Deal SM product introduced in the second quarter of 1997, which has a lower
revenue per minute yield to the Company than its other existing comparable
long distance products.
Marketing services revenues decreased 53.9% to $30.9 million for the three
months ended September 30, 1997 from $67.0 million for the three months ended
September 30, 1996. These revenues decreased primarily due to a decrease in
applications from new IRs and a corresponding decrease in IRs' usage of
marketing services and sales aids. However, despite the year over year
decrease, applications from new IRs have continued to grow sequentially
quarter over quarter during 1997 and have increased 69% from the first quarter
of 1997.
Operating Expenses. Communication charges decreased 5.7% to $153.1 million
for the three months ended September 30, 1997 from $162.3 million for the
three months ended September 30, 1996. Communication
11
<PAGE>
charges were 8.9 cents per minute for the three months ended September 30,
1997 compared to 9.7 cents per minute for the three months ended September 30,
1996. As a percentage of communication services revenues, communication
charges were 52.0% for the three months ended September 30, 1997 compared to
54.2% for the three months ended September 30, 1996. This decrease in
communication charges as a percentage of communication services revenues
primarily relates to the reduction in per minute rates from the Company's long
distance carriers resulting from migrating long distance traffic from Frontier
to WorldCom, MCI and IXC Long Distance.
Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports, decreased 32.8% to
$68.5 million for the three months ended September 30, 1997 from $101.9
million for the three months ended September 30, 1996. Effective January 1,
1997, the Company changed its method of accounting for subscriber acquisition
costs which are included in marketing services costs in the Consolidated
Financial Statements. Previously, the Company had deferred the portions of
commissions paid to IRs that directly relate to the acquisition of long
distance and paging subscribers. Beginning January 1, 1997, the Company began
fully expensing subscriber acquisition costs in the period incurred in order
to present its operating results in a manner more consistent with other
telecommunications companies against which its results are now compared. On a
pro forma basis, marketing services costs would have been $103.7 million for
the three month period ended September 30, 1996 if this accounting change had
been retroactively applied. The 34.0% decrease in marketing services costs, on
a pro forma basis, is primarily due to a decrease in new customer orders
caused by a decline in the number of new IRs.
General and administrative expenses increased 24.1% to $52.5 million for the
three months ended September 30, 1997 from $42.3 million for the three months
ended September 30, 1996. A portion of this increase was attributable to
incremental labor spending on new product development and data processing
enhancements. In addition, depreciation expense increased primarily due to
capital spending related to enhancements to the Company's information systems.
As a percentage of communication services revenues, general and administrative
expenses were 17.8% for the three months ended September 30, 1997 compared to
14.1% for the three months ended September 30, 1996.
Total operating income decreased 15.0% to $51.2 million for the three months
ended September 30, 1997 from $60.2 million for the three months ended
September 30, 1996. On a pro forma basis, excluding the deferral of subscriber
acquisition costs, operating income was $58.4 million for the three month
period ended September 30, 1996. As a percentage of communication services
revenues, operating income (adjusted to exclude the deferral of subscriber
acquisition costs in 1996) was 17.4% and 19.5% for the three months ended
September 30, 1997 and 1996, respectively.
Included in other income (expense) for the three months ended September 30,
1996 is approximately $2.1 million of income related to the sale of the
Company's 49% investment in a joint venture. The Company's net interest income
for the three months ended September 30, 1997 remained relatively consistent
with prior year period results.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
Revenues. Total revenues decreased 1% to $987.3 million for the nine months
ended September 30, 1997 from $992.8 million for the nine months ended
September 30, 1996. Communication services revenues increased 14.7% to $891.0
million for the nine months ended September 30, 1997 from $776.8 million for
the nine months ended September 30, 1996 due to an increase in long distance
minutes. Long distance minutes of usage increased 12.0% to 4,997.9 million
minutes for the nine months ended September 30, 1997 from 4,461.7 million
minutes for the nine months ended September 30, 1996 due to an increase in
customers. Communication services revenues per minute of usage increased by
1.7% to 17.7 cents per minute for the nine months ended September 30, 1997
from 17.4 cents per minute for the nine months ended September 30, 1996
primarily due to changes in product mix and various rate changes.
12
<PAGE>
Marketing services revenues decreased 55.5% to $96.2 million for the nine
months ended September 30, 1997 from $216.0 million for the nine months ended
September 30, 1996. These revenues decreased primarily due to a decrease in
applications from new IRs and a corresponding decrease in the IRs' usage of
marketing services and sales aids.
Operating Expenses. Communication charges increased 11.3% to $475.5 million
for the nine months ended September 30, 1997 from $427.2 million for the nine
months ended September 30, 1996. Communication charges were 9.4 cents per
minute for the nine months ended September 30, 1997 compared to 9.6 cents per
minute for the nine months ended September 30, 1996. As a percentage of
communication services revenues, communication charges were 53.4% for the nine
months ended September 30, 1997 compared to 55.0% for the nine months ended
September 30, 1996. This decrease in communication charges as a percentage of
communication services revenues primarily relates to the reduction in per
minute rates from the Company's long distance carriers resulting from
migrating long distance traffic from Frontier to WorldCom, MCI and IXC Long
Distance.
Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports, decreased 30.1% to
$190.7 million for the nine months ended September 30, 1997 from $272.7
million for the nine months ended September 30, 1996. Effective January 1,
1997, the Company changed its method of accounting for subscriber acquisition
costs which are included in marketing services costs in the Consolidated
Financial Statements. Previously, the Company had deferred the portions of
commissions paid to IRs that directly relate to the acquisition of long
distance and paging subscribers. Beginning January 1, 1997, the Company began
fully expensing subscriber acquisition costs in the period incurred in order
to present its operating results in a manner more consistent with other
telecommunications companies against which its results are now compared. On a
pro forma basis, marketing services costs would have been $315.0 million for
the nine month period ended September 30, 1996 if this accounting change had
been retroactively applied. The 39.5% decrease in marketing services costs, on
a pro forma basis, is primarily due to a decrease in new customer orders
caused by a decline in the number of new IRs.
General and administrative expenses increased 29.4% to $158.8 million for
the nine months ended September 30, 1997 from $122.7 million for the nine
months ended September 30, 1996. As a percentage of communication services
revenues, general and administrative expenses were 17.8% for the nine months
ended September 30, 1997 compared to 15.8% for the nine months ended September
30, 1996 primarily due to incremental labor spending on new product
development and data processing enhancements. In addition, depreciation
expense increased primarily due to capital spending related to enhancements to
the Company's information systems.
Total operating income decreased 4.7% to $162.2 million for the nine months
ended September 30, 1997 from $170.2 million for the nine months ended
September 30, 1996. On a pro forma basis, excluding the deferral of subscriber
acquisition costs, operating income was $127.8 million for the nine month
period ending September 30, 1996. As a percentage of communication services
revenues, operating income (adjusted to exclude the deferral of subscriber
acquisition costs in 1996) was 18.2% and 16.5% for the nine months ended
September 30, 1997 and 1996, respectively.
Included in other income (expense) for the nine months ended September 30,
1996 is approximately $6.2 million of income related to the sale of the
Company's 49% investment in a joint venture. In addition, the Company's net
interest income increased to $6.3 million for the nine months ended September
30, 1997 from $3.8 million for the nine months ended September 30, 1996. The
increase in net interest income was primarily due to additional interest
income generated by the investment of cash received from operations and the
net proceeds received from the sale of the Company's common stock in the IPO
in May 1996 offset by cash used to fund the repurchase of the Company's common
stock.
13
<PAGE>
Included in the Company's net income of $40.2 million for the nine month
period ended September 30, 1997 is a one-time charge of $65.2 million, net of
income taxes, ($0.59 per share) in the first quarter to reflect the change in
accounting for subscriber acquisition costs. The Company had net income of
$113.3 million for the nine month period ended September 30, 1996. On a pro
forma basis, the Company's net income for the nine month period ended
September 30, 1996 would have been $87.0 million ($0.82 per share) if this
accounting change had been retroactively applied.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash and cash equivalents of
$168.6 million and working capital of $202.8 million. The Company's operating
activities provided cash of approximately $94.4 million for the nine months
ended September 30, 1997 and $97.2 million for the nine months ended September
30, 1996.
The Company's investing activities consisted primarily of property and
equipment purchases of $48.5 million for the nine months ended September 30,
1997 and $61.6 million for the nine months ended September 30, 1996. The
decrease in investing activities is primarily due to a decrease in capital
spending.
Total cash used for financing activities was $47.2 million for the nine
months ended September 30, 1997, which consisted primarily of the purchase of
approximately 2.8 million shares of the Company's common stock partially
offset by net proceeds received from the issuance of additional common stock
due to the exercise of stock options. For the nine months ended September 30,
1996, the Company's cash provided by financing activities was $113.5 million,
consisting primarily of proceeds received from the Company's initial public
offering of its common stock in May 1996. Other financing activities consisted
of payments of debt and capital lease obligations. In addition, the Company
paid dividends of approximately $20.0 million during the nine months ended
September 30, 1996.
On October 10, 1997, Holdings entered into a new credit facility for
borrowings up to $1 billion (the "New Credit Facility"). Borrowings under the
New Credit Facility are available for general corporate purposes including
acquisitions and are subject to various financial covenants. The interest rate
on the New Credit Facility is based on Holdings' prevailing debt ratio and
ranges on a Eurodollar (LIBOR) option from a spread of 0.625% to 1.75%, and on
a Base (Prime) Rate option from a spread of 0% to 0.50%. Total borrowing
availability under the New Credit Facility reduces to $800 million on
September 30, 2000, and to $500 million on September 30, 2001, and the New
Credit Facility expires on September 30, 2002.
On October 14, 1997, approximately $135.2 million of the Company's cash and
cash equivalents was used to fund a portion of the Telco merger and related
costs. Also, on October 14, 1997, Holdings made an initial borrowing of
approximately $544 million under the New Credit Facility to fund the cash
purchase price of the Merger and related costs and expenses and to refinance
existing indebtedness of Telco. The initial LIBOR spread and Prime spread were
1.0% and 0%, respectively.
The Company believes that its existing sources of liquidity and anticipated
funds from operations will be sufficient to fund its capital expenditures,
working capital, and other cash requirements through the end of 1997.
LITIGATION, CLAIMS AND ASSESSMENTS
Information pertaining to EXCEL and Telco's litigation is included in Note 6
to the Company's Consolidated Financial Statements.
LEGISLATIVE AND REGULATORY MATTERS
Information pertaining to legislative and regulatory matters is included in
Note 6 to the Company's Consolidated Financial Statements.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to this item is incorporated from Part I. Financial
Information (Item 1. Financial Statements-- Note 6 to Consolidated Financial
Statements--Commitments and Contingencies--Litigation, Claims, and
Assessments).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of Stockholders on October 11, 1997 in
connection with the business combination with Telco. Holders of common stock
voted at the special meeting on the following four matters which were set
forth in the Company's Proxy Statement dated September 15, 1997.
(a) To approve the Merger Agreement and the transactions contemplated
thereby.
<TABLE>
<CAPTION>
VOTES:
------
<S> <C>
For:.......................................................... 97,934,860
Against:...................................................... 31,019
Abstain:...................................................... 54,289
Broker non-votes*:............................................ 1,208,663
(b) To approve the Holdings 1997 Stock Option Plan.
<CAPTION>
VOTES:
------
<S> <C>
For:.......................................................... 94,006,322
Against:...................................................... 3,886,219
Abstain:...................................................... 127,627
Broker non-votes*:............................................ 1,208,663
(c) To approve the Holdings 1997 Director Stock Option Plan.
<CAPTION>
VOTES:
------
<S> <C>
For:.......................................................... 98,117,856
Against:...................................................... 300,008
Abstain:...................................................... 170,512
Broker non-votes*:............................................ 640,455
(d) To authorize proxies to vote upon any other business that may properly
come before the meeting or any adjournment thereof.
<CAPTION>
VOTES:
------
<S> <C>
For:.......................................................... 98,540,160
Against:...................................................... 366,314
Abstain:...................................................... 322,357
Broker non-votes*:............................................ None
</TABLE>
- --------
* Broker non-votes occur when a broker holding stock in street name does not
vote these shares.
15
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits filed as part of this report are set forth in the
Index of Exhibits on page 18 of this report.
(b)Reports on Form 8-K:
1) Current report on Form 8-K dated October 14, 1997, regarding the
completion of the acquisition of Telco Communications Group, Inc.
2) Current report on Form 8-K dated October 24, 1997, regarding the
settlement of the Wood Litigation.
16
<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.
EXCEL Communications, Inc.
Date: November 13, 1997 /s/ John J. McLaine
___________________________________
John J. McLaine
President, Chief Operating Officer,
and Chief Financial Officer
(prior to October 15, 1997)
Date: November 13, 1997 /s/ Nicholas A. Merrick
_____________________________________
Nicholas A. Merrick
Executive Vice President and
Chief Financial Officer
(from October 15, 1997-present)
Date: November 13, 1997 /s/ Craig E. Holmes
_____________________________________
Craig E. Holmes
Vice President and
Chief Accounting Officer
17
<PAGE>
EXHIBIT INDEX
The following exhibits are included in this Quarterly Report on Form 10-Q:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
3.1 Certificate of Incorporation of Holdings dated May 30, 1997
(incorporated herein by reference to Exhibit 3.1 to Holdings'
Registration Statement on Form S-4 (File No. 333-35377)) as amended
October 9, 1997 and October 14, 1997.
3.2 Amended and Restated Bylaws of Holdings
4.1 Specimen Certificate for Common Stock of Holdings
11 Computation of Net Income per Share
27 Financial Data Schedule as of September 30, 1997
</TABLE>
18
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW RES, INC.
This Amended and Restated Certificate of Incorporation of New RES, Inc., a
corporation incorporated under the General Corporation Law of the State of
Delaware (the "Corporation") on May 30, 1997, has been duly adopted and
executed in accordance with the provisions of Sections 103, 242 and 245 of the
General Corporation Law of the State of Delaware. The undersigned, being an
authorized officer of the Corporation, hereby certifies that:
FIRST: The name of the Corporation is New RES, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of
Delaware 19801. The name of the registered agent of the Corporation in the
State of Delaware 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 the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 510,000,000 shares of capital stock, classified as
(i) 10,000,000 shares of preferred stock, par value $0.001 per share
("Preferred Stock"), and (ii) 500,000,000 shares of common stock, par value
$0.001 per share ("Common Stock").
1. Provisions Relating to Preferred Stock.
Shares of Preferred Stock may be issued from time to time in one or more
series, the shares of each series to
<PAGE>
have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in a resolution or resolutions providing for the issue of
such series adopted by the Board of Directors of the Corporation. The Board of
Directors of the Corporation is hereby expressly authorized to establish and
designate series of Preferred Stock, to fix the number of shares constituting
each series, and to fix the designations and the powers, rights, preferences,
and relative, participating, optional or other special rights and
qualifications, limitations and restrictions of the shares of each series and
the variations of the relative designations, powers, rights, preferences and
relative, participating, optional or other special rights and qualifications,
limitations and restrictions as between series, and to increase (but not above
the total number of authorized shares of such class) and to decrease (but not
below the number of shares thereof then outstanding) the number of shares
constituting each series.
2. Provisions Relating to Common Stock.
(a) Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
stockholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
(b) Subject to the prior rights and preferences, if any, applicable to
shares of Preferred Stock or any series thereof, the holders of shares of Common
Stock shall be entitled to receive such dividends (payable in cash, stock or
otherwise) as may be declared thereon by the Board of Directors at any time and
from time to time out of any funds of the Corporation legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of Preferred Stock
or any series thereof, the holders of shares of Common Stock shall be entitled
to receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
2
<PAGE>
of Common Stock held by them. A liquidation, dissolution or winding-up of the
Corporation, as such terms are used in this Paragraph (c), shall not be deemed
to be occasioned by or to include any consolidation or merger of the Corporation
with or into any other corporation or corporations or other entity or a sale,
lease, exchange or conveyance of all or a part of the assets of the Corporation.
FIFTH: In furtherance and not in limitation of the powers conferred by
law, subject to any limitations contained elsewhere in this Amended and Restated
Certificate of Incorporation, bylaws of the Corporation may be adopted, amended
or repealed by a majority of the Board of Directors of the Corporation, but any
bylaws adopted by the Board of Directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
SIXTH: (a) A director of the Corporation shall not be personally liable
either to the Corporation or to any stockholder for monetary damages for breach
of fiduciary duty as a director, except (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, or (ii) for acts or
omissions which are not in good faith or which involve intentional misconduct or
knowing violation of the law, or (iii) for any matter in respect of which such
director shall be liable under Section 174 of Title 8 of the General Corporation
Law of the State of Delaware or any amendment thereto or successor provision
thereto, or (iv) for any transaction from which the director shall have derived
an improper personal benefit. Neither amendment nor repeal of this paragraph
(a), nor the adoption of any provision of this Amended and Restated Certificate
of Incorporation inconsistent with this paragraph (a) shall eliminate or reduce
the effect of this paragraph (a) in respect of any matter occurring, or any
cause of action, suit or claim that, but for this paragraph (a), would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, by reason of the
3
<PAGE>
fact that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the full extent permitted by law, and the Corporation may
adopt bylaws or enter into agreements with any such person for the purpose of
providing for such indemnification.
(c) To the extent that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraph (b) of this Article, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Expenses incurred by an officer, director, employee or agent in
defending or testifying in a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified by the Corporation against such expense as authorized by this
Article, and the Corporation may adopt bylaws or enter into agreements with such
persons for the purpose of providing for such advances.
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on this 9th day of October, 1997.
New RES, Inc.
By: /s/ John J. McLaine
-----------------------------
Name: John J. McLaine
Title: Executive Vice
President and Secretary
4
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW RES, INC.
New RES, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), does hereby certify as follows:
1. The name of the Corporation is New RES, Inc. and the original
Certificate of Incorporation of the Corporation was filed with the office of the
Secretary of State of the State of Delaware on May 30, 1997.
2. This Certificate of Amendment to the Corporation's Amended and Restated
Certificate of Incorporation has been duly adopted and executed in accordance
with the provisions of Sections 103 and 242 of the General Corporation Law of
the State of Delaware (the "DGCL").
3. The text of paragraph First of the Corporation's Amended and Restated
Certificate of Incorporation is hereby amended and restated in its entirety to
read as follows:
FIRST: The name of the Corporation (hereinafter referred to as the
"Corporation") is
EXCEL Communications, Inc.
4. The holders of all of the shares of the common stock, par value $0.00l
per share, of the Corporation which are outstanding and entitled to vote on the
amendment set forth above have signed a Unanimous Written Consent pursuant to
Section 228 of the DGCL adopting such amendment.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by a duly authorized officer this 14th day of October,
1997.
NEW RES, INC.
By: /s/ JOHN J. MCLAINE
-------------------------------------
Name: John J. McLaine
Title: President and
Chief Operating Officer
2
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NEW RES, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meetings. The annual meeting of stockholders for the
---------------
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. Special Meetings. Special meetings of stockholders for the
----------------
transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by Chairman of the Board, Chief
Executive Officer or President of the Corporation, and shall be held at such
date and time, within or without the State of Delaware, as may be specified by
such order.
SECTION 3. Notice of Meetings. Written notice of all meetings of the
------------------
stockholders, stating the place, date and hour of the meeting and the place
within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is to be held.
SECTION 4. Stockholder Lists. The officer who has charge of the stock
-----------------
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and
<PAGE>
place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by this section or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 5. Quorum. Except as otherwise provided by law or the
------
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. Organization. Meetings of stockholders shall be presided over
------------
by the Chairman, if any, or if none or in the Chairman's absence the Vice-
Chairman, if any, or if none or in the Vice-Chairman's absence the President, if
any, or if none or in the President's absence a Vice-President, or, if none of
the foregoing is present, by a chairman to be chosen by the stockholders
entitled to vote who are present in person or by proxy at the meeting. The
Secretary of the Corporation, or in the Secretary's absence an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present, the presiding officer of the meeting
shall appoint any person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote. (a) At each meeting of
------------------------------
stockholders, every stockholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such stockholder or by such
stockholder's duly authorized attorney-in-fact and, unless the Certificate of
Incorporation provides otherwise,
2
<PAGE>
shall have one vote for each share of stock entitled to vote registered in the
name of such stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these Bylaws. At all elections of directors the
voting may but need not be by ballot and a plurality of the votes cast there
shall elect. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate of
Incorporation, be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of record of the issued and outstanding capital stock of
the Corporation having a majority of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and the writing or writings are filed with the permanent
records of the Corporation. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 8. Inspectors. The Board of Directors, in advance of any meeting,
----------
may, but need not, appoint one or more inspectors of election to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request
3
<PAGE>
of the person presiding at the meeting, the inspector or inspectors, if any,
shall make a report in writing of any challenge, question or matter determined
by such inspector or inspectors and execute a certificate of any fact found by
such inspector or inspectors.
SECTION 9. Stockholder Proposals. At any annual or special meeting of
---------------------
stockholders, only such business shall be conducted as shall have been properly
brought before a meeting. Business must be (i) specified in the notice of
meeting (or any supplement thereto), (ii) brought before the meeting by or at
the direction of the Board of Directors, or (iii) properly brought before an
annual meeting by a stockholder, and, if and only if the notice of a special
meeting provides for business to be brought before the special meeting by
stockholders, properly brought before the special meeting by a stockholder. For
business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days prior to the meeting; provided, however, that if less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Furthermore, stockholders are not permitted to nominate individuals to
serve as directors unless notice of such nomination is given to the Corporation
in accordance with Section 3 of Article II of these Bylaws. A stockholder's
notice to the Secretary shall set forth as to each matter what the stockholder
proposes to bring before the meeting (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any meeting of stockholders except in accordance with the
procedures set forth in this Section 9. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
4
<PAGE>
properly brought before the meeting and in accordance with the provisions of
this Section, and if he should so determine, he shall so declare that any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding anything in these Bylaws to the contrary, the Corporation shall
be under no obligation to submit for action any stockholder proposal at any
meeting of stockholders which proposal the Corporation would otherwise be
permitted to omit in accordance with Rule 14a-8 under the Securities Exchange
Act of 1934, as amended.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
--------------
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each director
-----------------------------------------
shall be at least 18 years of age. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
number of directors initially constituting the entire Board shall be two, or
such larger or lesser number (but not less than one) as may be fixed from time
to time by action of the stockholders or Board of Directors, one of whom shall
be selected by the Board of Directors to be its Chairman. The use of the phrase
"entire Board" herein refers to the total number of directors which the
Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders, and
directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
5
<PAGE>
SECTION 3. Nomination of Director Candidates.
---------------------------------
(a) Nominations for the election of directors may be made by (i) the Board
of Directors or a proxy committee appointed by the Board of Directors or (ii)
any stockholder entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of director generally
may nominate one or more persons for election as director at a meeting only if
timely notice of such stockholder's intent to make such nomination or
nominations has been given in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not fewer than 60 days prior
to the meeting; provided, however, that if less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Each such
notice shall set forth (i) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated, (ii) a
representation that the stockholder is a holder of record of shares of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice, (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors and (v) the consent of each
nominee to serve as a director of the Corporation if so elected.
(b) If a person is validly designated as a nominee in accordance with this
Section 3 and shall thereafter become unable or unwilling to stand for election
to the Board of Directors, the Board of Directors or the stockholder who
proposed such nominee, as the case may be, may designate a substitute nominee
upon delivery, not fewer than 20 days prior to the date of the meeting for the
6
<PAGE>
election of such nominee, of a written notice to the Secretary setting forth
such information regarding such substitute nominee as would have been required
to be delivered to the Secretary pursuant to this Section 3 had such substitute
nominee been initially proposed as a nominee. Such notice shall include a
signed consent to serve as a director of the Corporation, if elected, of each
such substitute nominee.
(c) If the chairman of the meeting for the election of directors
determines that a nomination of any candidate for election as a director at such
meeting was not made in accordance with the applicable provisions of this
Section 3, such nomination shall be void.
SECTION 4. Quorum and Manner of Voting. Except as otherwise provided by
---------------------------
law, a majority of the entire Board shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
from time to time to another time and place without notice. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 5. Places of Meetings. Meetings of the Board of Directors may be
------------------
held at any place within or without the State of Delaware, as may from time to
time be fixed by resolution of the Board of Directors, or as may be specified in
the notice of meeting.
SECTION 6. Annual Meeting. Following the annual meeting of stockholders,
--------------
the newly elected Board of Directors shall meet for the purpose of the election
of officers and the transaction of such other business as may properly come
before the meeting. Such meeting may be held without notice immediately after
the annual meeting of stockholders at the same place at which such stockholders'
meeting is held.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such times and places as the Board of Directors shall from time
to time by resolution determine.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
----------------
shall be held whenever called by the Chairman of the Board, President, or by a
majority of the directors then in office.
7
<PAGE>
SECTION 9. Notice of Meetings. A notice of the place, date and time and
------------------
the purpose or purposes of each meeting of the Board of Directors shall be given
to each director by mailing the same at least two days before the meeting, or by
telegraphing or telephoning the same or by delivering the same personally not
later than the day before the day of the meeting.
SECTION 10. Organization. At all meetings of the Board of Directors, the
------------
Chairman, if any, or if none or in the Chairman's absence or inability to act
the President, or in the President's absence or inability to act any
Vice-President who is a member of the Board of Directors, or in such Vice-
President's absence or inability to act a chairman chosen by the directors,
shall preside.
SECTION 11. Resignation. Any director may resign at any time upon written
-----------
notice to the Corporation and such resignation shall take effect upon receipt
thereof by the President unless otherwise specified in the resignation. Any or
all of the directors may be removed, with or without cause, by the holders of a
majority of the shares of stock outstanding and entitled to vote for the
election of directors.
SECTION 12. Vacancies. Unless otherwise provided in these Bylaws,
---------
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director, or at
a special meeting of the stockholders, by the holders of shares entitled to vote
for the election of directors.
SECTION 13. Action by Written Consent. Any action required or permitted
-------------------------
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all the directors consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors.
8
<PAGE>
ARTICLE III
Committees
----------
SECTION 1. Appointment. From time to time the Board of Directors by a
-----------
resolution adopted by a majority of the entire Board may appoint any committee
or committees for any purpose or purposes, to the extent lawful, which shall
have powers as shall be determined and specified by the Board of Directors in
the resolution of appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee shall
---------------------------------------
fix its own rules of procedure, and shall meet where and as provided by such
rules or by resolution of the Board of Directors. Except as otherwise provided
by law, the presence of a majority of the then appointed members of a committee
shall constitute a quorum for the transaction of business by that committee, and
in every case where a quorum is present the affirmative vote of a majority of
the members of the committee present shall be the act of the committee. Each
committee shall keep minutes of its proceedings, and actions taken by a
committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or permitted to
-------------------------
be taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if all the members of the committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the committee.
SECTION 4. Term; Termination. If any person shall cease to be a director
-----------------
of the Corporation, such person shall simultaneously therewith cease to be a
member of any committee appointed by the Board of Directors.
ARTICLE IV
Officers
--------
SECTION 1. Election and Qualifications. The Board of Directors shall
---------------------------
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more
Vice-Chairmen, Vice-Presidents (any one or more of whom may be given an
additional designation of rank or function), a Treasurer and such assistant
secretaries, such Assistant
9
<PAGE>
Treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these Bylaws and as may be assigned by the Board of Directors or the President.
SECTION 2. Term of Office and Remuneration. The term of office of all
-------------------------------
officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time upon
--------------------
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President, unless otherwise specified in the resignation.
Any officer shall be subject to removal, with or without cause, at any time by
vote of a majority of the entire Board.
SECTION 4. Chairman of the Board. The Chairman of the Board of Directors,
---------------------
if there be one, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may from time to time be assigned by
the Board of Directors.
SECTION 5. Chief Executive Officer. The Chief Executive Officer shall be
-----------------------
the chief executive officer of the Corporation, and shall have such duties as
customarily pertain to that office.
SECTION 6. President. The President shall have general management and
---------
supervision of the property, business and affairs of the Corporation and over
its other officers; may appoint and remove assistant officers and other agents
and employees; and may execute and deliver in the name of the Corporation powers
of attorney, contracts, bonds and other obligations and instruments.
SECTION 7. Vice-President. A Vice-President may execute and deliver in
--------------
the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
10
<PAGE>
such other authority as from time to time may be assigned by the Board of
Directors or the President.
SECTION 8. Treasurer. The Treasurer shall in general have all duties
---------
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 9. Secretary. The Secretary shall in general have all the duties
---------
incident to the office of Secretary and such other duties as may be assigned by
the Board of Directors or the President.
SECTION 10. Assistant Officers. Any assistant officer shall have such
------------------
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
-----------------
SECTION 1. Location. The books and records of the Corporation may be kept
--------
at such place or places within or outside the State of Delaware as the Board of
Directors or the respective officers in charge thereof may from time to time
determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the Bylaws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all other
-------------------------
corporate notices may be delivered personally or mailed to each stockholder at
the stockholder's address as it appears on the records of the Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of Record. (a)
-------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board of
11
<PAGE>
Directors and which record date shall not be more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board
of Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by this chapter, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date which record date shall be
not more than 60 days prior to such action. If no record date is
12
<PAGE>
fixed, the record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
-------------------------------
SECTION 1. Certificates; Signatures. The shares of the Corporation shall
------------------------
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
------------------
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
13
<PAGE>
SECTION 3. Fractional Shares. The Corporation may, but shall not be
-----------------
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates representing shares of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
--------------------------------------
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
Dividends
---------
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of
14
<PAGE>
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE VIII
Ratification
------------
Any transaction, questioned in any law suit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or stockholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified before or after
judgment, by the Board of Directors or by the stockholders, and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE IX
Corporate Seal
--------------
The corporate seal shall have inscribed thereon the name of the Corporation
and the year of its incorporation, and shall be in such form and contain such
other words and/or figures as the Board of Directors shall determine. The
corporate seal may be used by printing, engraving, lithographing, stamping or
otherwise making, placing or affixing, or causing to be printed, engraved,
lithographed, stamped or otherwise made, placed or affixed, upon any paper or
document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
15
<PAGE>
ARTICLE X
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall be the calendar year.
ARTICLE XI
Waiver of Notice
----------------
Whenever notice is required to be given by these Bylaws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
-------------------------------------
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as
------------------------
may be authorized by the Board of Directors, the primary financial officer or
any person designated by said primary financial officer, whether or not an
employee of the Corporation, may authorize such bank accounts to be opened or
maintained in the name and on behalf of the Corporations as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any person or
---------
persons, in the name and on behalf of the Corporation, to enter into or execute
and deliver any and all deeds, bonds, mortgages, contracts and other obligations
or instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman,
----------------------------------------------
the President or any other person designated by either of them shall have the
power and
16
<PAGE>
authority to execute and deliver proxies, powers of attorney and other
instruments on behalf of the Corporation in connection with the rights and
powers incident to the ownership of stock by the Corporation. The Chairman, the
President or any other person authorized by proxy or power of attorney executed
and delivered by either of them on behalf of the Corporation may attend and vote
at any meeting of stockholders of any company in which the Corporation may hold
stock, and may exercise on behalf of the Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, or
otherwise as specified in the proxy or power of attorney so authorizing any such
person. The Board of Directors, from time to time, may confer like powers upon
any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
-----------------
primary financial officer or other fiscal officer to cause to be prepared and
furnished to stockholders entitled thereto any special financial notice and/or
financial statement, as the case may be, which may be required by any provision
of law.
ARTICLE XIII
Amendments
----------
The Board of Directors shall have power to adopt, amend or repeal Bylaws.
Bylaws adopted by the Board of Directors may be repealed or changed, and new
Bylaws made, by the stockholders, and the stockholders may prescribe that any
Bylaw made by them shall not be altered, amended or repealed by the Board of
Directors.
17
<PAGE>
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $0.001
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]
THIS CERTIFICATE IS TRANSFERABLE CUSIP 30065K 10 4
IN BOSTON, MA SEE REVERSE FOR CERTAIN DEFINITIONS
OR NEW YORK, NY
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Excel Communications, Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
certificate properly notarized. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
In Witness Whereof, the Corporation has caused this certificate to be signed by
its duly authorized officers and a facsimile of its Seal to be hereunto affixed.
/s/ Kenny A. Troutt DATED
----------------
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT
AND REGISTRAR
/s/ Chris Dance BY /s/ Mary Penezic
--------------- -------------------------
EXECUTIVE VICE PRESIDENT AUTHORIZED SIGNATURE
SECRETARY AND GENERAL COUNSEL
<PAGE>
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE
CORPORATION OR TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT -______Custodian____
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN -as joint tenants with right _____________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________
| |
| |
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
------------------
X
-------------------------------
(SIGNATURE)
NOTICE
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRES--
POND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTER-
ATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER. X
-------------------------------
(SIGNATURE)
______________________________________________________
| THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE |
| GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS |
| AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH |
| MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE |
| MEDALLION PROGRAM). PURSUANT TO S.E.C. RULE 175Ad-15 |
|------------------------------------------------------|
| |
| SIGNATURE(S) GUARANTEED BY: |
| |
| |
| |
| |
| |
| |
|______________________________________________________|
<PAGE>
EXHIBIT 11
PRIMARY
(PAGE 1 OF 2)
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
PRIMARY
Net income.............................. $ 33,289 $ 40,927 $ 40,170 $ 113,333
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding............................ 107,245 108,800 108,145 104,186
Employee stock plan shares and shares of
common stock issuable upon the assumed
exercise of stock options.............. 1,853 2,125 1,739 1,745
--------- --------- -------- ---------
Adjusted shares of common stock and
common stock equivalents for
computation............................ 109,098 110,925 109,884 105,931
--------- --------- -------- ---------
Net income per share.................... $ 0.31 $ 0.37 $ 0.37 $ 1.07
========= ========= ======== =========
</TABLE>
<PAGE>
EXHIBIT 11
FULLY DILUTED
(PAGE 2 OF 2)
EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
ASSUMING FULL DILUTION
Net income.............................. $ 33,289 $ 40,927 $ 40,170 $ 113,333
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding............................ 107,245 108,800 108,145 104,186
Employee stock plan shares and shares of
common stock issuable upon the assumed
exercise of stock options.............. 1,883 2,270 1,883 2,000
--------- --------- -------- ---------
Adjusted shares of common stock and
common stock equivalents for
computation............................ 109,128 111,070 110,028 106,186
--------- --------- -------- ---------
Net income per share.................... $ 0.31 $ 0.37 $ 0.37 $ 1.07
========= ========= ======== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AS OF
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 168,621
<SECURITIES> 0
<RECEIVABLES> 190,728
<ALLOWANCES> 6,238
<INVENTORY> 9,084
<CURRENT-ASSETS> 370,202
<PP&E> 133,424
<DEPRECIATION> 20,844
<TOTAL-ASSETS> 488,676
<CURRENT-LIABILITIES> 167,405
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 315,308
<TOTAL-LIABILITY-AND-EQUITY> 488,676
<SALES> 0
<TOTAL-REVENUES> 987,263
<CGS> 0
<TOTAL-COSTS> 825,033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 168,526
<INCOME-TAX> 63,142
<INCOME-CONTINUING> 105,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (65,214)
<NET-INCOME> 40,170
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
